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Natural Grocers Leverages Loyalty to Q3 Sales Gain

Retailer marks 9th straight quarter of positive comps
Photograph: Shutterstock

Citing a robust loyalty program, store brand expansion and improved operational efficiencies, Natural Grocers by Vitamin Cottage reported third-quarter results highlighted by a 2.4% increase in comparable store sales.

Net sales improved by 5.3% to $224.4 million for the period, which ended June 30, the Lakewood, Colo.-based natural foods retailer said.

“We have now posted nine consecutive quarters of comparable store sales growth, which is a reflection of our favorable positioning in the market and the continued growth of natural and organic foods, and nutritional supplements,” said Chairman and Co-President Kemper Isely.

Initiatives implemented over the past several years have further driven sales, Isely said, including the expansion and continued leveraging of its {N}power loyalty program. Membership increased to 950,000 members in the third quarter, up 45% over the third quarter of 2018. Natural Grocers expects to welcome its millionth member through a sweepstakes contest this summer.

“{N}power members now represent 65% of our total sales, and penetration continues to grow,” said Isley. “{N}power customers shop more frequently and generate a higher average basket size in the mid-$40 range compared to the total company average basket in the mid-$30 range.”

Natural Grocers reaches these customers through a cloud-based platform that manages rewards and coupons. A new email program launched in June generates personalized offers to {N}power members based on individual purchase history.

An expansion of the Natural Grocers brand has also spurred growth. With the goal of offering a premium store brand at affordable prices that is equal to or higher in quality than the branded offerings in each category, the retailer has expanded its grocery category over the past two years.

“Adoption of Natural Grocers brand products has been strong, with category penetration of 25% or higher in most of the initial categories launched,” said Isley. “We are encouraged by the response to date and look forward to Natural Grocers brand products that are in the pipeline for rollout in the coming year.”

Increased labor efficiencies in tandem with efforts to reduce shrink and a reduction in average inventory per store has proved beneficial on the operational side, Isley said. Moving forward, technology investments are also expected to drive operational efficiencies.

“As a result of our year-to-date performance and our expectations for the fourth quarter, we are increasing the midpoint of our expected diluted earnings per share guidance range,” Isley said.

Competitive Market Sparks Concern 

Some analysts who participated in a conference call discussing results with the company expressed competitive concerns over the longer term. 

“Our research suggests that the pressure on NGVC’s business is likely to increase over time, given the overlap of NGVC’s store base with Whole Foods, and the continued expansion of delivery through Prime Now (currently available in 89 metro areas, up from 66 earlier this year and from 24 about a year back),” wrote Mushkin in a research report.

“The environment remains competitive but relatively stable, both in terms of new competitor openings and relative pricing,” said Natural Grocers Chairman and Co-President Todd Dissinger during the call. “As you know, we regularly perform price studies across product lines to ensure we maintain our competitive, always affordable prices.”

While comps grew, gross-profit margin during the quarter decreased to 26% from 26.7% in the prior year, a dip Dissinger attributed to a shift in sales mix towards lower-margin product categories and an increase in occupancy cost as a percentage of sales.

EBITDA was $11 million in the third quarter of fiscal 2019, down 0.5% compared to $11.1 million in the third quarter of fiscal 2018.

Looking ahead to year-end earnings, Dissinger remains optimistic.

“During fiscal 2019, we expect to open seven new stores, resulting in unit growth of 4.7%; relocate five stores; achieve daily average comparable store sales growth of 2.7% to 3.3%; achieve net income margin of 0.95% to 1%; achieve diluted earnings per share between $0.39 and $0.41; and we expect capital expenditures for fiscal 2019 in the range of $27 million to $30 million,” he said.

 

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