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Natural Grocers by Vitamin Cottage Announces Fiscal 2017 Fourth Quarter and Full Year Results and Provides Fiscal 2018 Outlook

LAKEWOOD, Colo., Nov. 16, 2017 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its fourth quarter and fiscal year ended September 30, 2017 and provided its outlook for fiscal 2018.

Natural Grocers (PRNewsfoto/Natural Grocers by Vitamin Cott)

Highlights for Fourth Quarter and Fiscal 2017 Compared to Fourth Quarter and Fiscal 2016

  • Net sales increased 9.7% to $198.5 million in the fourth quarter and increased 9.0% to $769.0 million in fiscal 2017;
  • Daily average comparable store sales increased 2.1% in the fourth quarter and increased 0.1% in fiscal 2017;
  • Net income was $1.2 million with diluted earnings per share of $0.06 in the fourth quarter and was $6.9 million with diluted earnings per share of $0.31 in fiscal 2017;
  • EBITDA was $10.3 million in the fourth quarter and was $43.6 million in fiscal 2017; and
  • Opened 14 new stores in fiscal 2017 compared to 23 new stores in fiscal 2016, resulting in growth rates of 11.1% and 22.3% for the twelve month periods ended September 30, 2017 and 2016, respectively.

"We continued to see improving sales trends during the fourth quarter, with daily average comparable store sales increasing 2.1%," said Kemper Isely, Co-President.  "During the fourth quarter, we also saw continued improvement in mature store comparable store sales trends, which we believe reflects the effectiveness of our marketing and targeted promotional strategies.  It has been an eventful year across the food retailing landscape and we plan to continue adapting to the dynamic competitive environment in our sector.  We slowed new store development during fiscal 2017; we plan to further reduce our new store growth during fiscal 2018 to allow us to focus on improving operating efficiencies and profitability across our existing store base. We will also continue our efforts to communicate our superior product standards, affordable prices and commitment to nutritional education, which we believe drive our unique positioning in this evolving marketplace."

In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the fourth quarter and fiscal year 2017 and 2016 in conformity with U.S. generally accepted accounting principles (GAAP), the Company is also 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 2017 Compared to Fourth Quarter Fiscal 2016

During the fourth quarter of fiscal 2017, net sales increased $17.5 million, or 9.7%, to $198.5 million compared to the same period in fiscal 2016, primarily due to a $13.7 million increase in sales from new stores. Daily average comparable store sales increased 2.1% in the fourth quarter of fiscal 2017 compared to a 0.3% increase in the fourth quarter of fiscal 2016.  The daily average comparable store sales increase during the fourth quarter of fiscal 2017 was driven by a 1.2% increase in daily average transaction count and a 0.9% increase in average transaction size. Daily average mature store sales decreased 0.2% in the fourth quarter of fiscal 2017 compared to a 1.8% decrease in the fourth quarter of fiscal 2016. For fiscal 2017, mature stores include all stores open during or before fiscal 2012.

Gross profit during the fourth quarter of fiscal 2017 increased 4.5% over the same period in fiscal 2016 to $53.2 million, primarily driven by an increase in the number of comparable stores. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 26.8% of sales for the fourth quarter of fiscal 2017 compared to 28.1% of sales for the fourth quarter of fiscal 2016. The decline in gross margin was primarily driven by an increase in occupancy costs and lower product margin, both as a percentage of sales.

Store expenses during the fourth quarter of fiscal 2017 increased $3.7 million, or 8.9%, to $45.1 million. Store expenses as a percentage of sales decreased to 22.7% during the fourth quarter of fiscal 2017 compared to 22.9% in the fourth quarter of fiscal 2016. This decrease was primarily due to decreases in labor-related expenses driven by fewer non-comparable stores, other store expenses, utilities and marketing expenses, all as a percentage of sales.

Administrative expenses increased 8.5% to $5.1 million during the fourth quarter of fiscal 2017 compared to $4.7 million for the comparable period in fiscal 2016. Administrative expenses as a percentage of sales remained flat at 2.6% during the fourth quarter of fiscal 2017 compared to the comparable period in fiscal 2016.

Pre-opening and relocation expenses decreased $1.3 million during the fourth quarter of fiscal 2017 compared to the comparable period in fiscal 2016.  This decrease was due to the impact of the number and timing of new store openings and relocations. During the fourth quarter of fiscal 2017, the Company opened no new stores and relocated one store, compared to opening eight new stores and relocating one store during the fourth quarter of fiscal 2016.

Interest expense during the fourth quarter of fiscal 2017 increased $0.2 million compared to the comparable period in fiscal 2016 due to an increase in average borrowings under the Company's revolving credit facility and an increase in the number of the Company's capital leases.

The Company's effective income tax rate for the three months ended September 30, 2017 and 2016 was 26.6% and 37.1%, respectively.  The decrease in the effective income tax rate for the three months ended September 30, 2017 was primarily the result of lower pre-tax book income and an increase in federal tax credits which resulted in the federal benefits having a more significant effect than in the comparable September 30, 2016 period.

Net income for the three months ended September 30, 2017 was $1.2 million with diluted earnings per share of $0.06. EBITDA in the fourth quarter of fiscal 2017 was $10.3 million.

Operating Results — Fiscal Year 2017 Compared to Fiscal Year 2016

During fiscal 2017, net sales increased $63.5 million, or 9.0%, over the same period in fiscal 2016 to $769.0 million, primarily due to a $65.1 million increase in new store sales. Daily average comparable store sales increased 0.1% during fiscal 2017, which followed a 1.4% increase in fiscal 2016. The 0.1% increase in fiscal 2017 was driven by a 0.4% increase in average transaction size, partially offset by a 0.3% decrease in daily average transaction count. Daily average mature store sales decreased 1.6% in fiscal 2017 compared to a 1.0% decrease in fiscal 2016.

Gross profit during fiscal 2017 increased 5.2% over the same period in fiscal 2016 to $212.3 million, primarily driven by an increase in the number of comparable stores. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 27.6% of sales during fiscal 2017 compared to 28.6% of sales in fiscal 2016. The decline in gross margin during fiscal 2017 was primarily driven by an increase in occupancy costs and a slight decrease in product margin, both as a percentage of sales.

Store expenses increased 11.6%, or $18.2 million, to $174.4 million during fiscal 2017. Store expenses as a percentage of sales increased to 22.7% during fiscal 2017 compared to 22.1% in fiscal 2016. The increase was primarily driven by an increase in labor-related expenses, depreciation, utilities and other store expenses.

Administrative expenses increased 4.4% to $20.1 million during fiscal 2017 compared to $19.2 million in fiscal 2016.  The increase in administrative expenses was due to increased public company costs related to Sarbanes-Oxley compliance and increased technology and communication costs.  Administrative expenses as a percentage of sales decreased to 2.6% during fiscal 2017 compared to 2.7% in fiscal 2016.

Pre-opening and relocation expenses decreased $2.2 million, or 36.6%, during fiscal 2017 compared to fiscal 2016 due to the impact of the number and timing of new store openings and relocations. During fiscal 2017, the Company opened 14 new stores and relocated two stores compared to opening 23 new stores, relocating four stores and remodeling one store during fiscal 2016.

Interest expense increased $0.7 million, or 24.6%, in fiscal 2017 compared to fiscal 2016, primarily due to higher average borrowings under the Company's revolving credit facility and an increase in the number of the Company's capital leases.

The Company's effective tax rate for fiscal 2017 and 2016 was 33.1% and 33.9%, respectively.  The decrease in the effective income tax rate in fiscal 2017 was primarily due to an increase in federal tax credits and a decrease in pre-tax book income for the year ended September 30, 2017 compared to the year ended September 30, 2016.

Net income was $6.9 million with diluted earnings per share of $0.31 in fiscal 2017. EBITDA during fiscal 2017 was $43.6 million.

Balance Sheet and Cash Flow

As of September 30, 2017, the Company had $6.5 million in cash and cash equivalents and $20.6 million available for borrowing under its $50 million revolving credit facility. Credit facility usage was comprised of $28.4 million of direct borrowings and $1.0 million of letters of credit as of September 30, 2017.

During fiscal 2017, the Company generated $40.8 million in cash from operations and invested $38.5 million in net capital expenditures, primarily for new stores and relocations. During fiscal 2017, the Company received proceeds of $2.6 million, net of commissions, from a sale-leaseback transaction for a store building. In addition, during fiscal 2017 the Company utilized $0.3 million for the repurchase of 30,000 shares of its common stock 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 2017, the Company opened no new stores and relocated one store, bringing the total store count as of September 30, 2017 to 140 stores in 19 states. The Company opened 14 new stores and relocated two stores in fiscal 2017 compared to opening 23 new stores, relocating four stores and remodeling one store in fiscal 2016, resulting in a 11.1% and 22.3% unit growth rate, respectively, during those periods.

Since October 1, 2017, the company has relocated one store in Colorado and opened one new store in Utah.  The Company has eleven signed leases for stores that are planned to open in fiscal 2018 and beyond in Colorado, Iowa, Missouri, Oregon, and Texas.  

Fiscal 2018 Outlook

For fiscal 2018, the Company expects:



Fiscal
2018 Outlook


Number of new stores


8 to 10


Number of relocations


3 to 4


Daily average comparable store sales growth


0.5% to 2.5%


Net income as a percentage of sales


0.6% to 0.9%


Diluted earnings per share


$0.21 to $0.31






Capital expenditures (in millions)


$25 to $30


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 141 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 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, future growth 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, 2016 (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 statements, except as may be required by the securities laws.

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,




2017


2016


2017


2016


Net sales


$

198,541


181,044


769,030


705,499


Cost of goods sold and occupancy costs


145,297


130,100


556,694


503,727


Gross profit


53,244


50,944


212,336


201,772


Store expenses


45,079


41,390


174,350


156,158


Administrative expenses


5,142


4,739


20,089


19,242


Pre-opening and relocation expenses


284


1,594


3,799


5,993


Operating income


2,739


3,221


14,098


20,379


Interest expense


(1,055)


(890)


(3,793)


(3,044)


Income before income taxes


1,684


2,331


10,305


17,335


Provision for income taxes


(448)


(865)


(3,414)


(5,864)


Net income


$

1,236


1,466


6,891


11,471












Net income per common share:










Basic


$

0.06


0.07


0.31


0.51


Diluted


$

0.06


0.07


0.31


0.51


Weighted average number of shares of common stock outstanding:










Basic


22,441,779


22,474,391


22,453,409


22,492,986


Diluted


22,447,284


22,484,050


22,463,675


22,507,152


 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.


Consolidated Balance Sheets

(Dollars in thousands, except per share data)




September 30,




2017


2016


Assets






Current assets:






Cash and cash equivalents


$

6,521


4,017


Accounts receivable, net


4,860


3,747


Merchandise inventory


93,612


86,330


Prepaid expenses and other current assets


3,222


3,233


Total current assets


108,215


97,327


Property and equipment, net


184,417


178,297


Other assets:






Deposits and other assets


1,642


971


Goodwill and other intangible assets, net


5,655


5,601


Deferred financing costs, net


62


50


Total other assets


7,359


6,622


Total assets


$

299,991


282,246


Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable


$

56,849


53,615


Accrued expenses


14,164


12,448


Capital and financing lease obligations, current portion


548


478


Total current liabilities


71,561


66,541


Long-term liabilities:






Capital and financing lease obligations, net of current portion


32,880


31,429


Revolving credit facility


28,392


27,428


Deferred income tax liabilities, net


12,419


12,178


Deferred compensation


1,231


757


Deferred rent


10,465


8,809


Leasehold incentives


9,160


8,379


Total long-term liabilities


94,547


88,980


Total liabilities


166,108


155,521


Stockholders' equity:






Common stock, $0.001 par value. 50,000,000 shares authorized, 22,510,279 shares issued, at 2017 and 2016, and 22,448,056 and 22,452,609 outstanding, at 2017 and 2016, respectively


23


23


Additional paid-in capital


55,678


55,437


Retained earnings


78,846


71,955


Common stock in treasury at cost, 62,223 and 57,670 shares at 2017 and 2016, respectively


(664)


(690)


Total stockholders' equity


133,883


126,725


Total liabilities and stockholders' equity


$

299,991


282,246


 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.


Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)




      Year ended September 30,




2017


2016


Operating activities:






Net income


$

6,891


11,471


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






Depreciation and amortization


29,511


25,533


Gain on disposal of property and equipment


(21)


(3)


Share-based compensation


758


879


Deferred income tax expense


241


6,971


Non-cash interest expense


12


13


Changes in operating assets and liabilities






(Increase) decrease in:






Accounts receivable, net


(1,100)


(1,171)


Income tax receivable


732


(1,776)


Merchandise inventory


(7,282)


(11,512)


Prepaid expenses and other assets


(1,049)


(542)


Increase (decrease) in:






Accounts payable


7,224


3,314


Accrued expenses


1,521


(7,345)


Deferred compensation


474


443


Deferred rent and leasehold incentives


2,937


2,552


Net cash provided by operating activities


40,849


28,827


Investing activities:






Acquisition of property and equipment


(41,231)


(53,759)


Proceeds from sale of property and equipment


2,732


19


Net cash used in investing activities


(38,499)


(53,740)


Financing activities:






Borrowings under credit facility


291,765


234,604


Repayments under credit facility


(290,800)


(207,176)


Repurchases of common stock


(261)


(829)


Capital and financing lease obligations payments


(479)


(423)


Payments on withholding tax for restricted stock unit vesting


(71)


(119)


Loan fees paid



(42)


Net cash provided by financing activities


154


26,015


Net increase in cash and cash equivalents


2,504


1,102


Cash and cash equivalents, beginning of year


4,017


2,915


Cash and cash equivalents, end of year


$

6,521


4,017


Supplemental disclosures of cash flow information:






Cash paid for interest


$

739


331


Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $482 and $538, respectively


2,972


2,637


Income taxes paid


2,656


6,370


Supplemental disclosures of non-cash investing and financing activities:






Acquisition of property and equipment not yet paid


$

2,843


6,837


Proceeds from sale of property and equipment not yet received


13



Property acquired through capital and financing lease obligations


1,499


4,438


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, depreciation and amortization.  The following table reconciles net income to EBITDA, dollars in thousands:


Three months ended


Year ended


September 30,


September 30,


2017


2016


2017


2016

Net income

$

1,236



1,466



6,891



11,471

Interest expense


1,055



890



3,793



3,044

Provision for income taxes


448



865



3,414



5,864

Depreciation and amortization


7,554



6,916



29,511



25,533

EBITDA

$

10,293



10,137



43,609



45,912

EBITDA increased 1.5% to $10.3 million in the three months ended September 30, 2017 compared to $10.1 million in the three months ended September 30, 2016. EBITDA decreased 5.0% to $43.6 million in the year ended September 30, 2017 compared to $45.9 million in the year ended September 30, 2016.  EBITDA as a percentage of sales was 5.2% and 5.6% for the three months ended September 30, 2017 and 2016, respectively. EBITDA as a percentage of sales was 5.7% and 6.5% for the years ended September 30, 2017 and 2016, respectively.   

Management believes that some investors' understanding of our performance is enhanced by including EBITDA, a non-GAAP financial measure.  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. Further, 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 those 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 in isolation or as an alternative to, or substitute for, net income or other financial statement data presented in the consolidated financial statements as indicators of financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, 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.

 

SOURCE Natural Grocers by Vitamin Cottage, Inc.

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

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