Customer allegiance helps Natural Grocers in Q2

Natural Grocers’ “loyal and resilient” customer base helped it reach positive numbers for Q2.

The retailer, which officially goes by the name of Natural Grocers by Vitamin Cottage, Inc., and is headquartered in Lakewood, Colo., saw net sales increase 4.2% ($283.2 million) compared to Q2 in 2022. Daily average comparable store sales increased 2.7%, 7% on a two-year basis. Net income was $5.9 million and one store was opened during the second quarter, resulting in a 3.1% new store growth rate. Two underperforming stores were closed.

Natural Grocers is raising its fiscal 2023 outlook for comparable store sales based upon year-to-date performance and current trends, and also is increasing its outlook for the number of relocations/remodels. 

“The strength of our sales trends, including minimal trade-down, indicates that we have a loyal and resilient customer base that prioritizes products with health and sustainability attributes,” said Kemper Isely, Co-President of Natural Grocers by Vitamin Cottage, Inc. “We believe that our high product quality standards, marketing emphasis on value and Always Affordable prices, customer service and convenient shopping experience continue to resonate with consumers and make us a leading destination for natural and organic products in our communities.

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“We are pleased with our second quarter results. An increase in customer traffic drove the 2.7% increase in comparable store sales, which was ahead of expectations and is prompting us to raise our comparable store sales guidance for the year. On a two-year basis, daily average comparable store sales were up 7%, including a 4.5% increase in transaction count.”

Gross profit during the second quarter of fiscal 2023 increased $5.7 million, or 7.4%, to $82.5 million, compared to $76.8 million in the second quarter of fiscal 2022. 

Store expenses during the second quarter of fiscal 2023 increased 9.4% to $65.2 million. Store expenses included an impairment charge of $0.9 million in the second quarter of fiscal 2023 related to a planned store closure in June 2023. Store expenses as a percentage of net sales were 23% during the second quarter of fiscal 2023, up from 21.9% in the second quarter of fiscal 2022. The increase in store expenses as a percentage of net sales was primarily driven by higher labor expense as a result of increased wage rates, and the impairment charge.

First half results

During the first six months of fiscal 2023, net sales increased $14.6 million, or 2.7%, to $563.7 million, compared to the first six months of fiscal 2022, due to an $8.7 million increase in comparable store sales and a $7.7 million increase in new store sales, partially offset by a $1.8 million decrease in sales related to one store that closed in fiscal 2022. Daily average comparable store sales increased 1.6% in the first six months of fiscal 2023, and was comprised of a 0.9% increase in daily average transaction size and a 0.7% increase in daily average transaction count. The increase in net sales was primarily driven by retail price inflation, new store sales and marketing initiatives, partially offset by a moderation of the pandemic trends the grocer experienced in the first six months of fiscal 2022.

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Gross profit during the first six months of fiscal 2023 increased 3.7% to $161.2 million, primarily driven by increased sales volume. Gross profit reflects earnings after product and occupancy expenses. Gross margin increased to 28.6% during the first six months of fiscal 2023, compared to 28.3% in the first six months of fiscal 2022. The increase in gross margin was driven by higher product margin.

Store expenses during the first six months of fiscal 2023 increased 8.3% to $128.8 million. Store expenses as a percentage of net sales were 22.8% during the first six months of fiscal 2023, up from 21.7% in the first six months of fiscal 2022. The increase in store expenses as a percentage of net sales reflects the higher labor expense.

Net income for the first six months of fiscal 2023 was $10.3 million.