NATURAL GROCERS BY VITAMIN COTTAGE, INC. LAKEWOOD, Colo., Nov. 20, 2014 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its fourth fiscal quarter and fiscal year ended September 30, 2014 (fiscal 2014) and provided its outlook for fiscal 2015.
In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the fourth quarter and fiscal 2014 and 2013 in conformity with U.S. generally accepted accounting principles (GAAP), the Company is presenting EBITDA, which is a non-GAAP financial measure. The reconciliation from GAAP to this non-GAAP financial measure is provided at the end of this earnings release.
Highlights for Fourth Quarter and Fiscal 2014 Compared to Fourth Quarter and Fiscal 2013
-- Net sales increased 17.8% to $135.7 million in the fourth quarter and
increased 20.9% to $520.7 million in the fiscal year
-- Daily average comparable store sales increased 3.7% in the fourth
quarter and increased 5.6% in the fiscal year
-- Net income increased 43.1% to $3.2 million with diluted earnings per
share of $0.14 in the fourth quarter and increased 27.7% to $13.5
million with diluted earnings per share of $0.60 in the fiscal year
-- EBITDA increased 22.5% to $10.3 million in the fourth quarter and
increased 27.2% to $41.5 million in the fiscal year
"We are pleased with recent improvements in our sales trends, which reached the expectations we outlined on our last earnings call," said Kemper Isely, Co-President. "We remain focused on new store growth and have seen strong new store openings in the past few months. We believe these positive results stem from our directed sales initiatives. As we move into fiscal 2015, we expect to continue our 20% annual store growth and to expand both the top and bottom line through our continued focus on customer service and operational excellence."
Operating Results -- Fourth Quarter Fiscal 2014 Compared to Fourth Quarter Fiscal 2013
During the fourth quarter of fiscal 2014, net sales increased $20.5 million, or 17.8% over the same period in fiscal 2013 to $135.7 million due to a $16.3 million increase in sales from new stores and a $4.3 million, or 3.7%, increase in comparable store sales. The 3.7% increase in comparable store sales in the fourth quarter of fiscal 2014 followed a 10.7% increase in the fourth quarter of fiscal 2013 and was driven by a 1.4% increase in daily average transaction count and a 2.3% increase in average transaction size. Daily average mature store sales increased 1.5% in the fourth quarter of fiscal 2014. For fiscal 2014, mature stores include all stores open during or before 2009.
Gross profit during the fourth quarter of fiscal 2014 increased 15.7% over the same period in fiscal 2013 to $38.8 million, primarily driven by positive comparable store sales and an increase in the number of stores. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.6% during the fourth quarter of fiscal 2014, compared to 29.1% in the fourth quarter of fiscal 2013. Gross margin decreased due to increases in occupancy costs, partially offset by increases in product margin, both as a percentage of sales. Product margin increased across almost all departments, partially offset by a shift in sales mix towards products with lower margin. Additionally, gross margin benefited from operating efficiencies at the Company's bulk food repackaging and distribution center. Occupancy costs as a percentage of sales increased during the fourth quarter of fiscal 2014 compared to the fourth quarter of fiscal 2013, primarily driven by increased average lease expenses at newer stores ((1)).
Store expenses as a percentage of sales decreased 30 basis points during the fourth quarter of fiscal 2014 compared to the comparable period of fiscal 2013, driven by decreases in salary-related expenses and advertising expenses and partially offset by increases in depreciation expense and, to a lesser extent, an increase in utilities.
Administrative expenses as a percentage of sales decreased 30 basis points during the fourth quarter compared to the comparable period of fiscal 2013 as a result of the Company's ability to support additional store investments and sales without proportionate increases in the cost of overhead.
During the fourth quarter of fiscal 2014, both store and administrative expenses were favorably impacted by lower incentive compensation and other discretionary benefits expense, reflecting the Company's pay-for-performance philosophy.
Pre-opening and relocation expenses remained flat during the fourth quarter of fiscal 2014 compared to the comparable period of fiscal 2013, primarily due to the number and timing of new store openings. During the fourth quarter of fiscal 2014, three new stores opened compared to four new stores during the fourth quarter of fiscal 2013.
Interest expense decreased $0.5 million in the fourth quarter of fiscal 2014 compared to the comparable period of fiscal 2013, primarily due to an increase in capitalized interest expense.
Net income increased 43.1% to $3.2 million compared to the comparable period in fiscal 2013 with diluted earnings per share of $0.14 in the fourth quarter of fiscal 2014. Net income in the fourth quarter of fiscal 2014 included $0.1 million of pre-tax share-based compensation expense for the Chief Financial Officer and certain employees who are not named executive officers, compared to $0.5 million in the fourth quarter of fiscal 2013.
EBITDA increased $1.9 million, or 22.5%, to $10.3 million, or 7.6% of sales, for the fourth quarter of fiscal 2014 compared to the comparable period in fiscal 2013.
Operating Results -- Fiscal 2014 Compared to Fiscal 2013
In fiscal 2014, net sales increased $90.0 million, or 20.9% over fiscal 2013, to $520.7 million due to a $66.0 million increase in sales from new stores and a $24.0 million, or 5.6%, increase in comparable store sales. Daily average comparable store sales increased 5.6% in fiscal 2014 following an 11.1% increase in fiscal 2013. The 5.6% increase in fiscal 2014 was driven by a 2.3% increase in daily average transaction count and a 3.2% increase in average transaction size. Daily average mature store sales increased 3.4% in fiscal 2014.
Gross profit in fiscal 2014 increased 20.5% over fiscal 2013 to $151.5 million, primarily driven by positive comparable store sales and an increase in the number of stores. Gross margin was 29.1% in fiscal 2014, compared to 29.2% in fiscal 2013. Gross margin decreased due to increases in occupancy costs, partially offset by increases in product margin, both as a percentage of sales. Gross margin was positively impacted by increases in product margin across almost all departments, partially offset by a shift in sales mix towards products with lower margin. Additionally, gross margin benefited from operating efficiencies at the Company's bulk food repackaging and distribution center. Occupancy costs as a percentage of sales increased in fiscal 2014 compared to fiscal 2013, primarily driven by increased average lease expenses at newer stores ((1)).
Store expenses as a percentage of sales remained flat in fiscal 2014 compared to fiscal 2013, driven by a decrease in salary-related expenses and offset by an increase in depreciation expense, and, to a lesser extent, an increase in utilities.
Administrative expenses as a percentage of sales decreased 30 basis points in fiscal 2014 compared to fiscal 2013 as a result of the Company's ability to support additional store investments and sales without proportionate increases in the cost of overhead.
In fiscal 2014, both store and administrative expenses were favorably impacted by lower incentive compensation and other discretionary benefits expense, reflecting the Company's pay-for-performance philosophy.
Pre-opening and relocation expenses increased $0.5 million in fiscal 2014 compared to fiscal 2013, primarily due to the increased number of new store openings, the timing of new store openings and the lease classification for those stores that were opened. In fiscal 2014, the Company opened 15 new stores compared to 13 new stores in fiscal 2013.
Interest expense increased $0.3 million in fiscal 2014 compared to fiscal 2013, primarily due to interest expense related to capital and financing lease obligations, partially offset by an increase in capitalized interest expense.
Net income increased 27.7% to $13.5 million compared to fiscal 2013 with diluted earnings per share of $0.60 in fiscal 2014. Net income in fiscal 2014 included $0.4 million of pre-tax share-based compensation expense for the Chief Financial Officer and certain employees who are not named executive officers, compared to $0.5 million in fiscal 2013.
EBITDA increased $8.9 million, or 27.2%, to $41.5 million, or 8.0% of sales, in fiscal 2014 compared to fiscal 2013.
(1) The Company had ten and nine
stores accounted for as capital
and financing lease obligations
for the fourth quarter of fiscal
2014 and 2013, respectively, and
for fiscal 2014 and 2013,
respectively. For leases
accounted for as capital and
financing lease obligations, the
Company does not record straight-
line rent expense in cost of
goods sold and occupancy costs,
but rather rental payments are
recognized as a reduction of the
capital and financing lease
obligations and as interest
expense. The stores that were
accounted for as capital and
financing lease obligations
rather than being reflected as
operating leases increased gross
margin as a percentage of sales
by approximately 55 and 85 basis
points in the fourth quarter of
fiscal 2014 and 2013,
respectively, and 60 and 55 basis
points in fiscal 2014 and 2013,
respectively. Additionally,
accounting for these stores as
capital and financing lease
obligations rather than operating
leases increased EBITDA as a
percentage of sales by
approximately 60 and 85 basis
points in the fourth quarter of
fiscal 2014 and 2013,
respectively, and 60 basis points
for each of fiscal 2014 and 2013,
respectively, due to the impact
on gross profit, as well as
occupancy costs that would have
been included in pre-opening
expenses.
Balance Sheet and Cash Flow
As of September 30, 2014, the Company had $5.1 million in cash and cash equivalents and no amounts outstanding under its credit facility. The Company expects to have amounts drawn under the line of credit at the end of the first quarter of fiscal 2015 due to the timing of new store openings, including the Nature's Pantry transaction (described below), and annual income tax payments.
In fiscal 2014, the Company generated $31.7 million in cash from operations and invested $36.5 million in capital expenditures, primarily for new stores.
Growth and Development
During the fourth quarter of fiscal 2014, the Company opened three new stores, bringing the total store count as of September 30, 2014 to 87 stores located in 14 states. Additionally, the Company completed the remodel of two existing stores during fiscal 2014.
Since the start of fiscal 2015, the Company has opened three stores in Golden, CO, Reno, NV and Oklahoma City, OK. As of this release, the Company has five signed leases for stores planned to open in fiscal 2015 in Arizona, Arkansas, Colorado and Kansas. Additionally, the Company recently agreed to purchase substantially all the assets and assume certain liabilities of natural foods retailer Nature's Pantry in Independence, Missouri. The transaction is expected to close on December 7, 2014, at which time the store will start to operate as a Natural Grocers by Vitamin Cottage store. The Independence store will be included as one of the 18 stores the Company expects to open during fiscal 2015.
Store Level Economics
The Company anticipates that in fiscal 2015, new stores will require an average upfront capital investment of approximately $2.2 million consisting of capital expenditures of approximately $1.7 million (net of tenant allowances), initial inventory of approximately $0.3 million (net of payables) and pre-opening expenses of approximately $0.2 million. The Company continues to target approximately four years to recoup the initial net cash investment and approximately 35% cash on cash returns by the end of the fifth year following the opening.
Fiscal 2015 Outlook
For fiscal 2015 the Company expects:
Fiscal 2015 Outlook
-------------------
Number of new stores 18
Number of relocations 3
Number of remodels 2
Daily average comparable store
sales growth 5% to 8%
EBITDA as a percent of sales 7.3% to 7.5%
Net income as a percent of sales 2.1% to 2.3%
Diluted earnings per share $0.63 to $0.66
Capital expenditures (in
millions) $45 to $47
Earnings Conference Call
The Company will host a conference call today at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) to discuss this earnings release. The dial-in number is 1-888-347-6606 (US); 1-855-669-9657 (Canada); or 1-412-902-4289 (International). The conference ID is "Natural Grocers by Vitamin Cottage." A simultaneous audio webcast will be available at http://Investors.NaturalGrocers.com and archived for a minimum of 30 days.
About Natural Grocers by Vitamin Cottage
Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) is a rapidly expanding specialty retailer of natural and organic groceries and dietary supplements whose products must meet strict quality guidelines. The grocery products sold by Natural Grocers may not contain artificial colors, flavors, preservatives, sweeteners, or partially hydrogenated or hydrogenated oils. Natural Grocer's flexible small-store format allows it to offer affordable prices in a shopper-friendly retail environment. The Company provides extensive free science-based nutrition education programs to help customers make informed health and nutrition choices. The Company, founded in 1955, has 90 stores in 15 states as of the date of this earnings release.
Visit www.NaturalGrocers.com for more information and store locations.
Forward-Looking Statements
The following constitutes a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, statements in this release are "forward-looking statements" and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements that are not statements of historical facts are forward-looking statements. Actual results could differ materially from those described in the forward-looking statements because of factors such as changes in the Company's industry, business strategy, goals and expectations concerning the Company's market position, the economy, future operations, margins, profitability, capital expenditures, liquidity and capital resources, other financial and operating information and other risks detailed in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2013 and the Company's subsequent quarterly reports on Form 10-Q. The information contained herein speaks only as of the date of this release and the Company undertakes no obligation to update forward-looking statements.
For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's filings with the Securities and Exchange Commission, including, but not limited to, our Form 10-K for the fiscal ended September 30, 2013 and the Company's subsequent quarterly reports on Form 10-Q, copies of which may be obtained by contacting Investor Relations at 303-986-4600 or by visiting the Company's website at http://Investors.NaturalGrocers.com.
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three months ended Year ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
Net sales $135,715 115,175 520,674 430,655
Cost of goods sold and
occupancy costs 96,959 81,689 369,172 304,922
------ ------ ------- -------
Gross profit 38,756 33,486 151,502 125,733
Store expenses 28,394 24,388 108,657 89,935
Administrative expenses 3,801 3,569 14,823 13,479
Pre-opening and relocation
expenses 945 955 3,774 3,231
--- --- ----- -----
Operating income 5,616 4,574 24,248 19,088
----- ----- ------ ------
Other income (expense):
Dividends and interest income - 2 2 9
Interest expense (379) (900) (2,496) (2,166)
---- ---- ------ ------
Total other expense, net (379) (898) (2,494) (2,157)
---- ---- ------ ------
Income before income taxes 5,237 3,676 21,754 16,931
Provision for income taxes (2,049) (1,448) (8,281) (6,379)
------ ------ ------ ------
Net income $3,188 2,228 13,473 10,552
====== ===== ====== ======
Net income per common share:
Basic $0.14 0.10 0.60 0.47
===== ==== ==== ====
Diluted $0.14 0.10 0.60 0.47
===== ==== ==== ====
Weighted average common shares
outstanding:
Basic 22,481,690 22,429,196 22,466,432 22,399,346
========== ========== ========== ==========
Diluted 22,482,842 22,457,043 22,479,835 22,441,382
========== ========== ========== ==========
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
September 30,
-------------
2014 2013
---- ----
Assets
Current assets:
Cash and cash equivalents $5,113 8,132
Restricted cash - 500
Short term investments -
available-for-sale
securities - 1,149
Accounts receivable, net 2,146 2,401
Merchandise inventory 58,381 45,472
Prepaid expenses and other
current assets 641 1,097
Deferred income tax assets 832 1,114
--- -----
Total current assets 67,113 59,865
------ ------
Property and equipment, net 120,224 98,910
------- ------
Other assets:
Deposits and other assets 712 203
Goodwill and other intangible
assets, net 900 900
Deferred financing costs, net 36 25
Total other assets 1,648 1,128
----- -----
Total assets $188,985 159,903
======== =======
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable $33,835 28,918
Accrued expenses 15,822 9,306
Capital and financing lease
obligations, current portion 229 174
Total current liabilities 49,886 38,398
------ ------
Long-term liabilities:
Capital and financing lease
obligations, net of current
portion 21,748 19,648
Deferred income tax
liabilities 5,409 6,877
Deferred rent 5,842 4,731
Leasehold incentives 7,246 5,716
Total long-term liabilities 40,245 36,972
------ ------
Total liabilities 90,131 75,370
------ ------
Commitments
Stockholders' equity:
Common stock, $0.001 par
value. Authorized 50,000,000
shares, 22,485,488 and
22,441,253 issued and
outstanding, respectively 22 22
Additional paid in capital 54,552 53,704
Retained earnings 44,280 30,807
------ ------
Total stockholders' equity 98,854 84,533
------ ------
Total liabilities and
stockholders' equity $188,985 159,903
======== =======
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Year ended September 30,
------------------------
2014 2013
---- ----
Operating activities:
Net income $13,473 10,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,212 13,496
Loss on disposal of property and equipment 1 43
Share-based compensation 532 602
Excess tax benefit from share-based compensation (399) (592)
Deferred income tax (benefit) expense (1,186) 2,452
Non-cash interest expense 19 47
Interest accrued on investments and amortization
of premium 9 27
Other amortization - 26
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable, net 255 (546)
Income tax receivable 612 (601)
Merchandise inventory (12,909) (7,928)
Prepaid expenses and other assets (665) 105
Increase in:
Accounts payable 5,202 4,480
Accrued expenses 6,952 2,283
Deferred rent and leasehold incentives 2,641 1,271
----- -----
Net cash provided by operating activities 31,749 25,717
------ ------
Investing activities:
Acquisition of property and equipment (36,512) (39,708)
Proceeds from sale of property and equipment - 5,005
Purchase of available-for-sale securities - (521)
Proceeds from sale of available-for-sale
securities - 90
Proceeds from maturity of available-for-sale
securities 1,140 1,010
Decrease (increase) in restricted cash 500 (500)
Net cash used in investing activities (34,872) (34,624)
------- -------
Financing activities:
Borrowings under credit facility 46,440 81
Repayments under credit facility (46,440) (81)
Repayments under notes payable, related party - (282)
Capital and financing lease obligations payments (182) (121)
Excess tax benefit from share-based compensation 399 592
Equity issuance costs and BVC transaction costs - (268)
Payments on withholding tax for restricted stock
unit vesting (83) (155)
Loan fees paid (30) (18)
--- ---
Net cash provided by (used in) financing
activities 104 (252)
--- ----
Net (decrease) in cash and cash equivalents (3,019) (9,159)
Cash and cash equivalents, beginning of year 8,132 17,291
----- ------
Cash and cash equivalents, end of year $5,113 8,132
====== =====
Supplemental disclosures of cash flow information:
Cash paid for interest $16 7
Cash paid for interest on capital and financing
lease obligations, net of capitalized interest of
$364 and $0, respectively 2,423 2,036
Income taxes paid 3,762 3,916
Supplemental disclosures of non-cash investing
and financing activities:
Acquisition of property and equipment not yet paid $3,260 3,545
Property acquired through capital and financing
lease obligations 2,300 14,372
NATURAL GROCERS BY VITAMIN COTTAGE,
INC.
Non-GAAP Financial Measure
(Unaudited)
In addition to reporting financial
results in accordance with U.S.
generally accepted accounting
principles (GAAP), the Company
provides information regarding
EBITDA which is not in accordance
with, or an alternative to, GAAP
(i.e. a non-GAAP measure). The
Company defines EBITDA as net
income before interest expense,
provision for income tax and
depreciation and amortization.
The Company believes EBITDA provides
additional information about (i)
operating performance, because it
assists in comparing the operating
performance of stores on a
consistent basis, as it removes the
impact of non-cash depreciation
and amortization expense as well as
items not directly resulting from
core operations such as interest
expense and income taxes and (ii)
the performance and the
effectiveness of operational
strategies. Additionally, EBITDA
performance is a measure in the
Company's incentive compensation
payments.
Furthermore, some investors use
EBITDA as a supplemental measure to
evaluate the overall operating
performance of companies in the
industry. Management believes that
some investors' understanding of
performance is enhanced by
including this non-GAAP financial
measure as a reasonable basis for
comparing ongoing results of
operations. By providing this non-
GAAP financial measure, together
with a reconciliation from net
income, the Company believes it is
enhancing investors' understanding
of the business and results of
operations, as well as assisting
investors in evaluating how well
the Company is executing strategic
initiatives.
The Company's competitors may define
EBITDA differently, and as a
result, the Company's measure of
EBITDA may not be directly
comparable to EBITDA of other
companies. Items excluded from
EBITDA are significant components
in understanding and assessing
financial performance.
EBITDA is a supplemental measure of
operating performance that does not
represent and should not be
considered in isolation or as an
alternative to, or substitute for,
net income or other financial
statement data presented in the
consolidated financial statements
as indicators of financial
performance. EBITDA has limitations
as an analytical tool, and should
not be considered in isolation, or
as a substitute for analysis of the
Company's results as reported under
GAAP. EBITDA should not be
considered as a measure of
discretionary cash available to the
Company to invest in the growth of
the business.
The following table reconciles net
income to EBITDA (dollars in
thousands):
Three months ended Year ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
Net income $3,188 2,228 13,473 10,552
Interest
expense 379 900 2,496 2,166
Provision for
income taxes 2,049 1,448 8,281 6,379
Depreciation
and
amortization 4,656 3,806 17,212 13,496
----- ----- ------ ------
EBITDA $10,272 8,382 41,462 32,593
======= ===== ====== ======
SOURCE Natural Grocers by Vitamin Cottage, Inc.
