Natural Grocers same store sales disappoint; guidance for 2017 ratcheted down

By Hank Schultz contact

- Last updated on GMT

Related tags: Comparable store sales, Revenue

Natural Grocers same store sales disappoint; guidance for 2017 ratcheted down
Natural Grocers by Vitamin Cottage continues to grow, but increased competition has the company becoming tied ever more firmly to its strategy of aggressive growth in the number of stores.

Natural Grocers posted a 12.9% revenue rise in 2016 that was driven almost entirely sales at new stores. Comparable store sales were essentially flat for the fourth quarter and grew only 1.7% for the year. The company opened 23 stores in fiscal 2016 compared to 16 new stores in fiscal 2015 and now operates 126 stores in 19 states, mostly west of the Mississippi.

In an earnings call with analysts, CEO Kemper Isely said that increased competition had depressed results in the year that ended on September 30 and caused the company to lower its earnings expectation for the coming year.  Isely also said that the uncertainty around the election had unsettled the consumer base and will hurt results going forward.

“(Comparable store sales) are trending at the low end of our range that we gave for full year guidance. We've definitely seen some softness in sales since the election. And we're hoping that that moderate here shortly,”​ Isley said.  The earnings call transcript was posted on the site​.

Supplement sales stay strong

Natural Grocers sells organic foods and dietary supplements and devotes a significantly greater portion of its store square footage than do many of its competitors to supplement aisles.  While the company does not break out supplement vs food sales per se, the sales of supplements have been reported to account for something more than 25% of overall revenue.  And supplements were a—relatively—bright spot for the company.

“Dietary supplements are doing very well. They almost gained market share last year as a percentage of sales, they are essentially flat for the year, so that was very positive,”​ Isely said.

Reining in the new store horse

When Natural Grocers went public in mid 2012 the company shared with analysts a report that said there was room in the North American market for an additional 1,000 stores like the ones the company operates.  The company set about to capture as much of that potential as rapidly as possible, but that plan is now starting to face some headwinds.  There are few niches left where competitors are not already entrenched, and the company is planning to shift gears to better help new stores succeed. In addition, the company said it will take its foot off of the new store opening gas pedal a bit in the coming year. 

“We've seen our new stores with new competition experience difficulty in meeting first year sales targets. In response we are implementing a variety of new store opening marketing initiatives including enhanced signage, radio, digital and social media, direct household promotion and community outreach and involvement led by our nutritional health coaches,” ​Isley said.

“Given the continued economic and competitive pressures on sales we are moderating our new store growth from the 22% we experienced in fiscal 2016 to a still healthy but more conservative unit growth rate of between 12% and 16% in fiscal 2017. That translates to between 15 and 20 new stores in fiscal 2017,”​ he said.

Earnings details

Natural Grocers’ net sales increased 11.5% to $181.0 million in the fourth quarter and increased 12.9% to $705.5 million in fiscal 2016. But Comparable store sales increased only 0.3% in the fourth quarter and were up 1.7% in the fiscal year. Daily average comparable store sales increased 0.3% in the fourth quarter and increased 1.4% in fiscal 2016. 

Despite the growth in overall revenue, Natural Grocers posted a razor-thin profit. Net income was $1.5 million with diluted earnings per share of $0.07 in the fourth quarter and was $11.5 million with diluted earnings per share of $0.51 in fiscal 2016. Investors seem to be losing faith in the company’s model. The company’s stock has lost almost 50% of its value over the past year.  It was trading at $20.90 on Nov. 18, 2015 and is trading at about $10.64 today.

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