Natural Grocers Sees Bulk Sales and Earnings in Q2

Natural Grocers by Vitamin Cottage reported robust sales and earnings gains spurred in part by COVID-19 shopping patterns and its ability to buy and prepackage its own bulk products.

For the quarter, which ended March 31, revenue was up 20.4% to $277.5 million and same-store sales increased by 17%, said Kemper Isely, Natural Grocers chairman and co-president, during the Lakewood, Colo.-based grocer’s earnings call on May 7.

As sales accelerated in March, with shoppers preparing for the pandemic, Natural Grocers saw a significant increase in average transaction size—which increased by 13.1% during the second quarter—and an acceleration in transaction counts, which were up 3.5%.

“This growth included a comp gain of approximately 40% for the month of March over the prior year period,” Isely said. “We continued to see elevated comps in April, although the trend moderated from the peak mid-March levels.”

The retailer reported above-average sales increases in household products, supplements, grocery and bulk. “We are one of the few retailers where consumers can still buy bulk products, as we prepackage all bulk at our own bulk processing facility,” Isely said. “Our private label brands also performed well. We remain focused on ensuring our supply chain is able to keep up with demand.”

In April, Natural Grocers continued to see material higher transaction size, partially offset by temporary staff to support, clean and restock its stores, officials said. It produced net income growth of 151.8% to $9.7 million in the quarter and adjusted EBIT (earnings before interest and taxes) growth of 57.7%. Additionally, its Instacart sales ramped up significantly during March.

In response to the pandemic, Natural Grocers has implemented numerous safety implementations in-store, as well as financial support to its crew members. It implemented “Hero Pay,” which increased wages for all hourly crew by $2 an hour through May 31. Of this increase, $1 an hour will be a permanent wage increase.

In further recognition of its crew, Natural Grocers also paid bonuses during this period. It has committed to investing an additional $7 million in its crew members over the period beginning in March through its fiscal year-end Sept. 30.

Gross profit increased $15.6 million, or 25.1% of sales, to $77.8 million for the quarter. 

Despite what Chief Financial Officer Todd Dissinger called “significant strains to our supply chain and out-of-stock late in the quarter, as our supply chain was challenged to keep up with an unprecedented level of demand,” today, Natural Grocers is seeing improved in-stock levels, while certain items continue to be out of stock.

The company updated guidance for the fiscal year, saying it expects to open six to seven new stores, relocate one store, achieve comparable-store sales growth of 5% to 9% and achieve net income margin of 1.1% to 1.5%. It is expecting capital expenditures for the fiscal year in the range of $28 million to $33 million.

Addressing the company's fiscal 2020 outlook, Dissinger said, “The company cannot predict the duration or severity of the COVID-19 pandemic or how that will impact the economy and our financial results. Our guidance does not contemplate significant additional changes to the current operating environment as a result of further COVID-19 developments and assumes a moderation of the COVID-19-related elevated sales as the year progresses.”

As it continues to navigate the pandemic, Natural Grocers has decided to suspend signing any new store lease commitments in the near term.

In response to a question from an attendee during the earnings call, Natural Grocers offered a further glimpse at what lies ahead. Asked whether consumer buying trends have started to decelerate in states such as Texas, where restaurants have reopened, Isely replied, “We’re still seeing pretty strong sales growth in Texas. There are some locations that have had a little deceleration, but overall, the state of Texas has been pretty strong for us through April and into May.”