NATURAL GROCERS BY VITAMIN COTTAGE, INC. LAKEWOOD, Colo., May 4, 2017 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its second quarter and first half of fiscal 2017 and narrowed its outlook for fiscal 2017.
Highlights for Second Quarter and First Half Fiscal 2017 Compared to Second Quarter and First Half Fiscal 2016
-- Net sales increased 8.3% to $192.2 million in the second quarter and
increased 8.9% to $375.8 million in the first half of fiscal 2017;
-- Daily average comparable store sales decreased 1.7% in the second
quarter and decreased 1.2% in the first half of fiscal 2017;
-- Net income was $3.0 million with diluted earnings per share of $0.13 in
the second quarter and was $5.1 million with diluted earnings per share
of $0.23 in the first half of fiscal 2017;
-- EBITDA was $12.8 million in the second quarter and was $24.1 million in
the first half of fiscal 2017;
-- Opened nine new stores in the first half of fiscal 2017, compared to
nine new stores in the first half of fiscal 2016, resulting in growth
rates of 20.5% and 17.9% for the twelve month periods ended March 31,
2017 and 2016, respectively; and
-- The Company is narrowing its fiscal 2017 outlook, including revising
expectations for new store openings to 15 to 17 new stores from the
previous forecast of 15 to 20 new stores.
"Although the food retailing environment remains challenging, I am pleased with the sequential cost improvements we achieved during the second quarter," said Kemper Isely, Co-President. "I was encouraged that we experienced significant improvements in comparable store sales trends as the quarter progressed. In addition, we continue to see positive results from our marketing initiatives, including the new television advertising campaign that began in Denver during March. We have a fully developed calendar of marketing events scheduled for the third quarter, which included a broad range of promotions around Earth Day on April 22. We continue to adapt proactively to the sales challenges affecting food retailers and plan to continue to closely manage our costs and capital investments. Thus far in fiscal 2017, our new store growth has been funded entirely from operating cash flow. We expect to continue managing our new unit growth so as to allow for internally funded store growth. In view of these considerations, we continue to anticipate improved financial performance in the second half of our fiscal year."
In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the second quarter and first half of fiscal 2017 and 2016 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.
Operating Results -- Second Quarter Fiscal 2017 Compared to Second Quarter Fiscal 2016
During the second quarter of fiscal 2017, net sales increased $14.8 million, or 8.3%, to $192.2 million compared to the same period in fiscal 2016, primarily due to a $17.8 million increase in new store revenue, offset by a $3.0 million decrease in comparable store sales. Daily average comparable store sales decreased 1.7% in the second quarter of fiscal 2017 compared to a 1.0% increase in the second quarter of fiscal 2016, driven by a 1.4% decrease in daily average transaction count and a 0.4% decrease in average transaction size during the period. Daily average mature store sales decreased 3.1% in the second quarter of fiscal 2017. For fiscal 2017, mature stores include all stores open during or before fiscal 2012.
Gross profit during the second quarter of fiscal 2017 increased 5.0% over the same period in fiscal 2016 to $54.2 million, primarily driven by an increase in the number of comparable stores. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.2% of sales for the second quarter of fiscal 2017 compared to 29.1% of sales for the second quarter of fiscal 2016. The decline in gross margin was primarily driven by an increase in occupancy costs and a decrease in product margin, partially offset by favorable shrink trends, all as a percentage of sales.
Store expenses during the second quarter of fiscal 2017 increased $3.6 million, or 9.4%, to $42.4 million. Store expenses as a percentage of sales increased approximately 20 basis points to 22.1% during the second quarter of fiscal 2017 compared to 21.9% in the second quarter of fiscal 2016. This increase was primarily due to an increase in salary related expenses, depreciation and other store expenses, partially offset by a decrease in marketing expenses, all as a percentage of sales.
Administrative expenses increased 0.5% to $5.0 million during the second quarter of fiscal 2017 compared to $4.9 million for comparable period in fiscal 2016. Administrative expenses as a percentage of sales were 2.6% during the second quarter of fiscal 2017 compared to 2.8% for comparable period in fiscal 2016.
Pre-opening and relocation expenses decreased $0.2 million during the second quarter of fiscal 2017 compared to the comparable period in fiscal 2016, due to the number and timing of new store openings and relocations. During the second quarter of fiscal 2017, the Company opened four new stores and relocated one store, compared to opening five new stores during the second quarter of fiscal 2016.
Interest expense during the second quarter of fiscal 2017 increased $0.1 million compared to the comparable period in fiscal 2016 due to an increase in capital leases and an increase in average borrowings under the Company's revolving credit facility.
The Company's effective income tax rate for the three months ended March 31, 2017 and 2016 was 35.4% and 37.4%, respectively. The decrease in the effective income tax rate was driven by an increase in tax credits that resulted in a permanent tax difference.
Net income was $3.0 million with diluted earnings per share of $0.13 during the second quarter of fiscal 2017. EBITDA in the second quarter of fiscal 2017 increased to $12.8 million.
Operating Results -- First Half Fiscal 2017 Compared to First Half Fiscal 2016
During the first half of fiscal 2017, net sales increased $30.6 million, or 8.9%, over the same period in fiscal 2016 to $375.8 million due to a $34.7 million increase in sales from new stores, offset by a $4.1 million, or 1.2%, decrease in comparable store sales. The 1.2% decrease in daily average comparable store sales during the first half of fiscal 2017 followed a 2.3% increase in the first half of fiscal 2016. The 1.2% decrease in the first half of fiscal 2017 was driven by a 1.1% decrease in daily average transaction count and a 0.1% decrease in average transaction size. Daily average mature store sales decreased 2.7% in the first half of fiscal 2017 compared to a 0.5% decrease in the first half of fiscal 2016.
Gross profit during the first half of fiscal 2017 increased 6.4% over the same period in fiscal 2016 to $106.3 million, primarily driven by an increase in the number of comparable stores. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.3% of sales during the first half of fiscal 2017 compared to 28.9% of sales in the first half of fiscal 2016. Gross margin was negatively impacted by increased occupancy costs as a percentage of sales, partially offset by improvements in product margin across most categories.
Store expenses as a percentage of sales increased 80 basis points during the first half of fiscal 2017 to 22.4% of sales compared to the comparable period in fiscal 2016, primarily driven by an increase in salary related expenses, depreciation and other store expenses, all as a percentage of sales.
Administrative expenses as a percentage of sales decreased to 2.6% during the first half of fiscal 2017 compared to 2.8% in the comparable period in fiscal 2016.
Pre-opening and relocation expenses as a percentage of sales remained flat at 0.7% during the first half of fiscal 2017 compared to the comparable period in fiscal 2016 primarily due to the number and timing of new store openings and relocations. During the first half of fiscal 2017, the Company opened nine new stores and relocated one store compared to opening nine new stores and relocating two stores during the first half of fiscal 2016.
Interest expense increased $0.5 million in the first half of fiscal 2017 compared to the comparable period in fiscal 2016, primarily due to higher average borrowings under the Company's revolving credit facility, an increase in the number of capital leases and a decrease in capitalized interest expense.
Net income was $5.1 million with diluted earnings per share of $0.23 in the first half of fiscal 2017. EBITDA during the first half of fiscal 2017 was $24.1 million.
Balance Sheet and Cash Flow
As of March 31, 2017, the Company had $4.2 million in cash and cash equivalents and $17.5 million available for borrowing under its $45 million revolving credit facility. Credit facility usage was comprised of $26.5 million of direct borrowings and $1.0 million of letters of credit.
During the first half of fiscal 2017, the Company generated $22.4 million in cash from operations and invested $23.6 million in capital expenditures, primarily for new stores and relocations. Additionally, during the first half of fiscal 2017, the Company received proceeds of $2.6 million, net of commissions, from a sale-leaseback transaction for a store building.
Growth and Development
During the second quarter of fiscal 2017, the Company opened four new stores and relocated one store, bringing the total store count as of March 31, 2017 to 135 stores in 19 states. The Company opened nine new stores and relocated one store in the first half of fiscal 2017 compared to opening nine new stores and relocating two stores in the first half of 2016, resulting in a 20.5% and 17.9% unit growth rate, respectively, during those periods.
As of the date of this release, the Company has opened one additional store in Iowa during the third quarter and has 13 signed leases for stores planned to open in fiscal 2017 and beyond in Arkansas, Colorado, Iowa, Missouri, Oregon, Texas and Utah.
Fiscal 2017 Outlook
The Company is narrowing its fiscal 2017 outlook ranges to reflect a reduction in the maximum number of new stores planned to be opened during the year. As outlined in the following table, the Company is also reducing its outlook for the number of relocations, narrowing its net income margin, diluted EPS, EBITDA margin and capital expenditures ranges. The initial outlook had been provided when the Company reported fourth quarter and full-year fiscal 2016 results on November 17, 2016:
Updated Fiscal First Half
2017 Outlook FY'17
Actual
------
Number of new stores 15 to 17 9
Number of relocations 2 1
Number of remodels 0 0
Daily average comparable
store sales growth -1.0% to 1.0% -1.2%
Net income as a
percentage of sales 1.4% to 1.5% 1.3%
Diluted earnings per
share $0.50 to $0.54 $0.23
EBITDA as a percentage of
sales 6.4% to 6.7% 6.4%
Capital expenditures (in
millions) $40 to $44 $23.6
The Company does not provide financial guidance for forecasted net income, and, therefore, is unable to provide a reconciliation of its EBITDA guidance to net income, the most comparable financial measure calculated in accordance with GAAP.
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 or sweeteners, or partially hydrogenated or hydrogenated oils. The Company sells only USDA certified organic produce and exclusively pasture-raised, non-confinement dairy products. Natural Grocers' flexible smaller-store format allows it to offer affordable prices in a shopper-friendly retail environment. The Company also provides extensive free science-based nutrition education programs to help customers make informed health and nutrition choices. The Company, founded in 1955, has 136 stores in 19 states.
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 fact 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, future growth 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, 2016 (Form 10-K) 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, the Form 10-K 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 Six months ended
March 31, March 31,
--------- ---------
2017 2016 2017 2016
---- ---- ---- ----
Net sales $192,203 177,395 375,780 345,181
Cost of goods sold and
occupancy costs 138,045 125,792 269,469 245,283
------- ------- ------- -------
Gross profit 54,158 51,603 106,311 99,898
Store expenses 42,400 38,774 84,243 74,673
Administrative expenses 4,959 4,936 9,842 9,690
Pre-opening and relocation
expenses 1,284 1,444 2,545 2,392
----- ----- ----- -----
Operating income 5,515 6,449 9,681 13,143
Interest expense (879) (733) (1,862) (1,386)
---- ---- ------ ------
Income before income taxes 4,636 5,716 7,819 11,757
Provision for income taxes (1,640) (2,139) (2,762) (4,432)
------ ------ ------ ------
Net income $2,996 3,577 5,057 7,325
====== ===== ===== =====
Net income per common share:
Basic $0.13 0.16 0.23 0.33
===== ==== ==== ====
Diluted $0.13 0.16 0.23 0.33
===== ==== ==== ====
Weighted average number of
shares of common stock
outstanding:
Basic 22,458,524 22,499,378 22,455,964 22,498,327
========== ========== ========== ==========
Diluted 22,469,349 22,510,409 22,464,979 22,505,079
========== ========== ========== ==========
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
March 31, September 30, 2016
2017
----
Assets (unaudited)
Current assets:
Cash and cash equivalents $4,234 4,017
Accounts receivable, net 3,189 3,747
Merchandise inventory 92,514 86,330
Prepaid expenses and other current
assets 1,722 3,233
Total current assets 101,659 97,327
------- ------
Property and equipment, net 187,126 178,297
------- -------
Other assets:
Deposits and other assets 1,531 971
Goodwill and other intangible assets,
net of accumulated amortization of
$387 and $380, respectively 5,594 5,601
Deferred financing costs, net 44 50
Total other assets 7,169 6,622
----- -----
Total assets $295,954 282,246
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $60,888 53,615
Accrued expenses 13,665 12,448
Capital and financing lease
obligations, current portion 507 478
Total current liabilities 75,060 66,541
------ ------
Long-term liabilities:
Capital and financing lease
obligations, net of current portion 31,419 31,429
Revolving credit facility 26,477 27,428
Deferred income tax liabilities 11,605 12,178
Deferred compensation 990 757
Deferred rent 9,874 8,809
Leasehold incentives 8,379 8,379
Total long-term liabilities 88,744 88,980
------ ------
Total liabilities 163,804 155,521
------- -------
Commitments (Note 6 and 10)
Stockholders' equity:
Common stock, $0.001 par value,
50,000,000 shares authorized,
22,510,279 shares issued at March
31, 2017 and September 30, 2016 and
22,464,868 and 22,452,609
outstanding at March 31, 2017 and
September 30, 2016, respectively 23 23
Additional paid-in capital 55,659 55,437
Retained earnings 77,012 71,955
Common stock in treasury at cost,
45,411 and 57,670 shares, at March
31, 2017 and September 30, 2016,
respectively (544) (690)
---- ----
Total stockholders' equity 132,150 126,725
------- -------
Total liabilities and stockholders'
equity $295,954 282,246
======== =======
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six months ended
March 31,
---------
2017 2016
---- ----
Operating activities:
Net income $5,057 7,325
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,440 12,237
Loss on disposal of property and equipment - 2
Share-based compensation 414 452
Deferred income tax (benefit) expense (573) 4,780
Non-cash interest expense 6 7
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable, net 558 306
Merchandise inventory (6,184) (7,701)
Prepaid expenses and other assets 1,414 (1,738)
Increase (decrease) in:
Accounts payable 4,580 5,690
Accrued expenses 1,183 (4,981)
Deferred compensation 233 218
Deferred rent and leasehold incentives 1,316 1,414
----- -----
Net cash provided by operating activities 22,444 18,011
------ ------
Investing activities:
Acquisition of property and equipment (23,598) (23,664)
Proceeds from sale of property and equipment, net
of commissions of $80 and zero, respectively 2,564 12
-----
Net cash used in investing activities (21,034) (23,652)
------- -------
Financing activities:
Borrowings under credit facility 142,350 147,662
Repayments under credit facility (143,300) (139,085)
Capital and financing lease obligations payments (231) (199)
Loan fees paid - (42)
Payments on withholding tax for vested restricted
stock units (12) (10)
Net cash (used in) provided by financing activities (1,193) 8,326
------ -----
Net increase in cash and cash equivalents 217 2,685
Cash and cash equivalents, beginning of period 4,017 2,915
----- -----
Cash and cash equivalents, end of period $4,234 5,600
====== =====
Supplemental disclosures of cash flow information:
Cash paid for interest $330 83
Cash paid for interest on capital and financing
lease obligations, net of capitalized interest of
$237 and $316, respectively 1,483 1,247
Income taxes paid 1,382 6,012
Supplemental disclosures of non-cash investing and
financing activities:
Acquisition of property and equipment not yet paid $9,528 6,031
Property acquired through capital and financing
lease obligations - 2,665
Non-GAAP financial measures
EBITDA
EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. The following table reconciles net income to EBITDA for the periods presented, dollars in thousands:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2017 2016 2017 2016
---- ---- ---- ----
Net income $2,996 3,577 5,057 7,325
Interest
expense 879 733 1,862 1,386
Provision for
income taxes 1,640 2,139 2,762 4,432
Depreciation
and
amortization 7,319 6,192 14,440 12,237
----- ----- ------ ------
EBITDA $12,834 12,641 24,121 25,380
======= ====== ====== ======
EBITDA increased 1.5% to $12.8 million in the three months ended March 31, 2017 compared to $12.6 million for the three months ended March 31, 2016. EBITDA decreased 5.0% to $24.1 million in the six months ended March 31, 2017 compared to $25.4 million for the six months ended March 31, 2016. EBITDA as a percent of sales was 6.7% and 7.1% in the three months ended March 31, 2017 and 2016, respectively. EBITDA as a percent of sales was 6.4% and 7.4% in the six months ended March 31, 2017 and 2016, respectively.
Management believes that some investors' understanding of our performance is enhanced by including EBITDA, a non-GAAP financial measure. We believe EBITDA provides additional information about: (i) our operating performance, because it assists us in comparing the operating performance of our 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 our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is a component of a measure in our financial covenants under our Credit Facility. Further, our incentive compensation plan bases incentive compensation payments on EBITDA.
Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that some investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. By providing this non-GAAP financial measure, together with a reconciliation from net income, we believe we are enhancing analysts' and investors' understanding of our business and our results of operations, as well as assisting analysts and investors in evaluating how well we are executing our strategic initiatives.
Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to those 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 an alternative to, or as a substitute for, analysis of our results as reported under GAAP. Some of the limitations are:
-- EBITDA does not reflect our cash expenditures, or future requirements
for capital expenditures or contractual commitments;
-- EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
-- EBITDA does not reflect any impact for straight-line rent expense for
leases classified as capital and financing lease obligations;
-- EBITDA does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;
-- EBITDA does not reflect our tax expense or the cash requirements to pay
our taxes; and
-- although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future and EBITDA does not reflect any cash requirements for such
replacements.
Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as supplemental information.
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SOURCE Natural Grocers by Vitamin Cottage, Inc.
