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Natural Grocers by Vitamin Cottage Announces Fiscal 2016 Fourth Quarter and Full Year Results and Provides Fiscal 2017 Outlook

LAKEWOOD, Colo., Nov. 17, 2016 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its fourth quarter and fiscal year ended September 30, 2016 and provided its outlook for fiscal 2017.

Natural Grocers

Highlights for Fourth Quarter and Fiscal 2016 Compared to Fourth Quarter and Fiscal 2015

  • Net sales increased 11.5% to $181.0 million in the fourth quarter and increased 12.9% to $705.5 million in fiscal 2016.
  • Comparable store sales increased 0.3% in the fourth quarter and increased 1.7% in the fiscal year. Daily average comparable store sales increased 0.3% in the fourth quarter and increased 1.4% in fiscal 2016.
  • Net income was $1.5 million with diluted earnings per share of $0.07 in the fourth quarter and was $11.5 million with diluted earnings per share of $0.51 in fiscal 2016.
  • EBITDA was $10.1 million in the fourth quarter and was $45.9 million in fiscal 2016.
  • Opened 23 new stores in fiscal 2016, compared to 16 new stores in fiscal 2015, resulting in growth rates of 22.3% and 18.4%, respectively.

"We continued to execute our core strategies during the fourth quarter while navigating the evolving food retailing environment," said Kemper Isely, Co-President. "Our growth strategy resulted in the opening of 23 new stores, the relocation of four stores and the remodel of one store during fiscal 2016. As we enter fiscal 2017, we remain focused on our expanded sales initiatives and aggressively controlling costs, while leveraging our founding principles to ensure we are providing our customers a superior solution for healthy, natural and nutritious food shopping."

In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the fourth quarters and fiscal years 2016 and 2015 in conformity with U.S. generally accepted accounting principles (GAAP), the Company is presenting EBITDA, which is a non-GAAP financial measure. The reconciliation from GAAP to this non-GAAP financial measure is provided at the end of this earnings release. 

Operating Results — Fourth Quarter Fiscal 2016 Compared to Fourth Quarter Fiscal 2015

During the fourth quarter of fiscal 2016, net sales increased $18.6 million, or 11.5%, to $181.0 million compared to the same period in fiscal 2015, primarily due to an $18.1 million increase in new store revenue and a $0.5 million, or 0.3%, increase in comparable store sales.  The 0.3% increase in comparable store sales in the fourth quarter of fiscal 2016 followed a 6.2% increase in the fourth quarter of fiscal 2015 and was driven by a 1.0% increase in average transaction size period over period, partially offset by a 0.7% decrease in average customer count. Daily average mature store sales decreased 1.8% in the fourth quarter of fiscal 2016. For fiscal 2016, mature stores include all stores open during or before fiscal 2011.

Gross profit during the fourth quarter of fiscal 2016 increased 8.9% over the same period in fiscal 2015 to $50.9 million, primarily driven by an increase in the comparable store base. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.1% for the fourth quarter of fiscal 2016 compared to 28.8% for the fourth quarter of fiscal 2015. Gross margin was negatively impacted primarily by an increase in occupancy costs as a percentage of sales and to a lesser extent increased shrink expense, partially offset by product margin improvements. The increase in occupancy costs as a percentage of sales was primarily due to higher average lease expenses at newer and relocated stores and also reflects the decrease in mature store sales and the fixed nature of rent obligations and related occupancy expenses.

Store expenses during the fourth quarter of fiscal 2016 increased $6.3 million, or 17.9%, to $41.4 million. Store expenses as a percentage of sales increased approximately 130 basis points to 22.9% during the fourth quarter of fiscal 2016 compared to 21.6% in the fourth quarter of fiscal 2015. This increase was primarily due to increases, as a percentage of sales, in salary-related expenses, depreciation and other store expenses.

Administrative expenses decreased $0.1 million, or 1.5%, to $4.7 million during the fourth quarter of fiscal 2016 compared to $4.8 million during the fourth quarter of 2015.  Administrative expenses as a percentage of sales decreased approximately 40 basis points to 2.6% in the fourth quarter of fiscal 2016 compared to 3.0% in the fourth quarter of fiscal 2015, primarily due to a decrease in salary-related expenses and various professional fees.

Pre-opening and relocation expenses increased $0.3 million to $1.6 million during the fourth quarter of fiscal 2016 compared to $1.3 million during the comparable period in fiscal 2015, due to the number and timing of new store openings. During the fourth quarter of fiscal 2016, the Company opened eight new stores and relocated one store compared to opening four new stores, relocating one store and remodeling one store during the fourth quarter of fiscal 2015.

Interest expense during the fourth quarter of fiscal 2016 increased to $0.9 million compared to $0.8 million during the fourth quarter of fiscal 2015 primarily due to an increase in borrowings under the company's revolving credit facility.

The Company's effective income tax rate for the three months ended September 30, 2016 and 2015 was 37.1% and 39.7%, respectively.  The decrease in the effective income tax rate was driven by a revision in the Company's estimated annual federal tax rate from 35% to 34% and an increase in additional tax credits.

Net income in the fourth quarter of fiscal 2016 was $1.5 million, with diluted earnings per share of $0.07. EBITDA in the fourth quarter of fiscal 2016 was $10.1 million.

Operating Results —Fiscal 2016 Compared to Fiscal 2015

In fiscal 2016, net sales increased $80.8 million, or 12.9%, to $705.5 million compared to fiscal 2015 due to a $70.5 million increase in sales from new stores and a $10.3 million, or 1.7%, increase in comparable store sales. Daily average comparable store sales increased 1.4% during fiscal 2016, which followed a 5.9% increase in fiscal 2015. The 1.4% increase in fiscal 2016 was driven by a 1.1% increase in average transaction size and a 0.2% increase in daily average transaction count. Daily average mature store sales decreased 1.0% in fiscal 2016.

Gross profit in fiscal 2016 increased 10.8% over fiscal 2015 to $201.8 million, primarily driven by an increase in the number of comparable stores, comparable store sales growth and one additional selling day due to the leap year. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.6% in fiscal 2016, compared to 29.2% in fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales. The increase in occupancy costs as a percentage of sales was primarily due to higher average lease expenses at newer and relocated stores and also reflects the decrease in mature store sales and the fixed nature of rent obligations and related occupancy expenses. Additionally, product margin improved across certain categories, partially offset by increased shrink expense, all as a percentage of sales.

Store expenses increased $24.0 million, or 18.2%, to $156.2 million in fiscal 2016 from $132.1 million in fiscal 2015. Store expenses as a percentage of sales increased approximately 90 basis points to 22.1% in fiscal 2016 compared to 21.2% in fiscal 2015. The increase in store expenses as a percentage of sales was primarily due to increases in salary-related expenses, depreciation and other store expenses.

Administrative expenses increased $1.7 million, or 9.9%, to $19.2 million in fiscal 2016 compared to $17.5 million in fiscal 2015. The increase was primarily due to the addition of senior management positions to support growth, together with increased legal and public company costs. Administrative expenses as a percentage of sales were 2.7% and 2.8% for fiscal years 2016 and 2015, respectively.

Pre-opening and relocation expenses increased $2.2 million to $6.0 million in fiscal 2016 compared to $3.8 million in fiscal 2015. The increase was primarily due to the number and timing of new store openings and relocations. During fiscal 2016, the Company opened 23 new stores, relocated four stores and remodeled one store compared to opening 16 new stores, relocating one store and remodeling one store during fiscal 2015.

Interest expense increased less than $0.1 million, or 1.7%, in fiscal 2016 compared to fiscal 2015, primarily due to an increase in interest expense associated with the Company's revolving credit facility due to higher average borrowings, partially offset by an increase in capitalized interest during fiscal 2016.

The Company's effective income tax rate for fiscal years 2016 and 2015 was 33.8% and 36.8%, respectively.  The decrease in the effective income tax rate was primarily due to a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in the Company's fiscal 2015 tax return that were higher than previously estimated in the 2015 fiscal year tax provision.

Net income for fiscal 2016 was $11.5 million, with diluted earnings per share of $0.51. EBITDA for fiscal 2016 was $45.9 million.

Balance Sheet and Cash Flow

As of September 30, 2016, the Company had $4.0 million in cash and cash equivalents and $16.6 million available under its $45 million revolving credit facility.  Credit facility usage was comprised of $27.4 million of direct borrowings and $1.0 million of letters of credit.

During fiscal 2016, the Company generated $28.8 million in cash from operations and invested $53.8 million in capital expenditures, primarily for new and relocated stores. Additionally, during fiscal 2016, the Company utilized $0.8 million for the repurchase of 67,970 common shares under the Company's two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company's common stock.

Growth and Development

During the fourth quarter of fiscal 2016, the Company opened eight new stores, bringing the total store count as of September 30, 2016 to 126 stores located in 19 states. The Company opened 23 new stores in fiscal 2016 compared to 16 new stores in fiscal 2015, resulting in 22.3% and 18.4% unit growth rate for the fiscal years 2016 and 2015, respectively. Additionally, the Company relocated four stores and completed the remodel of another store during fiscal 2016. The Company now plans to open a total of 15 to 20 new stores during fiscal 2017 (compared to an initial expectation of 19 to 23 store openings), which would result in an annual unit growth rate of 12% to 16%.

Since October 1, 2016, the Company has opened one additional store in Missouri and has signed leases for 19 stores planned to open in fiscal 2017 and 2018, all in states where the Company currently operates.

Fiscal 2017 Outlook

For fiscal 2017, the Company expects:



Fiscal
2017 Outlook




Number of new stores


15 to 20




Number of relocations


3




Number of remodels


0




Daily average comparable store sales growth


-1.0% to 1.0%




Net income as a percent of sales


       1.4% to 1.6%




Diluted earnings per share


  $0.50 to $0.58




EBITDA as a percentage of sales


6.4% to 6.8%




Capital expenditures (in millions)


     $40 to $48




 

The Company does not provide financial guidance for forecasted net income, and, therefore, is unable to provide a reconciliation of its EBITDA guidance to net income, the most comparable financial measure calculated in accordance with GAAP.

Earnings Conference Call

The Company will host a conference call today at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) to discuss this earnings release. The dial-in number is 1-888-347-6606 (US); 1-855-669-9657 (Canada); or 1-412-902-4289 (International). The conference ID is "Natural Grocers by Vitamin Cottage." A simultaneous audio webcast will be available at http://Investors.NaturalGrocers.com and archived for a minimum of 30 days.

About Natural Grocers by Vitamin Cottage

Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) is a rapidly expanding specialty retailer of natural and organic groceries and dietary supplements whose products must meet strict quality guidelines. The grocery products sold by Natural Grocers may not contain artificial colors, flavors, preservatives or sweeteners, or partially hydrogenated or hydrogenated oils. The Company sells only USDA certified organic produce and exclusively pasture-raised, non-confinement dairy products. Natural Grocers' flexible smaller-store format allows it to offer affordable prices in a shopper-friendly retail environment. The Company also provides extensive free science-based nutrition education programs to help customers make informed health and nutrition choices. The Company, founded in 1955, has 127 stores in 19 states.

Visit www.NaturalGrocers.com for more information and store locations.

Forward-Looking Statements

The following constitutes a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, statements in this release are "forward-looking statements" and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements that are not statements of historical fact (including 2017 guidance) are forward-looking statements. Actual results could differ materially from those described in the forward-looking statements because of factors such as changes in the Company's industry, business strategy, goals and expectations concerning the Company's market position, the economy, future operations, margins, profitability, capital expenditures, liquidity and capital resources, other financial and operating information and other risks detailed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (Form 10-K) and the Company's subsequent quarterly reports on Form 10-Q. The information contained herein speaks only as of the date of this release and the Company undertakes no obligation to update forward-looking

For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Form 10-K and the Company's subsequent quarterly reports on Form 10-Q, copies of which may be obtained by contacting Investor Relations at 303-986-4600 or by visiting the Company's website at http://Investors.NaturalGrocers.com.

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC


Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share data)




Three months ended

September 30,


Year ended

September 30,




2016


2015


2016


2015


Net sales


$

181,044


162,397


705,499


624,678


Cost of goods sold and occupancy costs


130,100


115,607


503,727


442,582


Gross profit


50,944


46,790


201,772


182,096


Store expenses


41,390


35,113


156,158


132,131


Administrative expenses


4,739


4,809


19,242


17,514


Pre-opening and relocation expenses


1,594


1,297


5,993


3,822


Operating income


3,221


5,571


20,379


28,629


Interest expense


(890)


(776)


(3,044)


(2,993)


Income before income taxes


2,331


4,795


17,335


25,636


Provision for income taxes


(865)


(1,903)


(5,864)


(9,432)


Net income


$

1,466


2,892


11,471


16,204













Net income per share of common stock:











        Basic


$

0.07


0.13


0.51


0.72


        Diluted



0.07


0.13


0.51


0.72













Weighted average common shares outstanding:











        Basic



22,474,391


22,494,071


22,492,986


22,490,260


        Diluted



22,484,050


22,503,680


22,507,152


22,500,833
























 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.


Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)




September 30,




2016


2015


Assets






Current assets:






Cash and cash equivalents


$

4,017


2,915


Accounts receivable, net


3,747


2,576


Merchandise inventory


86,330


74,818


Prepaid expenses and other current assets


3,233


1,108


Deferred income tax assets



866


Total current assets


97,327


82,283


Property and equipment, net


178,297


145,219


Other assets:






Deposits and other assets


971


778


Goodwill and other intangible assets, net


5,601


5,623


Deferred financing costs, net


50


21


Total other assets


6,622


6,422


Total assets


$

282,246


233,924


Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable


$

53,615


49,896


Accrued expenses


12,448


19,649


Capital and financing lease obligations, current portion


478


333


Total current liabilities


66,541


69,878


Long-term liabilities:






Capital and financing lease obligations, net of current portion


31,429


27,274


Revolving credit facility


27,428



Deferred income tax liabilities


12,178


6,073


Deferred compensation


757


314


Deferred rent


8,809


6,922


Leasehold incentives


8,379


7,975


Total long-term liabilities


88,980


48,558


Total liabilities


155,521


118,436


Stockholders' equity:






Common stock, $0.001 par value. 50,000,000 shares authorized, 22,510,279 and 22,496,628 shares issued, at 2016 and 2015, respectively and 22,452,609 and 22,496,628 outstanding, at 2016 and 2015, respectively


23


22


Additional paid-in capital


55,437


54,982


Retained earnings


71,955


60,484


Common stock in treasury at cost, 57,670 and no shares, at 2016 and 2015, respectively


(690)



Total stockholders' equity


126,725


115,488


Total liabilities and stockholders' equity


$

282,246


233,924


 

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)




Year ended September 30,



2016


2015


Operating activities:






Net income


$

11,471


16,204


Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization


25,533


21,337


(Gain) loss on disposal of property and equipment


(3)


56


Share-based compensation


879


573


Deferred income tax expense


6,971


630


Non-cash interest expense


13


15


Changes in operating assets and liabilities






(Increase) decrease in:






Accounts receivable, net


(1,171)


(430)


Income tax receivable


(1,776)



Merchandise inventory


(11,512)


(15,711)


Prepaid expenses and other assets


(542)


(533)


Increase (decrease) in:






Accounts payable


3,314


12,891


Accrued expenses


(7,345)


3,848


Deferred compensation


443


314


Deferred rent and leasehold incentives


2,552


1,809


Net cash provided by operating activities


28,827


41,003


Investing activities:






Acquisition of property and equipment


(53,759)


(36,750)


Proceeds from sale of property and equipment


19


13


Payment for acquisition



(5,601)


Net cash used in investing activities


(53,740)


(42,338)


Financing activities:






Borrowings under credit facility


234,604


202,878


Repayments under credit facility


(207,176)


(202,878)


Repurchases of Common Stock


(829)



Capital and financing lease obligations payments


(423)


(247)


Contingent consideration payments for acquisition



(514)


Payments on withholding tax for restricted stock unit vesting


(119)


(102)


Loan fees paid


(42)



Net cash provided by (used in) financing activities


26,015


(863)


Net increase (decrease) in cash and cash equivalents


1,102


(2,198)


Cash and cash equivalents, beginning of year


2,915


5,113


Cash and cash equivalents, end of year


$

4,017


2,915


Supplemental disclosures of cash flow information:






Cash paid for interest


$

331


63


Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $538, $309 and $364, respectively


2,637


2,809


Income taxes paid


6,370


8,194


Supplemental disclosures of non-cash investing and financing activities:






Acquisition of property and equipment not yet paid


$

6,837


6,429


Property acquired through capital and financing lease obligations


4,438


5,772


Direct bank to bank payment for a change in credit facility provider


18,858



NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Non-GAAP Financial Measure
(Unaudited)

EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization.

EBITDA decreased 10.9% to $10.1 million in the three months ended September 30, 2016 compared to $11.4 million for the three months ended September 30, 2015.  EBITDA decreased 8.1% to $45.9 million in the year ended September 30, 2016 compared to $50.0 million in the year ended September 30, 2015.  EBITDA as a percent of sales was 5.6% and 7.0% in the three months ended September 30, 2016 and 2015, respectively.  EBITDA as a percentage of sales was 6.5% and 8.0% for the years ended September 30, 2016 and 2015, respectively. 

We believe EBITDA provides additional information about: (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies.  Additionally, EBITDA is a component of a measure in our financial covenants under the Credit Facility and our incentive compensation plans base incentive compensation payments on EBITDA.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that some investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. By providing this non-GAAP financial measure, together with a reconciliation from net income, we believe we are enhancing analysts' and investors' understanding of our business and our results of operations, as well as assisting analysts and investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent, and should not be considered as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as indicators of our financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:

  • EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
  • EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • EBITDA does not reflect any impact for straight-line rent expense for leases classified as capital and financing lease obligations; 
  • EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
  • EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as supplemental information.

The following table reconciles net income to EBITDA for the periods presented, dollars in thousands:



Three months ended
S
eptember 30,


Year ended

September 30,




2016


2015


2016


2015


Net income


$

1,466


2,892


11,471


16,204


Interest expense


890


776


3,044


2,993


Provision for income taxes


865


1,903


5,864


9,432


Depreciation and amortization


6,916


5,805


25,533


21,337


EBITDA


$

10,137


11,376


45,912


49,966


Logo - http://photos.prnewswire.com/prnh/20160628/384355LOGO

 

SOURCE Natural Grocers by Vitamin Cottage, Inc.

For further information: Investor: Scott Van Winkle, ICR, Managing Director, 617-956-6736, scott.vanwinkle@icrinc.com

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