Natural Grocers (NGVC) Impacted in Oil Regions - Jefferies
Jefferies analyst, Mark Wiltamuth, notes Natural Grocers (NYSE: NGVC) FY16 is becoming more back end loaded as comps and margins are weaker due to sluggishness in oil affected regions.
Natural Grocers EBITDA fell short of expectations due to weakness in the oil patches and cannibalization/new competition having a more pronounced impact on sales. NGVC reported 1Q16 EPS of $0.17 (in line with cons.) as weak comps (3.6% vs. 4.5% cons) and gross margins (-31bps vs. +10bps) were somewhat offset by lower incentive compensation, All in, NGVC provided a soft $12.7M in EBITDA (vs. $13.2M cons. est.).
Despite the Street's modest expectation for a 1Q comp of 4.5%, slightly below the full year 5-7% guide, estimates were not low enough and the magnitude of the QoQ decline was surprising. Management noted weakness in oil reliant regions, lapping extended store hours, and an outsized impact from cannibalization/new competition due to higher sales stores being hit. For 2Q16, NGVC expects comps to improve modestly, but once again fall short of the full year guide.
NGVC can still meet full year guidance given improving trends into 2Q16, positive NPower commentary (seeing a substantial basket lift; expect 200K enrolled by 2Q16 end), and what should be more effective promotion as the company now has the ability to execute upon chain-wide events.
The $25 target is down from $29 and assumes 9.5x EV/EBITDA (vs. 11x previously). No change to Buy rating.
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Shares of Natural Grocers closed at $20.73 yesterday.