Form 8-K Natural Grocers by Vitam For: May 06

Exhibit 99.1

 

 

Natural Grocers by Vitamin Cottage Announces Second Quarter Fiscal 2021 Results

 

 

 

Lakewood, Colorado, May 6, 2021. Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its second quarter of fiscal 2021 ended March 31, 2021 and confirmed its outlook for fiscal 2021.

 

Highlights for Second Quarter Fiscal 2021 Compared to Second Quarter Fiscal 2020

●

Net sales decreased 6.6% to $259.2 million;

●

Daily average comparable store sales decreased 7.0%;

●

Daily average comparable store sales on a two-year stacked basis increased 10.0%;

●

Operating income was $6.7 million compared to $13.3 million;

●

Diluted earnings per share was $0.21 compared to $0.43;

●

Adjusted EBITDA was $14.1 million compared to $21.1 million; and

●

Opened one new store and remodeled one store, resulting in a 2.5% new store growth rate for the twelve-month period ended March 31, 2021.

 

“We delivered earnings within our expectations despite severe weather-related challenges and lapping extremely difficult comparisons due to the initial pandemic sales surge we experienced in the second quarter of fiscal 2020,” said Kemper Isely, Co-President. “Our strong engagement with our customers and communities, coupled with our steadfast focus on providing the highest quality, healthy foods at an Always Affordable Price^SM continues to resonate with consumers. We are grateful for the commitment of all of our good4u^SM Crew members and we continue to prioritize the safety of our customers and crew amidst the COVID-19 pandemic.”

 

Operating Results — Second Quarter Fiscal 2021 Compared to Second Quarter Fiscal 2020

 

During the second quarter of fiscal 2021, net sales decreased $18.3 million, or 6.6%, to $259.2 million, compared to the same period in fiscal 2020, driven by a $22.1 million decrease in comparable store sales and a $3.8 million increase in new store sales. Daily average comparable store sales decreased 7.0% in the second quarter of fiscal 2021, compared to a 17.0% increase in the second quarter of fiscal 2020. On a two-year stacked basis, daily average comparable store sales increased 10.0%. The daily average comparable store sales decrease during the second quarter of fiscal 2021 reflected a 13.9% decrease in daily average transaction count, partially offset by an 8.0% increase in daily average transaction size. This reflects a continuation of the trends the Company experienced over the last year as customers practiced social distancing efforts with larger but less frequent shopping trips. The decrease in net sales during the second quarter of fiscal 2021 was primarily a result of unprecedented net sales in the second quarter of 2020 as customers pantry loaded at the onset of the COVID-19 pandemic, which contributed to a daily average comparable store sales increase in March of 2020 of approximately 40%. Additionally, severe cold and ice storms during February disrupted our operations in many of our South Central and Pacific Northwest markets, adversely impacting the second quarter daily average comparable store sales by an estimated 70 basis points.

 

Gross profit during the second quarter of fiscal 2021 decreased 7.7%, to $71.8 million. Gross profit reflects earnings after both product and occupancy expenses. Gross margin decreased to 27.7% during the second quarter of fiscal 2021, compared to 28.0% in the second quarter of fiscal 2020. The decrease in gross margin was primarily driven by occupancy deleverage, reflecting decreased sales volume, partially offset by a modest improvement in product margin.

 

Store expenses during the second quarter of fiscal 2021 increased 2.7%, to $58.4 million. Store expenses as a percentage of net sales increased to 22.5% during the second quarter of fiscal 2021, compared to 20.5% in the second quarter of fiscal 2020. The increase in store expenses as a percentage of net sales was attributed to the deleverage associated with the decrease in sales volume and increased labor-related expenses.

 

Administrative expenses decreased 9.7% to $6.4 million during the second quarter of fiscal 2021. Administrative expenses as a percentage of net sales were 2.5% during the second quarter of fiscal 2021, consistent with the second quarter of fiscal 2020.

 

 

Operating income decreased 49.4% to $6.7 million during the second quarter of fiscal 2021, compared to $13.3 million in the comparable period in fiscal 2020. Operating margin during the second quarter of fiscal 2021 decreased to 2.6%, compared to 4.8% in the same period in fiscal 2020.

 

Net income for the second quarter of fiscal 2021 was $4.7 million, or $0.21 of diluted earnings per share, compared to net income of $9.7 million, or $0.43 of diluted earnings per share for the second quarter of fiscal 2020.

 

Adjusted EBITDA was $14.1 million in the second quarter of fiscal 2021, compared to $21.1 million in the second quarter of fiscal 2020.

 

Operating Results — First Half of Fiscal 2021 Compared to First Half of Fiscal 2020

 

During the first half of fiscal 2021, net sales increased $16.7 million, or 3.3%, to $524.2 million, compared to the first half of fiscal 2020, primarily driven by a $7.1 million increase in comparable store sales and a $9.6 million increase in new store sales. Daily average comparable store sales increased 2.0% in the first half of fiscal 2021, compared to a 9.7% increase in the first half of fiscal 2020. On a two-year stacked basis, daily average comparable store sales increased 11.7%. The daily average comparable store sales increase during the first half of fiscal 2021 reflected a 14.1% increase in daily average transaction size, partially offset by a 10.6% decrease in daily average transaction count. The primary driver of increased sales during the first half of fiscal 2021 was our customers’ response to the COVID-19 pandemic and government related mandates, partially offset by the adverse impact of severe cold and ice storms on our operations in the South Central and Pacific Northwest markets. Also contributing to the increase in net sales were positive contributions from continuing marketing initiatives, promotional campaigns and increased membership in and usage of the {N}power® customer loyalty program.

 

Gross profit during the first half of fiscal 2021 increased 4.7% to $144.9 million. Gross profit reflects earnings after both product and occupancy expenses. Gross margin was 27.6% for the first half of fiscal 2021, compared to 27.3% for the first half of fiscal 2020. The increase in gross margin was primarily a result of an improved product margin, and decreases in store occupancy and shrink expenses, as a percentage of net sales.

 

Store expenses during the first half of fiscal 2021 increased 9.6%, to $118.8 million. Store expenses as a percentage of net sales increased to 22.7% during the first half of fiscal 2021, compared to 21.3% in the first half of fiscal 2020. The increase in store expenses, as a percentage of net sales, during the first half of fiscal 2021 was due primarily to increased labor-related expenses.

 

Administrative expenses during the first half of fiscal 2021 increased 6.3% to $13.7 million. Administrative expenses as a percentage of net sales were 2.6% during the first half of fiscal 2021, compared to 2.5% in the first half of fiscal 2020.

 

Operating income decreased 26.1% to $11.9 million during the first half of fiscal 2021, compared to $16.1 million in the first half of fiscal 2020. Operating margin decreased to 2.3%, compared to 3.2% in the first half of fiscal 2020.

 

Net income for the first half of fiscal 2021 was $8.3 million, or $0.37 of diluted earnings per share, compared to $11.6 million, or $0.51 of diluted earnings per share for the first half of fiscal 2020.

 

Adjusted EBITDA was $27.4 million in the first half of fiscal 2021, compared to $31.7 million in the first half of fiscal 2020.

 

Balance Sheet and Cash Flow

 

As of March 31, 2021, the Company had $21.0 million in cash and cash equivalents, no outstanding balance on the Company’s $50.0 million revolving credit facility and $34.6 million outstanding on the fully drawn term loan facility.

 

During the first half of fiscal 2021, the Company generated $17.3 million in cash from operations and invested $9.5 million in net capital expenditures.

 

Dividend Announcement

 

Today, the Company announced the declaration of a quarterly cash dividend of $0.07 per common share. The dividend will be paid on June 16, 2021 to all stockholders of record at the close of business on June 1, 2021.

 

 

Growth and Development

 

During the second quarter of fiscal 2021, the Company opened one new store and remodeled one store, ending the quarter with a total store count of 161 stores in 20 states. The Company’s one store opening and one remodel during the second quarter of fiscal 2021, compared to opening two new stores in the second quarter of fiscal 2020, resulting in 2.5% and 3.3% unit growth rates for the twelve month periods ended March 31, 2021 and March 31, 2020, respectively.

 

As of May 6, 2021, the Company has signed leases for five new stores, which will be located in Colorado, Missouri, Nevada, and Oregon. These new stores are planned to open during fiscal 2021 and beyond.

 

Fiscal 2021 Outlook

 

The Company is confirming its fiscal 2021 outlook, which was previously announced on November 19, 2020, with the exception of lowering its expectations for new store openings and store relocations/remodels during fiscal 2021. The adjustment in new store and relocation/remodel expectations is driven by delays the Company is experiencing in the construction process and equipment deliveries. The fiscal 2021 outlook reflects current trends in light of the rapidly evolving COVID-19 environment and related government mandates. While the Company cannot predict the duration or severity of the pandemic and related government mandates, the Company expects these factors will continue to impact its operations and financial performance through fiscal 2021. The Company expects:

 

		Fiscal 2021 Outlook
Number of new stores			3-4
Number of relocations/remodels			4-5
Daily average comparable store sales growth			-2.0% to 2.0	%
Diluted earnings per share		$0.60 to $0.70
Capital expenditures (in millions)		$28 to $35

 

 

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 1-800-670-8680 (US and Canada); or 1-303-223-4396 (International). The conference ID is 21993602. 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 an expanding specialty retailer of natural and organic groceries, body care products and dietary supplements. The products sold by Natural Grocers must meet strict quality guidelines and 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, and free-range eggs. Natural Grocers’ flexible smaller-store format allows it to offer affordable prices in a shopper-friendly, safe and convenient 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 161 stores in 20 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 risks and challenges related to the COVID-19 pandemic and government mandates, the economy, changes in the Company’s industry, business strategy, goals and expectations concerning the Company’s market position, 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, 2020 (the 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, except as may be required by the securities laws.

 

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.

 

Investor Contact:

 

Reed Anderson, ICR 646-277-1260, [email protected]

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share data)

 

		Three months ended March 31,								Six months ended March 31,
		2021				2020				2021				2020
Net sales		$	259,198				277,524				524,243				507,554
Cost of goods sold and occupancy costs			187,371				199,701				379,391				369,207
Gross profit			71,827				77,823				144,852				138,347
Store expenses			58,422				56,878				118,752				108,305
Administrative expenses			6,358				7,038				13,662				12,857
Pre-opening and relocation expenses			341				650				530				1,080
Operating income			6,706				13,257				11,908				16,105
Interest expense, net			(603	)			(516	)			(1,113	)			(1,052	)
Income before income taxes			6,103				12,741				10,795				15,053
Provision for income taxes			(1,399	)			(3,023	)			(2,459	)			(3,467	)
Net income		$	4,704				9,718				8,336				11,586
Net income per common share:
Basic		$	0.21				0.43				0.37				0.52
Diluted		$	0.21				0.43				0.37				0.51
Weighted average number of shares of common stock outstanding:
Basic			22,581,916				22,493,341				22,570,305				22,482,285
Diluted			22,737,646				22,543,429				22,715,098				22,542,319

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)

 

		March 31, 2021				September 30, 2020
Assets
Current assets:
Cash and cash equivalents		$	20,977				28,534
Accounts receivable, net			8,996				8,519
Merchandise inventory			98,456				100,175
Prepaid expenses and other current assets			4,073				6,185
Total current assets			132,502				143,413
Property and equipment, net			146,364				147,929
Other assets:
Operating lease assets, net			330,514				339,239
Finance lease assets, net			38,344				40,096
Deposits and other assets			611				647
Goodwill and other intangible assets, net			10,988				10,468
Total other assets			380,457				390,450
Total assets		$	659,323				681,792
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	64,026				69,163
Accrued expenses			21,492				24,995
Term loan facility, current portion			1,750				—
Operating lease obligations, current portion			32,705				32,156
Finance lease obligations, current portion			2,996				2,836
Total current liabilities			122,969				129,150
Long-term liabilities:
Term loan facility, net of current portion			32,813				—
Operating lease obligations, net of current portion			316,609				325,641
Finance lease obligations, net of current portion			37,987				39,506
Deferred income tax liabilities, net			15,518				14,429
Total long-term liabilities			402,927				379,576
Total liabilities			525,896				508,726
Stockholders’ equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, and 22,595,467 and 22,546,765 shares issued and outstanding at March 31, 2021 and September 30, 2020, respectively			23				23
Additional paid-in capital			57,065				56,752
Retained earnings			76,339				116,291
Total stockholders’ equity			133,427				173,066
Total liabilities and stockholders’ equity		$	659,323				681,792

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

 

		Six months ended March 31,
		2021				2020
Operating activities:
Net income		$	8,336				11,586
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			15,057				15,595
Impairment and store closing costs			105				—
Share-based compensation			487				552
Deferred income tax expense			1,089				475
Non-cash interest expense			11				6
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net			(477	)			(535	)
Merchandise inventory			1,719				7,768
Prepaid expenses and other assets			(922	)			(483	)
Income tax receivable			3,004				4,960
Operating lease asset			15,402				14,973
(Decrease) increase in:
Operating lease liability			(15,861	)			(15,285	)
Accounts payable			(7,142	)			10,146
Accrued expenses			(3,503	)			3,602
Net cash provided by operating activities			17,305				53,360
Investing activities:
Acquisition of property and equipment			(8,673	)			(18,759	)
Acquisition of other intangibles			(926	)			(1,399	)
Proceeds from sale of property and equipment			—				—
Proceeds from property insurance settlements			58				27
Net cash used in investing activities			(9,541	)			(20,131	)
Financing activities:
Borrowings under revolving facility			—				226,000
Repayments under revolving facility			—				(231,692	)
Borrowings under term loan facility			35,000				—
Repayments under term loan facility			(438	)			—
Finance lease obligation payments			(1,369	)			(1,082	)
Dividend to shareholders			(48,288	)			(3,148	)
Loan fees paid			(52	)			(25	)
Payments on withholding tax for restricted stock unit vesting			(174	)			(122	)
Net cash used in financing activities			(15,321	)			(10,069	)
Net (decrease) increase in cash and cash equivalents			(7,557	)			23,160
Cash and cash equivalents, beginning of period			28,534				6,214
Cash and cash equivalents, end of period		$	20,977				29,374
Supplemental disclosures of cash flow information:
Cash paid for interest		$	165				328
Cash paid for interest on finance lease obligations, net of capitalized interest of $83 and $68, respectively			910				781
Income taxes paid			4,777				10
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid		$	4,435				3,748
Acquisition of other intangibles not yet paid			233				179
Property acquired through operating lease obligations			7,287				8,170
Property acquired through finance lease obligations			106				5,232

 

 

Non-GAAP financial measures

 

EBITDA and Adjusted EBITDA

 

EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA as adjusted to exclude the effects of certain income and expense items that management believes make it more difficult to assess the Company’s actual operating performance, including certain items such as impairment charges, store closing and lease exit costs and non-recurring items. The adjustment to EBITDA for the six months ended March 31, 2021 related to lease exit costs associated with one store that closed in the first quarter of fiscal year 2019.

 

The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands:

 

		Three months ended March 31,								Six months ended March 31,
		2021				2020				2021				2020
Net income		$	4,704				9,718				8,336				11,586
Interest expense, net			603				516				1,113				1,052
Provision for income taxes			1,399				3,023				2,459				3,467
Depreciation and amortization			7,420				7,888				15,057				15,595
EBITDA			14,126				21,145				26,965				31,700
Lease exit costs			—				—				405				—
Adjusted EBITDA		$	14,126				21,145				27,370				31,700

 

EBITDA decreased 33.2% to $14.1 million in the three months ended March 31, 2021, compared to $21.1 million for the three months ended March 31, 2020. EBITDA decreased 14.9% to $27.0 million in the six months ended March 31, 2021, compared to $31.7 million for the six months ended March 31, 2020. EBITDA as a percentage of net sales was 5.4% and 7.6% in the three months ended March 31, 2021 and 2020, respectively. EBITDA as a percentage of net sales was 5.1% and 6.2% in the six months ended March 31, 2021 and 2020, respectively.

 

Adjusted EBITDA decreased 33.2% to $14.1 million in the three months ended March 31, 2021, compared to $21.1 million for the three months ended March 31, 2020. Adjusted EBITDA decreased 13.7% to $27.4 million in the six months ended March 31, 2021, compared to $31.7 million for the six months ended March 31, 2020. Adjusted EBITDA as a percentage of net sales was 5.4% and 7.6% in the three months ended March 31, 2021 and 2020, respectively. Adjusted EBITDA as a percentage of net sales was 5.2% and 6.2% in the six months ended March 31, 2021 and 2020, respectively.

 

Management believes some investors’ understanding of our performance is enhanced by including EBITDA and Adjusted EBITDA, non-GAAP financial measures. We believe EBITDA and Adjusted EBITDA provide 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.

 

Furthermore, management believes some investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry. Management believes some investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. By providing these non-GAAP financial measures, 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 and Adjusted EBITDA differently, and as a result, our measure of EBITDA and Adjusted 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 and Adjusted EBITDA are supplemental measures of operating performance that do 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 and Adjusted EBITDA have 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 and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

 

●

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

 

●

EBITDA and Adjusted EBITDA do not reflect any impact for single lease expense for leases classified as finance leases;

 

●

EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

 

●

EBITDA and Adjusted EBITDA do 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 and Adjusted EBITDA do not reflect any cash requirements for such replacements.

 

Due to these limitations, EBITDA and Adjusted 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 and Adjusted EBITDA as supplemental information.

 

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