Tepid profit report sends Natural Grocers' stock price plunging

Natural Grocers’ stock price plunged more than 25% yesterday after the company missed profit projections in its most recent earnings statement. The stock price decline came despite an uptick in revenue.

Natural Grocers, whose full name is Natural Grocers by Vitamin Cottage, is a chain of more than 150 health food and supplement stores mostly in the western US. The company’s shares had a brief honeymoon on the market after going public in 2011. The stock hit an all time high of more than $43 in 2014. But it has been almost all downhill since then. The company’s shares were trading at about $6.70 today, down from a 52-week high of $12.70.

Revenue rises

In its most recent earnings statement for the first quarter of fiscal 2018, Natural Grocers reported that net sales increased $18.9 million, or 10.3%, to $202.5 million compared to the same period in fiscal 2017, primarily driven by a $10.3 million increase in sales from new stores and an $8.6 million increase in comparable store sales growth. Daily average comparable store sales increased 4.7% in the first quarter of fiscal 2018 compared to a 0.6% decrease in the first quarter of fiscal 2017.

The daily average comparable store sales increase during the first quarter of fiscal 2018 was driven by a 4.8% increase in daily average transaction count, partially offset by a 0.1% decrease in average transaction size. Daily average mature store sales increased 1.6% in the first quarter of fiscal 2018 compared to a 2.3% decrease in the first quarter of fiscal 2017. For fiscal 2018, mature stores include all stores open during or before fiscal 2013.

Income tax windfall

But stock traders appeared to be reacting to the fact that most of the company’s modest profits came from a sizable income tax reimbursement as a result of the recent overhaul of the tax law. Net income was $5.2 million with diluted earnings per share of $0.23, which included the favorable impact of a $4.3 million, or $0.19 per diluted share, non-cash remeasurement of the company's deferred income tax assets and liabilities.

Excluding the income tax windfall, net income would have been approximately $800,000 or $0.04 per diluted share. Also, most of the sales growth continues to come from newer stores, and the pace of new store openings has dropped off. In past years the company has opened as many as 20 new stores a year. Now that pace has declined to a projected 8 to 10, with two new stores opening up in the first quarter.