Natural Grocers’ Q3 Earnings Suggest Bigger Baskets May Be the New Norm

As consumers continue their return to pre-pandemic grocery shopping patterns, Natural Grocers by Vitamin Cottage Inc. has reported a dip in comparable store sales (3.6%) for third quarter fiscal 2021 compared to the prior year, but a healthy 11.9% increase in comparable store sales on a two-year stacked basis.

In another sign that shoppers may retain at least some of the at-home eating and grocery purchasing habits adopted during the pandemic, Natural Grocers noted basket sizes are also trending up when compared to third-quarter 2019.

“We delivered another strong performance in the third quarter, exceeding our expectations. We saw sales trends improve sequentially, while continuing to face difficult year-over-year comparisons, said Co-President Kemper Isely during the earnings conference, according to a Sentieo transcript. 

“Our focus on delivering the highest-quality natural and organic products at always affordable prices as well as being a resource for science-based nutritional education continues to drive high levels of engagement with our customers,” he continued.

During the quarter, comparable store transaction count turned positive and basket size moderated as the company started to see a return to pre-pandemic shopping patterns, added Isely. But despite a 7.4% decrease in daily average transaction size, partially offset by a 4.1% increase in daily average transaction count, shoppers continue to buy more than they did pre-pandemic.

“The basket has remained elevated as compared to the pre-pandemic level, up over 20% compared to the third quarter of 2019,” noted Isely.

The Lakewood, Colo.-based grocer’s net sales decreased $6.5 million, or 2.4%, to $258.6 million in the third quarter, compared to the third quarter of fiscal 2020, the result of a $9.5 million decrease in comparable store sales, partially offset by a $3 million increase in new store sales, said the company.

Daily average comparable store sales decreased 3.6% in the third quarter, compared to a 15.5% increase in the third quarter of fiscal 2020. On a two-year stacked basis, daily average comparable store sales increased by 11.9%.

Reported gross profit (earnings after both product and occupancy expenses) during the quarter decreased 1.2%, to $71.5 million, primarily driven by lower net sales levels. Gross margin increased to 27.7%, compared to 27.3% in the third quarter of fiscal 2020. The increase in gross margin was a result of higher product margin and lower shrink expense, as a percentage of sales, partially offset by occupancy expense deleverage, the company said.

In-Store Experience Prevails

While a record number of consumers turned to online grocery shopping during the pandemic, Natural Grocers’ shoppers prefer the in-store experience.

“Our grocery delivery sales as a percentage of net sales remained in the low single digits and were down slightly from previous quarters,” said CFO Todd Dissinger during the earnings call. “The adoption rate and trend reflect the importance of our brick-and-mortar in-store experience to our customers, as many of our core customers visit our stores multiple times per week.” 

With a company culture based on nutrition education and community involvement, it’s not surprising Natural Grocers’ customers continue to embrace the in-store shopping experience—one that is further bolstered by its loyalty program.

Natural Grocers’ Npower loyalty program continues to gain momentum and “remains an important tool for optimizing promotional activity and driving customer engagement,” said Isely during the call. At the end of the third quarter, the grocer had more than 1.4 million Npower members, up 17% vs. a year ago and up 4% sequentially. 

Isely also pointed to its growing private label program and the recent launch of Natural Grocers’ GardenBox, which brings fresh, hydroponic, organic produce to the individual store location, as further drivers of customer engagement.

Expenses and Dividends

Store expenses decreased and labor-related expenses normalized during the third quarter of fiscal 2021, the company said. Net income for the quarter was $5 million, or 22 cents of diluted earnings per share, compared to net income of $4.7 million, or 21 cents of diluted earnings per share for the third quarter of fiscal 2020. Adjusted EBITDA was $14.5 million in the third quarter of fiscal 2021, compared to $14.6 million in the third quarter of fiscal 2020.

The company announced the declaration of a quarterly cash dividend of 7 cents per common share. The dividend will be paid on Sept. 15 to all stockholders of record at the close of business on Aug. 30, 2021.  

What’s Next

While Isely reported challenges in opening new stores and relocating stores due to delays in the construction process and equipment deliveries, he said he expects the company to return to opening between six and eight new stores per year as conditions improve.

During the third quarter of fiscal 2021, the company did not open any new stores, but relocated two stores—one in Pueblo, Colo., and another in Midland, Texas. Natural Grocers currently has 161 stores in 20 states; has signed leases for four new stores; and purchased the property for one new store. The new stores, slated to open in fiscal 2021 and beyond, will be located in Colorado,  Missouri and Nevada, the company said.