Natural Grocers bucks trend set by GNC with strong Q3 performance
In its third quarter 2016 earnings report, Natural Grocers (formally known as Natural Grocers by Vitamin Cottage) notched net sales of $179.3 million, a 13% year-over-year increase. Sales hit $524.5 million for the year to date, representing a 13.4% increase. Comparable store sales (a particular weak spot for GNC) were up 1.8% in the quarter and 2.1% year to date.
Natural Grocers recorded net income of $2.7 million with diluted earnings per share of $0.12 in the third quarter and $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.
GNC is divestiture mode, with an accelerating program to sell company-owned stores to franchisers and to close underperforming outlets in locations such as declining shopping malls. But Vitamin Cottage continues to grow strongly; the company opened 15 new stores in the first nine months of its fiscal year, compared to 12 in the same period last year. The company now operates 118 stores in 19 states, mostly west of the Mississippi.
Supplements lead the way
Natural Grocers has more shelf space devoted to supplement sales than do many health food stores. And this year the supplement sales have been leading the charge, said CEO Kemper Isely. Grocery stores in general and organic grocers in particular have had a tough year with increasing competition. Even given the grocery challenges, some observers of the supplement retailing sector have said that Vitamin Cottage, with a bigger commitment to food sales than GNC has shown until recently, was better positioned to weather changes in the market and in consumer behavior than was its rival. The question is whether consumers are starting to prefer to buy supplements in a setting where they can buy something else, too. It may be that Natural Grocers, with its hybrid model, benefits from from this shift. And Natural Grocers has long had a commitment to in-store education that boosts the supplement category too, Isely said.
“At our comp stores, the supplement category has outperformed what our comp has, so that has gained market share, and which you'd expect because of all of our nutrition education programs that we have going on in our stores. And then also, our beauty aids area has also experienced greater growth than our comp. Grocery has had a little bit of a challenge in the last quarter,” Isley told analysts in an earnings call that was posted in transcript form on the site seekingalpha.com.
When Natural Grocers went public in 2012 Isley went on the record citing a report showing that there was a potential more than 1,000 additional stores like Natural Grocers outlets in North America. So there is a long way to go before market saturation, Isely said.
“We believe that in the long run that we need to keep on expanding our base so that we can get the critical mass that we need to have, so that we can become the grocery store of choice for natural and organic in particularly the western half of the country and then later in the eastern half of the country,” he said.
