Natural Grocers by Vitamin Cottage, Inc. Q2 FY2026 earnings call

• Strong store - level execution and disciplined expense management contributed to a 3.6% growth in diluted earnings per share. In the second quarter, comparable store sales increased by 0.5%, and the two - year comparable sales were 9.4%. The NPower Rewards program saw strong membership growth, with net sales penetration reaching 84%. Marketing and communications focused on always - affordable prices. - A major upgrade to the enterprise resource planning system was successfully completed, which improved operational efficiency. - One new store was opened in the second quarter, and there is a plan to open 6 - 8 new stores in fiscal 2026, with a target of a 4 - 5% annual new store unit growth rate. - The crew's dedication to providing an exceptional shopping experience is a key part of the differentiated offering.

Second quarter net sales increased 0.5% to $337.4 million. Daily average comparable store sales went up by 0.5%, with a 1.6% rise in basket size and a 1.1% drop in transaction count. The highest sales growth was in dairy, produce, and meat. The Natural Grocers brand penetration was 9.8% of total sales, which was a 120 - basis - point increase from the previous year. Gross margin went up by 10 basis points to 30.4% due to lower store occupancy costs as a percentage of net sales and stable product margin including inventory shrink. Store expenses decreased by 1.6% mainly because of expense management, while administrative expenses increased by 10% mainly due to higher technology expenses related to the ERP upgrade project. Net income went up by 2.5% to $13.4 million, and diluted earnings per share increased by 3.6% to 58 cents. Adjusted EBITDA increased by 4% to $27.4 million.

• The plan is to open 6 - 8 new stores and relocate or remodel 2 - 3 existing stores. - The goal is to achieve a daily average comparable store sales growth between 1.5% and 2.5% (previously between 1.5% and 4%). - Diluted earnings per share is expected to be between $2.07 and $2.15 (previously between $2.00 and $2.15). - Capital expenditures are expected to be $45 to $50 million (previously $50 to $55 million). - Sales comps are projected to be 2% - 4% in the second half of fiscal 2026, with the lower end in the third quarter and an increase in the fourth quarter. - Modest inflation is expected throughout the year. - Year - over - year gross margin is likely to be relatively flat depending on the level of promotional activity. - Year - over - year store expenses as a percentage of net sales are expected to be relatively flat to slightly lower. - Year - over - year administrative expenses as a percentage of net sales are expected to be relatively flat in the second half excluding the impact of the insurance recovery. - There is an incremental investment of approximately $0.09 of diluted earnings per share in new store openings.

• A cybersecurity incident in June 2025 temporarily affected the main distributor's ability to fulfill orders and distribute products to stores, leading to product shortages and lost sales in June and July. - The evolving consumer environment and economic uncertainty can have an impact on sales and comparable store sales.

Q: Regarding the margin profile and how to consider profit versus sales growth when reinvesting cost savings.

A: Cost savings from the ERP investment will be minimal initially, and usually, we reinvest in competitive pricing. We look at each item we sell and compare it with our competitors to decide on pricing, and we like to be at the leading edge of affordable pricing.

Q: Describe consumer behavior in the most recent quarter compared to a year earlier and the impact of the war in Iraq.

A: March was particularly difficult, and the conflict in Iraq and Iran was not beneficial to consumer sentiment in March. April was much better than March. Compared to last year, consumers were more enthusiastically engaged last year at this time.

Q: Further on how consumer distress manifested.

A: As reported, there was a 0.3% decrease in the number of items per basket, which amounted to about 3% of the comparable store sales. There was definitely a pullback from less loyal customers, while loyal customers shopped as usual. Our NPower now makes up 84%.