Natural Grocers’ Comps Improve in Q4

A challenging year for Natural Grocers by Vitamin Cottage ended on a positive note as the retailer exceeded sales and earnings projections for its fiscal fourth quarter despite intensifying pressure on prices.

The Lakewood, Colo.-based natural foods retailer said comparable-store sales improved by 2.1% in the period, which ended Sept. 30. Overall sales increased 9.7% to $198.5 million. Net earnings of $1.2 million, or 6 cents a share, was down from the last year’s fourth quarter, but exceeded analyst expectations by a penny.

CEO Kemper Isely in a conference call discussing results said price competition turned more severe in the quarter, helped along by high-profile cuts at Whole Foods by new parent Amazon. Natural Grocers’ own promotions helped to bring margins down by 130 basis points, although higher occupancy costs due to new stores was the primary driver of the margin decline, he said.

“I think that there is a lot of competition,” he said. “And in order to drive traffic, you have to be competitive on commodity items to drive customers into your stores.”

Isely expressed some frustration with the outsized credit Whole Foods appeared to be getting for its part in a broad industrywide trend toward price investments, including Natural Grocers also making similar price cuts. “It’s smoke,” he said. “They cut a couple prices and get $1 billion in publicity.”

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The company saw particular success in price promotions for signature quality offerings such as eggs to its M-power loyalty members. “We began discounting eggs in August, and it was one of the primary drivers of our increased customer counts and comp increases over the last couple of months,” Isely said. “Our M-power members are our best customers and they definitely are appreciative of the offer to them. Our offers to them definitely drive visits to our stores and an increase the size of their basket.”

Store traffic was up by 1.2% in the quarter for which the average basket size increased by 0.9%.

Isely said the company would be “flexible” on store growth as it works to better lever expenses, saying the company requires about 3% comp growth for that. He anticipates opening eight to 10 new stores in fiscal 2018 or 6% to 7%-unit growth vs. 11% growth in fiscal 2017. Natural Grocers plans capital expenditures of $25 million to $30 million—down from $38.5 million invested in fiscal 2017—and expects comp-store sales to improve between 0.5% and 2.5% during the year.