Natural Grocers' Q3 income, gross margin improve over 2020's results

Going against the grain of grocery retailers reporting disappointing sales as they lap last year’s pandemic numbers, Natural Grocers by Vitamin Cottage reported on Thursday that net income and operating income increased, while net sales' and comparable sales' decreases were in the low single digits.

"We delivered another strong performance in the third quarter, exceeding our expectation," Kemper Isely, co-president, said during the afternoon earnings call. "We saw sales trends improve sequentially, while continuing to face difficult year-over-year comparisons."

During the third quarter, which ended June 30, the number of transactions increased 4.1% and basket size dropped 7.4%—which is still 20% larger than the average basket size in 2019, he said.

Although all major categories showed sales increases on a two-year basis, Chief Financial Officer Todd Dissinger said, meat, dairy and bulk are the weakest categories.

The company's loyalty program, its reputation for science-based nutritional education and its private label selection are key factors driving sales, Isely said.

The number of customers enrolled in the loyalty program Npower continues to grow, with 1.4 million members. Isely said this is an increase of 17% year over year, and a 4% increase from the second quarter.

Related:Natural Grocers expands own-brand line of vitamins and supplements

Those customers accounted for 71% of Natural Grocers' sales, compared with 68% a year ago, he added.

The company's private label products, particularly a relaunch of private label supplements, is also helping the bottom line. The relaunch, which started in March, has introduced 115 new supplements, including vitamins, herbs and specialty formulations, to stores already. A total of 150 SKUs will complete the initial rollout, Isely said, with expansion to continue in the coming years.

Across the rest of the store, Natural Grocers introduced 14 new private label products including jarred olives and liquid dish soap, Isely said. Private label products account for 7.1% of Natural Grocers' sales.

The board of directors also announced on Thursday that stockholders would receive dividends of $0.07 per share on Sept. 15. The dividend will be distributed to shareholders of record as of Aug. 30.

Sales are down, but net income and EPS increased

As most food retailers are doing, Natural Grocers included results comparing Q3 FY2021 to the same period in FY2019 because the pandemic made FY 2020 such an anomaly:

Related:Natural Grocers updates {N}power loyalty program

Dissinger said gross margin increased 400 basis points in the third quarter. The company saw income and margin increase in part because labor costs have normalized as store traffic returned to pre-pandemic levels, and the product mix has changed to more profitable products, particularly private label supplements.

For the first nine months of the fiscal year, Natural Grocers has seen sales increase 1.3% to $782.9 million compared to the first nine months of FY2020. Comparable store sales fell $2.4 million, but new stores brought in $12.6 million.

Daily average store sales in the first three quarters were up 0.1% compared to FY2020, but 11.7% higher than in the first three quarters of FY 2019. For the same time period, average basket sales were up 6.6% compared with FY 2020 — Natural Grocers' fiscal year starts Oct. 1 and ends Sept. 30, so six months of FY2020 were pre-pandemic — and the average number of transactions was down 6.1%.

For the first nine months of FY21, gross profit increased 2.7% to $216.4 million; gross margin was 27.6%, compared with 27.3% for the same period in FY20.

During Q3 of this year, Natural Grocers relocated stores in Pueblo, Colo., and Midland, Texas. The opening of new stores is a challenge because of construction delays, but the company still plans to open six to eight stores a year as those conditions improve.

The company updated its outlook for the rest of FY2021, saying comparable store sales will land between a 1% decrease and a 1% increase over FY20, and diluted EPS should be between $0.68 and $0.74.

The Lakewood, Colo.-based natural retailer celebrates its 66^th anniversary in August, with a series of events and giveaways at its 161 stores in 20 states from Aug. 12-14.

This article originally appeared on New Hope Network, a Supermarket News sister website.