Natural Grocers seems to have caught up to growth curve as same store sales rise

By Hank Schultz contact

- Last updated on GMT

Natural Grocers seems to have caught up to growth curve as same store sales rise
Natural Grocers posted a strong earnings report in its most recent quarter. The company seems to be forging a more balanced growth strategy, one that is not so dependent on the breakneck pace of new store openings as was the case in the past.

Natural Grocers by Vitamin Cottage, the company’s somewhat unwieldy formal title, is a chain of organic health food and supplement stores that now numbers 146 locations in 19 states, all west of the Mississippi.

The chain was founded more than 50 years ago in Lakewood, CO. It presents a somewhat unique model in the natural channel, in that it devotes a significantly greater amount of store square footage to the sale of supplements than do most of its competitors. Natural Grocers derives about 67% of its revenue from grocery, 22% from supplements and the rest from the sale of personal and body care items.

Pace of store openings scaled back

Since the company went public in 2012 it has relied on a strategy of opening multiple new stores each quarter.  By late 2016 that strategy was showing signs of strain​. While the company was still posting positive growth, almost all of that was coming from the new stores.

When comparable same mature store sales starting to fall into negative category in mid 2017​, the company formally announced it was applying the breaks to the store opening strategy.

The stock market voted a big thumbs down on the strategy as it was then being pursued. The company’s stock price slid from more than $44 a share in 2014 to a bit more than $9 today. Natural Grocers at one time opened as many as 23 new stores in a year;  the pace going forward looks to land somewhere in the 8 to 10 store range.

But the most recent report seems to indicate that the company has gotten the situation under control and can both spread into new markets while at the same time continue to mind the store in the mature outlets. During the company’s second quarter of fiscal 2018 net sales increased 12.3% to $215.9 million, and daily average comparable store sales increased 7.1%. The figure for mature store sales was a 4.3% year-over-year rise.

Online data collection aids promotional strategy

CEO Kemper Isley said that the company is getting better at applying promotions in a targeted fashion. This has been aided by the company’s Npower program, an online loyalty platform that enables Natural Grocers to gather data in real time on the performance of promotions.

“The improvements were driven by the success of our marketing and promotional efforts, price investments and our unwavering focus on our core values. We remain pleased with the response to our direct mail efforts, continued leverage from our Npower customer loyalty program promotions and our Health Hotline magazine,”​ Isley said in an earnings call with analysts. The call was posted in transcript form on the site seekingalpha.com​.

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