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Natural Grocers by Vitamin Cottage, Inc.$9.42($.14)(1.46%)

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 Natural Grocers by Vitamin Cottage Announces Second Quarter Fiscal 2019 Results; Raises Fiscal 2019 Diluted Earnings Per Share Outlook
   Thursday, May 02, 2019 4:10:00 PM ET

LAKEWOOD, Colo., May 2, 2019 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its second quarter of fiscal 2019 ended March 31, 2019, confirmed its outlook for fiscal 2019 daily average comparable store sales growth and raised its fiscal 2019 diluted earnings per share outlook.

Natural Grocers (PRNewsfoto/Natural Grocers by Vitamin Cott)

Highlights for Second Quarter Fiscal 2019 Compared to Second Quarter Fiscal 2018

  • Net sales increased 6.7% to $230.4 million;
  • Daily average comparable store sales increased 2.9%;
  • Operating income increased 8.4% to $6.1 million;
  • Net income increased 13.4% to $3.9 million with diluted earnings per share of $0.17;
  • EBITDA increased 2.7% to $13.4 million; and
  • Opened one new store and relocated one store in the second quarter, resulting in a 4.8% unit growth rate for the twelve-month period ended March 31, 2019.

"Our strong results for the second quarter were driven by continued positive trends in comparable store sales and consistent year-on-year gross margin performance," said Kemper Isely, Co-President. "As a result of our year-to-date performance, our outlook for fiscal 2019 daily average comparable store sales growth remains in line with expectations, and we are raising our fiscal 2019 diluted earnings per share outlook."

In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the second quarter of fiscal 2019 and 2018 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 — Second Quarter Fiscal 2019 Compared to Second Quarter Fiscal 2018

During the second quarter of fiscal 2019, net sales increased $14.5 million, or 6.7%, to $230.4 million compared to the same period in fiscal 2018, primarily driven by a $6.2 million increase in comparable store sales and a $9.1 million increase in new store sales, partially offset by a $0.7 million decrease in sales from one store that closed during the first quarter of fiscal 2019. Daily average comparable store sales increased 2.9% in the second quarter of fiscal 2019 compared to a 7.1% increase in the second quarter of fiscal 2018. The daily average comparable store sales increase during the second quarter of fiscal 2019 reflected a 3.5% increase in daily average transaction size partially offset by a 0.6% decrease in daily average transaction count. Severe winter weather across several of the Company's markets impacted performance during the second quarter of fiscal 2019 compared to the prior year period, including negatively affecting transaction count. Daily average mature store sales increased 1.8% in the second quarter of fiscal 2019 compared to a 4.3% increase in the second quarter of fiscal 2018. For fiscal 2019, mature stores include all stores open during or before fiscal 2014.

Gross profit during the second quarter of fiscal 2019 increased 6.7% over the same period in fiscal 2018 to $62.2 million. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 27.0% of sales for the second quarter of fiscal 2019, consistent with the second quarter of fiscal 2018. The gross margin reflected a decrease in occupancy costs as a percentage of sales, offset by a lower product margin attributable to a shift in sales mix to lower margin products.

Store expenses during the second quarter of fiscal 2019 increased $3.7 million, or 7.9%, to $50.2 million. Store expenses as a percentage of sales increased to 21.8% during the second quarter of fiscal 2019 compared to 21.5% in the second quarter of fiscal 2018. This increase was primarily driven by increases in marketing expenses and building services and maintenance expenses, including a $0.4 million increase in snow removal costs, partially offset by a decrease in depreciation and labor-related expenses, all as a percentage of sales.

Administrative expenses increased 5.6% to $5.8 million for the three months ended March 31, 2019 compared to the same period in 2018. Administrative expenses as a percentage of sales were consistent at 2.5% during the second quarters of fiscal 2019 and fiscal 2018.

Pre-opening and relocation expenses decreased $0.5 million to $0.2 million during the second quarter of fiscal 2019 compared to the comparable period in fiscal 2018. This decrease was due to the impact of the number and timing of new store openings and relocations. During the second quarter of fiscal 2019, the Company opened one new store and relocated one store compared to opening three new stores in the second quarter of fiscal 2018.

Operating income increased 8.4% to $6.1 million during the second quarter of fiscal 2019 compared to $5.6 million for the comparable period in fiscal 2018. Operating margin during the second quarter of fiscal 2019 increased to 2.7% compared to 2.6% in the same period in fiscal 2018.

Interest expense during the second quarter of fiscal 2019 increased $0.2 million compared to the comparable period in fiscal 2018, primarily due to an increase in the number of capital leases.

The Company's effective income tax rate for the second quarter of fiscal 2019 was approximately 20.3% compared to 24.8% for the second quarter of 2018. The decrease in the effective income tax rate is primarily due to the decrease in the federal corporate tax rate as a result of the Tax Reform Act.

Net income for the second quarter of fiscal 2019 was $3.9 million, or $0.17 of diluted earnings per share, compared to $3.4 million, or $0.15 of diluted earnings per share, for the second quarter of fiscal 2018.

EBITDA increased 2.7% to $13.4 million in the second quarter of fiscal 2019 compared to $13.1 million in the second quarter of fiscal 2018.

Operating Results — First Half Fiscal 2019 Compared to First Half Fiscal 2018

During the first half of fiscal 2019, net sales increased $33.6 million, or 8.0%, to $452.0 million compared to the same period in fiscal 2018, primarily driven by a $17.3 million increase in comparable store sales and a $17.4 million increase in new store sales, partially offset by a $1.2 million decrease in sales from one store that closed during the first quarter of 2019. Daily average comparable store sales increased 4.2% in the first half of fiscal 2019 compared to a 5.9% increase in the first half of fiscal 2018. The daily average comparable store sales increase during the first half of fiscal 2019 reflected a 3.3% increase in average transaction size and a 0.8% increase in daily average transaction count. Daily average mature store sales increased 2.7% in the first half of fiscal 2019 compared to a 3.0% increase in the first half of fiscal 2018. For fiscal 2019, mature stores include all stores open during or before fiscal 2014.

Gross profit during the first half of fiscal 2019 increased 8.9% over the same period in fiscal 2018 to $121.4 million. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 26.9% of sales for the first half of fiscal 2019 compared to 26.6% of sales for the first half of fiscal 2018. The increase in gross margin was primarily driven by improved product margin, attributable to more focused promotional pricing campaigns, and a decrease in occupancy costs as a percentage of sales, partially offset by a shift in sales mix to lower margin products.

Store expenses during the first half of fiscal 2019 increased $7.7 million, or 8.3%, to $99.3 million. Store expenses as a percentage of sales increased to 22.0% during the first half of fiscal 2019 compared to 21.9% in the first half of fiscal 2018. This increase was primarily driven by increases in building services and maintenance expenses and marketing expenses, partially offset by depreciation, labor-related and utilities expenses, all as a percentage of sales.

Administrative expenses during the first half of fiscal 2019 increased 3.4% to $11.1 million compared to the same period in 2018. Administrative expenses as a percentage of sales were 2.5% during the first half of fiscal 2019, compared to 2.6% in the same period in fiscal 2018.

Pre-opening and relocation expenses decreased $0.4 million to $0.8 million during the first half of fiscal 2019 compared to the comparable period in fiscal 2018. This decrease was due to the impact of the number and timing of new store openings and relocations. During the first half of fiscal 2019, the Company opened five new stores and relocated two stores compared to opening five new stores and relocating one store in the first half of fiscal 2018.

Operating income increased 29.6% to $10.2 million during the first half of fiscal 2019 compared to $7.8 million for the comparable period in fiscal 2018. Operating margin increased 40 basis points to 2.2% compared to 1.9% in the same period in fiscal 2018.

Interest expense during the first half of fiscal 2019 increased $0.3 million compared to the comparable period in fiscal 2018, primarily due to an increase in the number of capital leases.

Income tax expense increased $4.5 million during the first half of fiscal 2019 to $1.6 million compared to a tax benefit of $3.0 million in the first half of fiscal 2018. Income taxes for the six months ended March 31, 2018 reflected the favorable impact of a $4.3 million non-cash remeasurement of the Company's deferred income tax assets and liabilities as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Reform Act) in December 2017. The Company's effective income tax rate for the first half of fiscal 2019 was approximately 20.5% compared to 24.5% for the six months ended March 31, 2018. The decrease in the effective income tax rate is primarily due to the decrease in the federal corporate tax rate as a result of the Tax Reform Act.

Net income for the first half of fiscal 2019 was $6.1 million, or $0.27 of diluted earnings per share, compared to $8.6 million, or $0.38 of diluted earnings per share, for the first half of fiscal 2018. The decrease in net income compared to the prior year was driven by the impact of the $4.3 million non-cash remeasurement of the Company's deferred income tax assets and liabilities mentioned above as a result of the enactment of the Tax Reform Act. Excluding the favorable impact of the remeasurement of the Company's deferred tax assets and liabilities, net income for the six months ended March 31, 2018 was $4.3 million, or $0.19 diluted earnings per share.

EBITDA increased 9.1% to $24.7 million in the first half of fiscal 2019 compared to $22.7 million in the first half of fiscal 2018.

Balance Sheet and Cash Flow

As of March 31, 2019, the Company had $11.3 million in cash and cash equivalents and $38.8 million available for borrowing under its $50 million revolving credit facility. Credit facility usage was comprised of $10.2 million of direct borrowings and $1.0 million of letters of credit as of March 31, 2019.

During the first six months of fiscal 2019, the Company generated $22.6 million in cash from operations and invested $17.1 million in net capital expenditures, primarily for new stores and relocations.

Growth and Development

During the second quarter of fiscal 2019, the Company opened one new store and relocated one store, bringing the total store count as of March 31, 2019 to 152 stores in 19 states. The Company's one new store opening and one relocation during the second quarter of fiscal 2019 compared to opening three new stores in the second quarter of fiscal 2018, resulting in 4.8% and 7.4% unit growth rates for the twelve month periods ended March 31, 2019 and March 31, 2018, respectively.

Since April 1, 2019, the Company has relocated one store. In addition, the Company has signed leases for five new stores and acquired the land and building for one additional new store; these stores will be located in Colorado, Louisiana, North Dakota and Oregon and are planned to open during fiscal 2019 and beyond.

Fiscal 2019 Outlook

For fiscal 2019, the Company has updated its fiscal 2019 outlook, reflecting an increase in expected diluted earnings per share. The Company expects:












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 an 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, and free range eggs. 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 152 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, 2018 (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 .
































































































































 

















































































































































 















































































































































































EBITDA

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




































EBITDA increased 2.7% to $13.4 million in the three months ended March 31, 2019 compared to $13.1 million for the three months ended March 31, 2018. EBITDA increased 9.1% to $24.7 million in the six months ended March 31, 2019 compared to $22.7 million for the six months ended March 31, 2018. EBITDA as a percentage of sales was 5.8% and 6.0% in the three months ended March 31, 2019 and 2018, respectively. EBITDA as a percentage of sales was 5.5% and 5.4% in the six months ended March 31, 2019 and 2018, respectively. Stores with leases that are classified as capital and financing lease obligations, rather than being reflected as operating leases, increased EBITDA as a percentage of sales by approximately 60 and 55 basis points for the three months ended March 31, 2019 and 2018, respectively, and by approximately 60 and 55 basis points for the six months ended March 31, 2019 and 2018, respectively, due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that would have been included in pre-opening expenses prior to the stores' opening dates if these leases had been accounted for as operating leases.

Management believes 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 our Credit Facility.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes 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.

 

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SOURCE Natural Grocers by Vitamin Cottage, Inc.



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