Natural Grocers by Vitamin Cottage, Inc. Q4 FY2025 earnings call

• Pleased with fourth quarter performance as sales were in line with guidance and diluted earnings per share exceeded guidance. • Daily average comparable store sales increased 4.2% in Q4, with a 11.3% two-year basis increase. • Moderation in Q4 sales comps due to cycling of prior year strong comps, UNFI cybersecurity incident impact, and consumer retail spending shift. • Focus on operational execution, including refining promotions and store productivity initiatives, leading to a 90 basis points improvement in operating margin for Q4. • nPower Rewards program had 82% net sales penetration in Q4. • Natural Grocers branded products saw elevated growth, with house branded products accounting for 8.8% of total sales in Q4 2025. • Opened two new stores, relocated two stores, and remodeled one store in fiscal 2025; plan to open 6-8 new stores in fiscal 2026. • Increased quarterly cash dividend by 25% to $0.15 per common share.

Fourth quarter net sales were $336.1 million, a 4.2% increase from the prior year period. Daily average comparable store sales increased 4.2% in the fourth quarter, with a two-year basis increase of 11.3%. For fiscal year 2025, total revenue was $1.33 billion, a 7.2% increase. House branded products accounted for 8.8% of total sales in the fourth quarter of 2025, up from 8.4% in the prior year. Daily average comparable store sales growth for fiscal 2025 was 7.3%, with a 14.3% two-year basis increase.

• For fiscal year 2026, expect to open 6 to 8 new stores, relocate or remodel 2 to 3 existing stores. • Aim for daily average comparable store sales growth between 1.5% and 4%. • Expect diluted earnings per share between $2 and $2.15. • Plan to direct $50 million to $55 million towards capital expenditures to support growth initiatives.

• Moderation in fourth quarter sales comps due to cycling of prior year strong comps. • UNFI's June 2025 cybersecurity incident constrained UNFI's ability to fulfill orders and distribute products, impacting sales. • Uncertainty in the economic environment leading to consumer behavior shift toward more cautious retail spending. • Macro pressures affecting the broader retail landscape, which could impact sales and margins.

Q: Given the increased price sensitivity in the consumer environment and the company's 8.8% own brands penetration, is this a good time to get that number higher and to make customers more aware of the value in the Natural Grocers brands?

A: Yeah. I think that would be true. I mean, we definitely are marketing our own brand extensively right now, and we have some really compelling prices on items that we are promoting aggressively, and we do not have to discount those prices because they're already substantially better priced than our competitors.

Q: Do you have any particular goals for the penetration over the next couple of years, like maybe 10%?

A: Our goal is to increase the penetration by one full percentage point per year, so we're at 8.8%. So two years from now, we should be at 10.8% or even 11%.

Q: One of the things we hear from investors about is generally the space of natural organic being similar to what was seen last decade with traditional supermarkets catching up. What do you think about that thought process?

A: I think that that's been going on since 1978. And we've done a really good job of differentiating from those from the other supermarkets. And having an authentic story and an authentic brand that resonates with consumers. And it's helped us to build our business to over a billion-dollar business. The conventional supermarkets and Costco and Walmart, they only sell the product because it sells. It isn't because of the story of the product. We sell the product because it is what we are. And so, it makes a huge difference to our customers and keeps our customers incredibly loyal. And it also helps us to keep on growing and expanding our customer base. And companies like Whole Foods are kind of losing track of that by becoming, as they said, the Amazon-ination, whatever it was, the Wall Street Journal article was the other day. And then the Forbes article that followed up on it. And so that's making our brand all the stronger. And then you have the wannabes like Sprouts who doesn't really, I mean, they sell stuff because they it sells, but they don't really have the standards that we do or the ethics that we do about the products that we sell.

Q: What specifically in the business do you see that would make you gravitate towards being more cautious given the economy?

A: Well, the people that are on the periphery of shopping in our stores that aren't our most loyal customers have definitely pulled back and gone I don't I don't know where they're shopping, but they've pulled back. And so that's that's that's made it so that we're just a little more cautious about our growth. But I think that some of our new marketing initiatives will start to gain traction in not this quarter, but next quarter, and we should see an uptick again in our growth.

Q: Do you expect free cash flow to be positive in 2026 and what's your thought process around 2026 free cash flow?

A: Yeah. Free cash flow will be positive next year. Yeah. That's that's our expectation. Yes. We are investing more in CapEx. Right? We are talking about increasing store openings, continuing to do relocations and remodels. We are looking at we're guiding $50 to $55 million in CapEx to support those initiatives. We're excited about the real estate pipeline that we have. And then also we're strategically buying some of our buildings. So just to add a little bit more color to the CapEx.