Natural Grocers by Vitamin Cottage Announces Third Quarter and Year to Date Fiscal 2016 Results

From www.prnewswire.com, by Vitamin Cottage Natural Food Markets, Inc.
Natural Grocers by Vitamin Cottage Announces Third Quarter and Year to Date Fiscal 2016 Results
Natural Grocers by Vitamin Cottage (PRNewsFoto/Natural Grocers)

LAKEWOOD, Colo., July 28, 2016 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its third quarter and year to date fiscal 2016 periods ended June 30, 2016, reaffirmed its outlook for fiscal 2016 and provided its initial unit growth outlook range for fiscal 2017.

Highlights for Third Quarter and Year to Date Fiscal 2016 Compared to Third Quarter and Year to Date Fiscal 2015

  • Net sales increased 13.0% to $179.3 million in the third quarter and increased 13.4% to $524.5 million year to date.
  • Comparable store sales increased 1.8% in the quarter and 2.1% year to date. Daily average comparable store sales increased 0.7% in the third quarter and increased 1.8% year to date.
  • Net income was $2.7 million with diluted earnings per share of $0.12 in the third quarter and was $10.0 million with diluted earnings per share of $0.44 year to date.
  • EBITDA was $10.4 million in the third quarter and was $35.8 million year to date.
  • Opened 15 new stores year to date in fiscal 2016, compared to 12 new stores year to date in fiscal 2015, resulting in growth rates of 19.2% and 17.9% for the twelve month periods ended June 30, 2016 and 2015, respectively.

"We began to see some stabilization in our sales trends during the third quarter, which, combined with prudent cost measures, allowed us to deliver results consistent with our guidance," said Kemper Isely, Co-President. "We are confident that the sales initiatives we are implementing, along with new store performance that is in line with expectations, will support our growth objectives."

In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the third quarter and year to date fiscal 2016 and 2015 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 — Third Quarter Fiscal 2016 Compared to Third Quarter Fiscal 2015

During the third quarter of fiscal 2016, net sales increased $20.6 million, or 13.0%, to $179.3 million compared to the same period in fiscal 2015, primarily due to a $17.7 million increase in new store revenue and a $2.9 million, or 1.8%, increase in comparable store sales.  Daily average comparable store sales increased 0.7% in the third quarter of fiscal 2016, which followed a 5.8% increase in the third quarter of fiscal 2015 and was driven by a 0.7% increase in average transaction size period over period. Daily average mature store sales decreased 1.3% in the third quarter of fiscal 2016. For fiscal 2016, mature stores include all stores open during or before fiscal 2011.

Gross profit during the third quarter of fiscal 2016 increased 10.4% over the same period in fiscal 2015 to $50.9 million, primarily driven by an increase in the comparable store base, comparable store sales growth and one additional selling day compared to the same period in fiscal 2015. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.4% for the third quarter of fiscal 2016 compared to 29.1% for the third quarter of fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales and shrink expense, partially offset by product margin improvements across most categories.

Store expenses during the third quarter of fiscal 2016 increased $6.6 million, or 19.7%, to $40.1 million. Store expenses as a percentage of sales increased approximately 125 basis points to 22.4% during the third quarter of fiscal 2016 compared to 21.1% in the third quarter fiscal 2015. This increase was primarily due to increases in salary-related expenses, depreciation and other store expenses.

Administrative expenses increased $0.5 million, or 11.4%, to $4.8 million for the three months ended June 30, 2016 compared to $4.3 million for the three months ended June 30, 2015.  The increase in administrative expenses was primarily due to the addition of senior management positions to support the Company's growth, together with legal and public company costs.  Administrative expenses as a percentage of sales was 2.7% for each of the three months ended June 30, 2016 and 2015.

Pre-opening and relocation expenses increased $0.9 million during the third quarter of fiscal 2016 compared to the comparable period in fiscal 2015, due to the number and timing of new store openings and relocations. During the third quarter of fiscal 2016, the Company opened six new stores, relocated one store and remodeled one store compared to opening four new stores during the third quarter of fiscal 2015. Additionally, the Company incurred heightened pre-opening expenses as it prepared to open eight new stores during the fourth quarter of fiscal 2016.

Interest expense during the third quarter of fiscal 2016 remained relatively flat when compared to the comparable period in fiscal 2015.

The Company's effective income tax rate for the three months ended June 30, 2016 and 2015 was 17.5% and 32.8%, respectively.  The decrease in the effective income tax rate was driven by a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in our fiscal 2015 tax return that were higher than previously estimated in the provision for the three months ended June 30, 2016.

Net income in the third quarter of fiscal 2016 was $2.7 million, with diluted earnings per share of $0.12. EBITDA in the third quarter of fiscal 2016 was $10.4 million.

Operating Results — Year to Date Fiscal 2016 Compared to Year to Date Fiscal 2015

During the nine months ended June 30, 2016, net sales increased $62.2 million, or 13.4%, over the same period in fiscal 2015 to $524.5 million due to a $52.4 million increase in sales from new stores and a $9.8 million, or 2.1%, increase in comparable store sales. Daily average comparable store sales increased 1.8% during the first nine months of fiscal 2016, which followed a 5.8% increase year to date in fiscal 2015. The 1.8% increase year to date in fiscal 2016 was driven by a 1.1% increase in average transaction size and a 0.7% increase in daily average transaction count. Daily average mature store sales decreased 0.8% year to date in fiscal 2016.

Gross profit year to date in fiscal 2016 increased 11.5% over the same period in fiscal 2015 to $150.8 million, primarily driven by an increase in the number of comparable stores, comparable store sales growth and one additional selling day compared to the same period in fiscal 2015. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.8% year to date in fiscal 2016, compared to 29.3% year to date in fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales.  Product margin improvements across most categories were offset by increased shrink expense, all as a percentage of sales.

Store expenses as a percentage of sales increased 90 basis points year to date in fiscal 2016 compared to the comparable period in fiscal 2015, due primarily to increases in salary-related expenses, depreciation and other store expenses.

Administrative expenses increased $1.8 million, or 14.2%, to $14.5 million for the nine months ended June 30, 2016 compared to $12.7 million for the nine months ended June 30, 2015. The increase in administrative expenses was primarily due to the addition of senior management positions to support our growth, together with legal and public company costs.  Administrative expenses as a percentage of sales were 2.8% and 2.7% for each of the nine months ended June 30, 2016 and 2015, respectively.

Pre-opening and relocation expenses increased $1.9 million year to date in fiscal 2016 compared to the comparable period in fiscal 2015, primarily due to the number and timing of new store openings and relocations. During the first nine months of fiscal 2016, the Company opened 15 new stores, relocated three stores and remodeled one store compared to opening 12 new stores during the first nine months of fiscal 2015. Additionally, the Company incurred heightened pre-opening expenses as it prepared to open eight new stores during the fourth quarter of fiscal 2016.

Interest expense decreased less than $0.1 million, or 2.9%, in the nine months ended June 30, 2016 compared to the comparable period in fiscal 2015, primarily due to an increase in capitalized interest, partially offset by an increase in interest expense associated with the Company's credit facility due to higher average borrowings during the nine months ended June 30, 2016.

The Company's effective income tax rate for the nine months ended June 30, 2016 and 2015 was 33.3% and 36.1%, respectively.  The decrease in the effective income tax rate was driven by a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in our fiscal 2015 tax return that were higher than previously estimated in the provision for the nine months ended June 30, 2016.

Net income for the nine months ended June 30, 2016 was $10.0 million, with diluted earnings per share of $0.44. EBITDA for the nine months ended June 30, 2016 was $35.8 million.

Balance Sheet and Cash Flow

As of June 30, 2016, the Company had $2.7 million in cash and cash equivalents, and $25.2 million available under its credit facility.  On May 10, 2016, the Company's credit facility was amended to increase the amount available for borrowing thereunder to $45.0 million. Credit facility usage was comprised of $18.8 million of direct borrowings and $1.0 million of letters of credit.

Year to date in fiscal 2016, the Company generated $20.7 million in cash from operations and invested $39.3 million in capital expenditures, primarily for new stores.

Growth and Development

During the third quarter of fiscal 2016, the Company opened six new stores, bringing the total store count as of June 30, 2016 to 118 stores located in 19 states. The Company opened 15 new stores year to date in fiscal 2016 compared to 12 new stores year to date in fiscal 2015, resulting in 19.2% and 17.9% unit growth rate for the twelve month periods ended June 30, 2016 and 2015, respectively. Additionally, the Company relocated one store and completed the remodel of another store during the third quarter of fiscal 2016. The Company plans to open a total of 23 new stores in fiscal 2016, which would result in an annual unit growth rate of 22.3%.

As of the date of this release, the Company has opened two additional stores in Arizona, relocated a store in Colorado and has 19 signed leases for stores planned to open in fiscal 2016 and 2017 in Arizona, Colorado, Idaho, Iowa, Missouri, Nevada, North Dakota, Oregon, Texas, Utah and Washington.

Fiscal 2016 Outlook

The Company is reiterating its outlook for fiscal 2016, which was updated when the Company reported preliminary second quarter results on April 20, 2016:

Current Fiscal
2016 Outlook

Nine Months
Ended June 30,
2016 Actual

Number of new stores

23

15

Number of relocations

4

3

Number of remodels

1

1

Daily average comparable store sales growth

0% to 1.5%  

1.8%

Net income as a percent of sales

       1.6% to 1.8%  

1.9%

Diluted earnings per share

  $0.50 to $0.56  

$0.44

EBITDA as a percentage of sales

6.7% to 7.0%  

6.8%

Capital expenditures (in millions)

     $52 to $54  

$39

 

Initial Fiscal 2017 Unit Growth Outlook

The Company is providing its initial 2017 unit growth outlook. The company anticipates opening 19 to 23 new stores, representing 15% to 18% unit growth over the expected fiscal 2016 year-end store count.

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 120 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, 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, 2015 (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
June 30,

Nine months ended
June 30,

2016

2015

2016

2015

Net sales

$

179,274

158,650

524,455

462,281

Cost of goods sold and occupancy costs

128,344

112,508

373,627

326,975

Gross profit

50,930

46,142

150,828

135,306

Store expenses

40,095

33,508

114,768

97,018

Administrative expenses

4,813

4,322

14,503

12,705

Pre-opening and relocation expenses

2,007

1,078

4,399

2,525

Operating income

4,015

7,234

17,158

23,058

Interest expense

(768)

(768)

(2,154)

(2,217)

Income before income taxes

3,247

6,466

15,004

20,841

Provision for income taxes

(567)

(2,121)

(4,999)

(7,529)

Net income

$

2,680

4,345

10,005

13,312

Net income per common share:

Basic

$

0.12

0.19

0.44

0.59

Diluted

$

0.12

0.19

0.44

0.59

Weighted average number of shares of common stock outstanding:

Basic

22,501,044

22,491,158

22,499,229

22,488,975

Diluted

22,506,098

22,500,454

22,505,220

22,499,732

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)

June 30,

2016

September 30, 2015

Assets

Current assets:

Cash and cash equivalents

$

2,703

2,915

Accounts receivable, net

2,593

2,576

Merchandise inventory

86,368

74,818

Prepaid expenses and other current assets

3,347

1,108

Deferred income tax assets

866

Total current assets

95,011

82,283

Property and equipment, net

172,003

145,219

Other assets:

Deposits and other assets

947

778

Goodwill and other intangible assets, net of accumulated amortization of $372 and $683, respectively

5,599

5,623

Deferred financing costs, net

53

21

Total other assets

6,599

6,422

Total assets

$

273,613

233,924

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

56,050

49,896

Accrued expenses

13,293

19,649

Capital and financing lease obligations, current portion

435

333

Total current liabilities

69,778

69,878

Long-term liabilities:

Capital and financing lease obligations, net of current portion

30,509

27,274

Deferred income tax liabilities

10,961

6,073

Revolving credit facility

18,827

Deferred compensation

644

314

Deferred rent

8,360

6,922

Leasehold incentives

8,557

7,975

Total long-term liabilities

77,858

48,558

Total liabilities

147,636

118,436

Stockholders' equity:

Common stock, $0.001 par value, 50,000,000 shares authorized, 22,503,644 and 22,496,628 shares issued and outstanding, respectively

23

22

Additional paid-in capital

55,604

54,982

Retained earnings

70,489

60,484

Common stock in treasury, at cost, 10,300 and no shares, respectively

(139)

Total stockholders' equity

125,977

115,488

Total liabilities and stockholders' equity

$

273,613

233,924

 

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

Nine months ended

June 30,

2016

2015

Operating activities:

Net income

$

10,005

13,312

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

18,617

15,532

Loss on disposal of property and equipment

4

53

Share-based compensation

662

398

Deferred income tax expense

5,754

958

Non-cash interest expense

10

12

Changes in operating assets and liabilities

Increase in:

Accounts receivable, net

(17)

(525)

Merchandise inventory

(11,550)

(10,656)

Prepaid expenses and other assets

(2,409)

(613)

Increase (decrease) in:

Accounts payable

3,409

8,028

Accrued expenses

(6,363)

910

Deferred compensation

330

207

Deferred rent and leasehold incentives

2,280

1,605

Net cash provided by operating activities

20,732

29,221

Investing activities:

Acquisition of property and equipment

(39,302)

(24,806)

Proceeds from sale of property and equipment

12

12

Payment for acquisition

(5,601)

Net cash used in investing activities

(39,290)

(30,395)

Financing activities:

Borrowings under credit facility

175,062

115,423

Repayments under credit facility

(156,235)

(115,423)

Capital and financing lease obligations payments

(290)

(169)

Contingent consideration payments for acquisition

(514)

Loan fees paid

(42)

Repurchases of common stock

(139)

Payments on withholding tax for restricted stock unit vesting

(10)

(22)

Net cash provided by (used in) financing activities

18,346

(705)

Net decrease in cash and cash equivalents

(212)

(1,879)

Cash and cash equivalents, beginning of period

2,915

5,113

Cash and cash equivalents, end of period

$

2,703

3,234

Supplemental disclosures of cash flow information:

Cash paid for interest

$

161

35

Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $469 and $207, respectively

1,897

2,109

Income taxes paid

6,362

6,254

Supplemental disclosures of non-cash investing and financing activities:

Acquisition of property and equipment not yet paid

$

9,177

6,367

Property acquired through capital and financing lease obligations

3,343

5,827

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Non-GAAP Financial Measure
(Unaudited)

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.

EBITDA decreased 17.7% to $10.4 million in the three months ended June 30, 2016 compared to $12.6 million for the three months ended June 30, 2015.  EBITDA decreased 7.3% to $35.8 million in the nine months ended June 30, 2016 compared to $38.6 million for the nine months ended June 30, 2015.  EBITDA as a percent of sales was 5.8% and 8.0% in the three months ended June 30, 2016 and 2015, respectively.  EBITDA as a percent of sales was 6.8% and 8.3% in the nine months ended June 30, 2016 and 2015, respectively. Stores with leases that are classified as capital and financing lease obligations, rather than being reflected as operating leases, increased EBITDA as a percentage of sales by approximately 55 basis points in each of the three months ended June 30, 2016 and 2015, respectively, and by approximately 55 basis points in each of the nine months ended June 30, 2016 and 2015, respectively, due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that would have been included in pre-opening expenses prior to the stores' opening dates if these leases had been accounted for as operating leases. 

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 the Credit Facility. Further, our incentive compensation plans base 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 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 as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as indicators of our financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, 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.

The following table reconciles net income to EBITDA for the periods presented, dollars in thousands:

Three months ended
June 30,

Nine months ended
June 30,

2016

2015

2016

2015

Net income

$

2,680

4,345

10,005

13,312

Interest expense

768

768

2,154

2,217

Provision for income taxes

567

2,121

4,999

7,529

Depreciation and amortization

6,380

5,402

18,617

15,532

EBITDA

$

10,395

12,636

35,775

38,590

 

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.

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SOURCE Vitamin Cottage Natural Food Markets, Inc.

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