Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) reported a strong start to fiscal year 2025 with a 9.4% increase in net sales from the prior year period.
• The company experienced an 8.9% increase in daily average comparable store sales, marking eight consecutive quarters of positive transaction count comps.
• Diluted earnings per share increased by 26.5% year over year, driven by robust sales growth and effective expense management.
• The Power Rewards program saw increased customer engagement, with net sales penetration rising to 81% from 78% a year ago.
• Natural Grocers brand products accounted for 8.9% of total sales, up from 8.5% a year ago, supported by the launch of 23 new branded items.

Negative Points

• Administrative expenses as a percentage of net sales increased by 40 basis points due to higher compensation and technology expenses.
• The company anticipates that sales comps will moderate in the second half of the year as they cycle strong comps from the prior year.
• There is uncertainty regarding the impact of possible tariffs, which could affect product costs and gross margins.
• Store expenses increased by 8.1% in the first quarter, primarily driven by higher compensation expenses.
• The company's expansion plans are relatively conservative, with a focus on opening 4 to 6 new stores and relocating or remodeling 2 to 4 stores in fiscal 2025.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Sign with NGVC.

Q: What are the expectations for gross margin as the year progresses, given the strong leverage on rent and costs? A: Rich Hale, CFO, explained that while there was a 50 basis point improvement in gross margin due to store occupancy cost leverage and product margin improvements, they expect gross margin to remain relatively flat. This is due to anticipated lower comps in the second half of the year as they cycle strong comps from the prior year and uncertainties around tariffs impacting product costs.

Q: Can you explain the timing issues affecting free cash flow this quarter? A: Rich Hale, CFO, noted that the free cash flow was impacted by timing issues, primarily related to accounts payable and the timing of payments for goods and services.

Q: Why can't operating margins continue to climb, especially compared to competitors like Sprouts? A: Rich Hale, CFO, stated that as sales expand, they should see some margin expansion. However, their focus on product quality and affordable pricing, which is a competitive strength, means they are priced lower than competitors, which will impact margin expansion.

Q: Is there potential to increase the number of new store openings beyond the 4 to 6 planned for this year? A: Kemper Eley Core, CEO, mentioned that while they are focused on 4 to 6 new stores this year, they hope to increase to 6 to 8 stores next year as the pipeline opens up.

Q: What is the company's stance on expanding into new markets, such as Florida? A: Kemper Eley Core, CEO, indicated that Florida is currently off their path for expansion, suggesting a focus on existing markets and strategic growth areas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.