Natural Grocers by Vitamin Cottage, Inc. Q2 FY2025 earnings call

• Second quarter results were exceptional with record sales and earnings. - Sales growth remained robust with daily average comparable store sales up 8.9% and transaction count comp up 5.9%. - Consumer trends show prioritization of health and wellness, and the company is well-positioned to capitalize. - Operational execution led to operating margin improvement of 150 basis points. - Empower Rewards program net sales penetration at 81% (up from 78% a year ago). - Natural Grocers brand products accounted for 8.6% of total sales (up from 8.5% a year ago), with 22 new items launched in Q2. - Opened new stores in Brownsville and Waco, Texas; plan to open 3-4 new stores and 2-4 relocations/remodels in fiscal 2025.

Net sales increased 9% from the prior year period to $335.8 million. Daily average comparable store sales increased 8.9% with a two-year basis acceleration to 16.4%. Daily average comparable transaction count comp increase was 5.9% (ninth consecutive quarter with positive traffic). Daily average comparable transaction size comp increased 2.8% (fifth consecutive quarter with increase in items per basket). Gross margin increased 100 basis points to 30.3%. Operating income increased 55.9% to $17.6 million. Operating margin increased 150 basis points. Net income increased 64.6% to $13.1 million. Diluted earnings per share increased 60% to $0.56. Adjusted EBITDA increased 33.3% to $26.3 million.

• Revised fiscal 2025 guidance: daily average comparable store sales growth between 6.5% and 7.5% (up from prior 5%-7%), diluted earnings per share between $1.78 and $1.86 (up from prior $1.57-$1.65), 3-4 new store openings, 2-4 store relocations/remodels, and capital expenditures of $36 million to $44 million.

• Broader macro environment poses uncertainties. - Tariff impacts and broader macro conditions are factors to monitor.

Q: What are you guys doing for the consumer in terms of perks promos?

A: We send individualized offers tailored to shopping habits, 1% rebate if clicking and loading offers, Npower members get best pricing on eggs and avocados, in-store specials are Npower driven.

Q: Have you seen your consumer's basket size going down given the economy?

A: No, our basket size has stayed very steady for the last several quarters.

Q: Do you plan to expand in any other market?

A: We are going into another state and will announce the location in the next couple of months.

Q: How were your in-stock levels, inventory, and distribution?

A: They're about back to where they were pre-pandemic, running about 97% in stock on everything.

Q: Do you guys offer pickup and delivery?

A: Yes, via Instacart, and it's been steady at about 2% of our sales for the last two years.

Q: Will you change from using Instacart to in-house delivery?

A: No, we'll be using third-party delivery programs as it wouldn't be profitable to take it in-house.

Q: Are you going to up your remodels next year or in the back half of the year?

A: We do remodels on an opportunistic basis; there are two in the queue right now and probably 2-4 more by the end of the year.

Q: Are you seeing your age demographic trend downwards?

A: We've picked up quite a few millennials as our authentic messaging resonates well with the younger demographic, helping with traffic growth.