Natural Grocers (NGVC) Q1 2026 Earnings Transcript

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DATE

Thursday, Feb. 5, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Co-President — Kemper Isely
• Chief Financial Officer — Richard Helle

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TAKEAWAYS

• Net Sales -- $335.6 million, up 1.6%, reflecting modest topline growth versus the prior-year period.
• Comparable Store Sales -- Daily average comp store sales increased 1.7%, cycling an 8.9% comp the prior year, with a two-year comp of 10.6% indicating ongoing growth relative to mainstream grocers.
• nPower Rewards Penetration -- nPower Rewards program net sales penetration rose two percentage points to 83%, supported by solid membership and increased member transaction traffic.
• Private Label Sales Mix -- Private label products contributed 9.6% of total sales, up 70 basis points year over year, attributed to expanded marketing and new product introductions.
• Gross Margin -- Gross margin declined 40 basis points to 29.5%, driven by lower product margin from higher inventory shrink, most of which management described as "isolated events."
• Operating Income -- Operating income rose 97% to $14.6 million, primarily benefiting from reduced store and administrative expenses.
• Diluted Earnings Per Share -- Diluted EPS increased 14% to $0.49, with net income at $11.3 million, up 14%.
• Adjusted EBITDA -- Adjusted EBITDA increased 3.1% to $23.5 million.
• Transaction Count and Basket Size -- Comparable transaction count grew 1%, and transacton size increased by 0.7% as annualized product inflation ran approximately 2%-2.5%.
• Store Activity -- One store relocated during the quarter, with a plan to open six to eight new stores and relocate/remodel two to three additional locations this fiscal year.
• Liquidity & Cash Flow -- Cash and cash equivalents ended at $23.2 million, no outstanding borrowings, $67.6 million available for borrowing, and free cash flow of $11.6 million after $9.6 million net capital expenditures.
• Guidance Maintained -- Management reaffirmed fiscal-year guidance: 1.5%-4% comparable store sales growth, $2.00-$2.15 diluted EPS, and $50 million-$55 million in capital expenditures.
• Outlook on Gross Margin and Store Expenses -- Gross margin and store expenses as a percent of net sales expected to remain "relatively flat" year over year, with margin contingent on promotional activity levels.
• New Store Impact -- CFO Helle said, "we are investing approximately $0.12 of diluted earnings per share in new store openings, primarily through higher preopening expenses and store expenses."
• Sustainability Recognition -- Company received Shelby Report 2025 Sustainability Award for its nutrition education program and sustainable practices, as highlighted in its latest report release.

SUMMARY

Natural Grocers By Vitamin Cottage (NGVC 0.07%) management emphasized that comparable sales were strongest among nPower Rewards members, while customers outside the program showed greater caution. The decline in gross margin was directly attributed to higher inventory shrink from onetime incidents, with half the variance due to comping last year's unusually low shrink rate. Meat, dairy, and produce outperformed, while sales in supplements, body care, and household categories experienced slight unit declines amid a value-seeking consumer environment. The company plans to accelerate store expansion and expects the earnings impact from preopening expenses to stabilize if the opening pace levels in future years.

• Kemper Isely confirmed there are no additional closures planned this year and likely none next year, with relocations and remodels counted separately from new unit growth targets.
• Richard Helle clarified that reductions in SNAP transactions were "immaterial" to overall sales comps and that third-party demographic analysis showed no significant shifts in customer base.
• Supplement category sales faced a slight decline, which management attributed to "zero inflation" rather than a drop in demand, while "grocery" unit volume increased.
• Management expects modest inflation to continue in line with current trends and foresees improved comp growth in the back half as they cycle softer prior-year results.
• Administrative expense reduction was mainly linked to prior-year costs tied to the Chief Financial Officer transition, supporting this quarter’s earnings growth.

INDUSTRY GLOSSARY

• nPower Rewards: Natural Grocers’ loyalty program designed to drive sales growth and customer engagement through member-exclusive offers and benefits.
• SNAP EBT: Supplemental Nutrition Assistance Program Electronic Benefit Transfer; government food assistance payments affecting grocery retail sales mix.
• Shrink: Inventory loss from theft, spoilage, or other causes, impacting gross margin performance in retail operations.

Full Conference Call Transcript

Kemper Isely: Thank you, Jessica, and good afternoon, everyone. During today's call, I will provide an overview of our financial results, highlight the key drivers of our performance, and share an update on our key operational initiatives. Then Rich will discuss the first quarter results in greater detail and review our fiscal year guidance. Our first quarter results were in line with expectations, including daily average comparable store sales growth of 1.7% and diluted earnings per share growth of 14% to $0.49. Based on our first quarter performance and outlook for the remainder of the fiscal year, we are maintaining our full-year guidance. There are several key underlying trends that I would like to highlight.

The first quarter sales comp increase of 1.7% was cycling an 8.9% comp last year. The two-year comp of 10.6% continues to reflect a robust growth rate relative to the broader grocery retail industry. While first-quarter sales were consistent with our outlook, we believe these trends reflected cautious consumer spending behaviors, observed broadly across the grocery retail sector. Additionally, the sales comp primarily reflected trends with customers who do not participate in our rewards program. We continue to see stronger sales growth by our Empower Rewards program members. We believe that our differentiated offer of high-quality natural and organic products at always affordable prices continues to deliver strong value for our customers and reinforce our competitive position amid economic uncertainty.

Furthermore, we believe that our company's initiatives position us well to achieve sustainable long-term growth. Next, I will review the performance of key operational initiatives. During the first quarter, nPower Rewards program net sales penetration increased two percentage points to 83%, supported by strong membership gains and higher traffic by nPower customers. The continued expansion of both membership and sales penetration highlights our customers' appreciation for the program's value and benefits. Empower remains an effective tool for optimizing promotional and strengthening customer engagement. Our Natural Grocers brand products represent value through premium quality at compelling prices. In the first quarter, our private label products accounted for 9.6% of total sales, up 70 basis points from a year ago.

The strong growth reflects rising customer awareness, driven in part by more prominent marketing efforts as well as the impact of new product introductions. During the first quarter, we relocated one store. Relocations are a key element of our store development strategy, as they typically generate accelerated sales growth off a higher sales base. Additionally, today, we are affirming our plan of opening six to eight new stores in fiscal 2026 and are targeting 4% to 5% annual new store unit growth for the foreseeable future. Yesterday, our company released its fiscal year 2025 sustainability report. The featured topic is our differentiated nutrition education program.

Since my parents founded our company in 1955, we have offered free nutrition education because we believe it empowers our customers, crew, and communities to improve their well-being. This long-standing commitment earned us the Shelby Report 2025 Sustainability in the Food Industry Award for Advancing Sustainable Practices in the Food Sector and driving meaningful change through our nutrition education program. For further information about our nutrition education program, our rigorous product standards, and commitment to our crew and communities, please refer to our sustainability report or visit our company's website. Last but not least, an important component of our differentiated model is the best-in-class customer service provided by our Good For You crew.

I wish to express my deep appreciation to our crew for their continued commitment in delivering an exceptional shopping experience. Now I will turn our call over to Rich to discuss our financial results in greater detail and fiscal 2026 guidance.

Richard Helle: Thank you, Kemper, and good afternoon. Our first-quarter net sales increased 1.6% from the prior year period to $335.6 million. Daily average comparable store sales increased 1.7% and on a two-year basis increased 10.6%. Our daily average comparable transaction count increased 1%. The daily average comparable transaction sizing increase of 0.7% included annualized product inflation of approximately 2% to 2.5%. Items per basket were down less than half an item year over year. We continue to see the greatest sales growth in meat, dairy, and produce, which are some of our most differentiated offerings. We saw a modest decline in the number of transactions using SNAP EBT in the first quarter.

SNAP represents approximately 2% of net sales, and the reduction in SNAP transactions was immaterial to our overall sales comp for the quarter. Gross margin decreased 40 basis points to 29.5%, driven by lower product margin primarily due to higher inventory shrink, the majority of which was driven by isolated events. Store expenses decreased 0.7%, primarily driven by expense management. Administrative expenses decreased 5.9%, primarily driven by costs incurred in the prior year period related to the Chief Financial Officer transition. Operating income increased 97% to $14.6 million. Net income increased 14% to $11.3 million, and diluted earnings per share increased 14% to $0.49 in the first quarter. Adjusted EBITDA increased 3.1% to $23.5 million.

Turning to the balance sheet and cash flow, we ended the first quarter in a strong liquidity position, including $23.2 million in cash and cash equivalents, no outstanding borrowings, and $67.6 million available for borrowing on our revolving credit facility. During the first quarter, we generated cash from operations of $21.1 million and invested $9.6 million in net capital expenditures, primarily from new and relocated stores, resulting in free cash flow of $11.6 million. Today, we are affirming the company's fiscal year outlook that we originally provided in November. It continues to reflect both the opportunities we see in our differentiated market position and appropriate caution given the current consumer environment.

Our outlook includes the following: open six to eight new stores with the pace of openings weighted towards the back half of the fiscal year, relocate or remodel two to three existing stores, achieve daily average comparable store sales growth between 1.5% and 4%, achieve diluted earnings per share between $2 and $2.15, and direct $50 million to $55 million towards capital expenditures to support our growth initiatives. In addition, our current expectation is that sales comps will be at the low end of our outlook range through the second quarter as we cycle strong comps in the prior year while increasing slightly in the second half of the year as we cycle lower comps.

Additionally, the comp range reflects the uncertainty in the consumer environment. We expect modest inflation throughout the year in line with current trends. Our outlook anticipates that year-over-year gross margin will be relatively flat, primarily depending on the level of promotional activity. We expect that year-over-year store expenses as a percent of net sales will be relatively flat to slightly lower. Lastly, in fiscal 2026, we are investing approximately $0.12 of diluted earnings per share in new store openings, primarily through higher preopening expenses and store expenses. Now we'd like to open the line for questions. Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to attend our roster. And the first question will come from Scott Mushkin with R5 Capital. Please go ahead.

Scott Mushkin: Hey, guys. Thanks for taking my questions. So I actually wanted to start off where you guys left off on the $0.12 headwind from the new stores. As we think about that going forward, is it gonna be as dramatic? I would think it wouldn't be as dramatic the kind of the headwind as we think about next year and the year after. How should we think about that type of drag as we move out beyond this year?

Kemper Isely: Well, you know, this year, we're accelerating our growth from two new stores to eight. So that definitely gives us quite a bit of more preopening expense for, you know, six more stores with preopening expense. So that's where that 12 basis points came from. Next year, if we open a consistent eight new stores and do a couple remodels, it should be fairly flat going forward. If we add, you know, if we accelerate it to 10 or 12, then there would be a little bit more headwind. But it'll probably be flat next year to eight. Again, eight to nine new stores again next year.

Scott Mushkin: Was it 12¢ or 12 basis points? I just wanna make sure I...

Kemper Isely: Twelve. Twelve. Wasn't it 12¢? 12¢. 12. Yeah. $12.12 cents. Okay.

Kemper Isely: Yep.

Scott Mushkin: K. So, you know, conceivably a pretty good tailwind, I guess, as you look out depending on what happens with the rest of the business. Okay. So then switching gears to get some more thoughts on the shrink. I know you guys said that was kind of the biggest issue with the gross margin. And you called out, I think, some onetime isolated events. Can you give any more color on that? And are those isolated events gonna continue, or is that it was just, hey. This gross margin is actually would have been a lot better if it this hadn't happened.

Richard Helle: Yeah. Scott, this is Rich.

Scott Mushkin: Hey, Rich.

Richard Helle: Hi. And one of the big items was recycling. Fairly low shrink in Q1 of last year. So last year was probably running about 15 below our three-year average. This quarter, we're probably running about 10% above our three-year average. So, you know, I would say a lot of that is sales velocity. And then we had some onetime items related to weather-related power outages that were obviously unexpected. Had some incremental shrink related to store closures as well. So that would be, you know? And then I'd say, yeah, a little bit of execution, operational execution that you tend to see quarter by quarter, but nothing overly material.

Scott Mushkin: So it sounds like a lot do you have any size of that of the percentage of the decline in gross margins that would be attributed to power averages and stuff like that or no?

Richard Helle: Well, I think in terms of just the cycling, the cycling was about 50% of that variance. And then, you know, and then I would say some of these anomalies probably another 25%, and then the balance of it would have been, I'd say, just, you know, standard variances.

Scott Mushkin: Right. Alright. That's great that's great color. Then my final question is just around the environment. And, you know, I've been doing this a long time, and I think a stack comp is useful, but also not necessarily the end all be all when a and when an industry should be generally growing faster than it is right now, and this is not as statement to you guys. It's kind of a general thought. And I was just if you kinda look at your customer base, you guys gave some good color on the Npower. But if you look at it, by segment, by age, who's coming in and driving a lot of that growth?

Are there any consistencies there that you would say, hey. Like, this demographic has definitely pulled back a little bit.

Kemper Isely: Well, the demographic that's income constrained has pulled back. And that's where you're losing customers right now. They're just nervous, and their paychecks aren't keeping up with the rate of inflation, and they're looking for as inexpensive of alternatives as they possibly can find. And so that's where you...

Scott Mushkin: Is there an age where we've lost customers right now?

Kemper Isely: Have you seen an age reflection there? We've seen some data that, you know, suggests that the younger households are the most impacted, or you guys not really seeing that?

Kemper Isely: Not really. I mean, there's a definite, you know, if they're income constrained, then there's they're pulling back.

Scott Mushkin: Right. Does that make sense too?

Richard Helle: Yeah. But with demographic wise, I mean, you know, great data. We haven't seen sort of a shift in our demographics from third-party data that we get. So nothing material there. And I think that, you know, the shrinking basket that we've been seeing is really all around sort of cautious consumers were very much seeking value. And, you know, the pullback that we've seen is not been in our Empower customers, but our less engaged customers.

Scott Mushkin: Okay. Alright, guys. That's our customers actually were really robust.

Kemper Isely: Yeah. In this tough environment out there, so I was glad to see the numbers you put. So, anyway, alrighty. Appreciate it.

Scott Mushkin: Thanks, Scott.

Operator: The next question will come from Chuck Cerankosky with Northcoast Research. Please go ahead.

Chuck Cerankosky: Good afternoon, everyone. I wanna dive in a little bit on the new store opening program for this year. You've got six to eight new openings. You've done one relo. So far. Now that would that would count as a new opening and a closure. Any net closures for the year and what's your definition of a relo and a remodel? Are they are they coincident events as we as we look at the storing? Program for this year?

Kemper Isely: No. We've had the one close we had a one closure in our Austin Arbor store in Texas in October, and we don't we won't have any more closures this year. Probably not any next year either. Anyway, the one relocation, that's a relocation. So we'll have 68 actual new stores then. One, three relocations or remodels. This year. So overall, be from eight to 11, I mean, six ninth Yeah. Think about that. The eight to 11 actual remodel moves and new stores.

Chuck Cerankosky: Okay. That's helpful. And as you're talking about the three strongest categories, which tend to be some of the more expensive purchases, how does that square with the cautious consumer? Or is that reflected in the reduction in the items per basket?

Kemper Isely: Well, supplements, which is our highest margin category, had a slight decline in sales for the quarter, but there was zero inflation in the supplement sector, which kind of explains the decline in the category. So we had a slight very slight drop in items sold in the supplementary because we had zero inflation in that category. Our other I would guess, what would the other ones be that you would Body care. Body care was similar. And grocery, we actually had good growth.

Chuck Cerankosky: Growth in units?

Kemper Isely: Yes.

Chuck Cerankosky: K. Great.

Kemper Isely: Yes. I mean, yeah, it was it was definitely body care and supplements where we saw the biggest decline in units. Then also household items.

Chuck Cerankosky: Okay. And with the and with supplements being up? A high gross margin category that showed up in the overall p and l then?

Kemper Isely: Yes. It did.

Chuck Cerankosky: It had a slight impact.

Kemper Isely: But, I mean, overall, our cash register ring margin was flat for the quarter. So we got we had some pickup in margin in some of the other categories.

Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kemper Isely for any closing remarks. Please go ahead.

Kemper Isely: Thank you for joining us. We are committed to our differentiated business model of offering high-quality natural and organic products at always affordable prices. And we are confident in our ability to continue to drive profitable long-term growth and enhance value for all our stakeholders. Thank you, and have a great day.

Operator: Bye now. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.