LAKEWOOD, Colo., Nov. 17, 2016 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its fourth quarter and fiscal year ended September 30, 2016 and provided its outlook for fiscal 2017.
Highlights for Fourth Quarter and Fiscal 2016 Compared to Fourth Quarter and Fiscal 2015
"We continued to execute our core strategies during the fourth quarter while navigating the evolving food retailing environment," said Kemper Isely, Co-President. "Our growth strategy resulted in the opening of 23 new stores, the relocation of four stores and the remodel of one store during fiscal 2016. As we enter fiscal 2017, we remain focused on our expanded sales initiatives and aggressively controlling costs, while leveraging our founding principles to ensure we are providing our customers a superior solution for healthy, natural and nutritious food shopping."
In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the fourth quarters and fiscal years 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 — Fourth Quarter Fiscal 2016 Compared to Fourth Quarter Fiscal 2015
During the fourth quarter of fiscal 2016, net sales increased $18.6 million, or 11.5%, to $181.0 million compared to the same period in fiscal 2015, primarily due to an $18.1 million increase in new store revenue and a $0.5 million, or 0.3%, increase in comparable store sales. The 0.3% increase in comparable store sales in the fourth quarter of fiscal 2016 followed a 6.2% increase in the fourth quarter of fiscal 2015 and was driven by a 1.0% increase in average transaction size period over period, partially offset by a 0.7% decrease in average customer count. Daily average mature store sales decreased 1.8% in the fourth quarter of fiscal 2016. For fiscal 2016, mature stores include all stores open during or before fiscal 2011.
Gross profit during the fourth quarter of fiscal 2016 increased 8.9% over the same period in fiscal 2015 to $50.9 million, primarily driven by an increase in the comparable store base. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.1% for the fourth quarter of fiscal 2016 compared to 28.8% for the fourth quarter of fiscal 2015. Gross margin was negatively impacted primarily by an increase in occupancy costs as a percentage of sales and to a lesser extent increased shrink expense, partially offset by product margin improvements. The increase in occupancy costs as a percentage of sales was primarily due to higher average lease expenses at newer and relocated stores and also reflects the decrease in mature store sales and the fixed nature of rent obligations and related occupancy expenses.
Store expenses during the fourth quarter of fiscal 2016 increased $6.3 million, or 17.9%, to $41.4 million. Store expenses as a percentage of sales increased approximately 130 basis points to 22.9% during the fourth quarter of fiscal 2016 compared to 21.6% in the fourth quarter of fiscal 2015. This increase was primarily due to increases, as a percentage of sales, in salary-related expenses, depreciation and other store expenses.
Administrative expenses decreased $0.1 million, or 1.5%, to $4.7 million during the fourth quarter of fiscal 2016 compared to $4.8 million during the fourth quarter of 2015. Administrative expenses as a percentage of sales decreased approximately 40 basis points to 2.6% in the fourth quarter of fiscal 2016 compared to 3.0% in the fourth quarter of fiscal 2015, primarily due to a decrease in salary-related expenses and various professional fees.
Pre-opening and relocation expenses increased $0.3 million to $1.6 million during the fourth quarter of fiscal 2016 compared to $1.3 million during the comparable period in fiscal 2015, due to the number and timing of new store openings. During the fourth quarter of fiscal 2016, the Company opened eight new stores and relocated one store compared to opening four new stores, relocating one store and remodeling one store during the fourth quarter of fiscal 2015.
Interest expense during the fourth quarter of fiscal 2016 increased to $0.9 million compared to $0.8 million during the fourth quarter of fiscal 2015 primarily due to an increase in borrowings under the company's revolving credit facility.
The Company's effective income tax rate for the three months ended September 30, 2016 and 2015 was 37.1% and 39.7%, 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 an increase in additional tax credits.
Net income in the fourth quarter of fiscal 2016 was $1.5 million, with diluted earnings per share of $0.07. EBITDA in the fourth quarter of fiscal 2016 was $10.1 million.
Operating Results —Fiscal 2016 Compared to Fiscal 2015
In fiscal 2016, net sales increased $80.8 million, or 12.9%, to $705.5 million compared to fiscal 2015 due to a $70.5 million increase in sales from new stores and a $10.3 million, or 1.7%, increase in comparable store sales. Daily average comparable store sales increased 1.4% during fiscal 2016, which followed a 5.9% increase in fiscal 2015. The 1.4% increase in fiscal 2016 was driven by a 1.1% increase in average transaction size and a 0.2% increase in daily average transaction count. Daily average mature store sales decreased 1.0% in fiscal 2016.
Gross profit in fiscal 2016 increased 10.8% over fiscal 2015 to $201.8 million, primarily driven by an increase in the number of comparable stores, comparable store sales growth and one additional selling day due to the leap year. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.6% in fiscal 2016, compared to 29.2% in fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales. The increase in occupancy costs as a percentage of sales was primarily due to higher average lease expenses at newer and relocated stores and also reflects the decrease in mature store sales and the fixed nature of rent obligations and related occupancy expenses. Additionally, product margin improved across certain categories, partially offset by increased shrink expense, all as a percentage of sales.
Store expenses increased $24.0 million, or 18.2%, to $156.2 million in fiscal 2016 from $132.1 million in fiscal 2015. Store expenses as a percentage of sales increased approximately 90 basis points to 22.1% in fiscal 2016 compared to 21.2% in fiscal 2015. The increase in store expenses as a percentage of sales was primarily due to increases in salary-related expenses, depreciation and other store expenses.
Administrative expenses increased $1.7 million, or 9.9%, to $19.2 million in fiscal 2016 compared to $17.5 million in fiscal 2015. The increase was primarily due to the addition of senior management positions to support growth, together with increased legal and public company costs. Administrative expenses as a percentage of sales were 2.7% and 2.8% for fiscal years 2016 and 2015, respectively.
Pre-opening and relocation expenses increased $2.2 million to $6.0 million in fiscal 2016 compared to $3.8 million in fiscal 2015. The increase was primarily due to the number and timing of new store openings and relocations. During fiscal 2016, the Company opened 23 new stores, relocated four stores and remodeled one store compared to opening 16 new stores, relocating one store and remodeling one store during fiscal 2015.
Interest expense increased less than $0.1 million, or 1.7%, in fiscal 2016 compared to fiscal 2015, primarily due to an increase in interest expense associated with the Company's revolving credit facility due to higher average borrowings, partially offset by an increase in capitalized interest during fiscal 2016.
The Company's effective income tax rate for fiscal years 2016 and 2015 was 33.8% and 36.8%, respectively. The decrease in the effective income tax rate was primarily due to a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in the Company's fiscal 2015 tax return that were higher than previously estimated in the 2015 fiscal year tax provision.
Net income for fiscal 2016 was $11.5 million, with diluted earnings per share of $0.51. EBITDA for fiscal 2016 was $45.9 million.
Balance Sheet and Cash Flow
As of September 30, 2016, the Company had $4.0 million in cash and cash equivalents and $16.6 million available under its $45 million revolving credit facility. Credit facility usage was comprised of $27.4 million of direct borrowings and $1.0 million of letters of credit.
During fiscal 2016, the Company generated $28.8 million in cash from operations and invested $53.8 million in capital expenditures, primarily for new and relocated stores. Additionally, during fiscal 2016, the Company utilized $0.8 million for the repurchase of 67,970 common shares under the Company's two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company's common stock.
Growth and Development
During the fourth quarter of fiscal 2016, the Company opened eight new stores, bringing the total store count as of September 30, 2016 to 126 stores located in 19 states. The Company opened 23 new stores in fiscal 2016 compared to 16 new stores in fiscal 2015, resulting in 22.3% and 18.4% unit growth rate for the fiscal years 2016 and 2015, respectively. Additionally, the Company relocated four stores and completed the remodel of another store during fiscal 2016. The Company now plans to open a total of 15 to 20 new stores during fiscal 2017 (compared to an initial expectation of 19 to 23 store openings), which would result in an annual unit growth rate of 12% to 16%.
Since October 1, 2016, the Company has opened one additional store in Missouri and has signed leases for 19 stores planned to open in fiscal 2017 and 2018, all in states where the Company currently operates.
Fiscal 2017 Outlook
For fiscal 2017, the Company expects:
Number of new stores
15 to 20
Number of relocations
Number of remodels
Daily average comparable store sales growth
-1.0% to 1.0%
Net income as a percent of sales
1.4% to 1.6%
Diluted earnings per share
$0.50 to $0.58
EBITDA as a percentage of sales
6.4% to 6.8%
Capital expenditures (in millions)
$40 to $48
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 127 stores in 19 states.
Visit www.NaturalGrocers.com for more information and store locations.
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 (including 2017 guidance) 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
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
(Dollars in thousands, except per share data)
Three months ended
Cost of goods sold and occupancy costs
Pre-opening and relocation expenses
Income before income taxes
Provision for income taxes
Net income per share of common stock:
Weighted average common shares outstanding:
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Deferred income tax assets
Total current assets
Property and equipment, net
Deposits and other assets
Goodwill and other intangible assets, net
Deferred financing costs, net
Total other assets
Liabilities and Stockholders' Equity
Capital and financing lease obligations, current portion
Total current liabilities
Capital and financing lease obligations, net of current portion
Revolving credit facility
Deferred income tax liabilities
Total long-term liabilities
Common stock, $0.001 par value. 50,000,000 shares authorized, 22,510,279 and 22,496,628 shares issued, at 2016 and 2015, respectively and 22,452,609 and 22,496,628 outstanding, at 2016 and 2015, respectively
Additional paid-in capital
Common stock in treasury at cost, 57,670 and no shares, at 2016 and 2015, respectively
Total stockholders' equity
Total liabilities and stockholders' equity
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended September 30,
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
(Gain) loss on disposal of property and equipment
Deferred income tax expense
Non-cash interest expense
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net
Income tax receivable
Prepaid expenses and other assets
Increase (decrease) in:
Deferred rent and leasehold incentives
Net cash provided by operating activities
Acquisition of property and equipment
Proceeds from sale of property and equipment
Payment for acquisition
Net cash used in investing activities
Borrowings under credit facility
Repayments under credit facility
Repurchases of Common Stock
Capital and financing lease obligations payments
Contingent consideration payments for acquisition
Payments on withholding tax for restricted stock unit vesting
Loan fees paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $538, $309 and $364, respectively
Income taxes paid
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid
Property acquired through capital and financing lease obligations
Direct bank to bank payment for a change in credit facility provider
NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Non-GAAP Financial Measure
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 10.9% to $10.1 million in the three months ended September 30, 2016 compared to $11.4 million for the three months ended September 30, 2015. EBITDA decreased 8.1% to $45.9 million in the year ended September 30, 2016 compared to $50.0 million in the year ended September 30, 2015. EBITDA as a percent of sales was 5.6% and 7.0% in the three months ended September 30, 2016 and 2015, respectively. EBITDA as a percentage of sales was 6.5% and 8.0% for the years ended September 30, 2016 and 2015, respectively.
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 and 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:
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
Provision for income taxes
Depreciation and amortization
SOURCE Natural Grocers by Vitamin Cottage, Inc.