Bigger baskets drive big Q2 at Natural Grocers
Natural Grocers' second quarterly report in the COVID-19 era did not disappoint, with the company logging a 15.5% jump in same-store sales during the third quarter on mega demand for meat and produce.
In an earnings call with analysts, Kemper Isely, chairman, director and co-president of Natural Grocers, which will celebrate its 65th year on Aug. 13, said the retailer saw strength across all product categories with "above-average comp increases in meat, dairy, frozen foods, produce and bulk." The company says the comp was driven by a 31.5% increase in basket size, partially offset by a 12.2% decrease in transaction count, reflecting customers' social distancing efforts.
"We generated another quarter of very strong results with daily average comparable store sales increasing 15.5% and net sales increasing 18.1%, which continues to reflect the ongoing impact of the COVID-19 pandemic and government mandates, and the related growth of eating at home," Isely said. "As we continue to operate in a new environment, we are leveraging our 65-year history of exceptional service and commitment to natural and organic products, which is evident in the strong consumer demand."
Isely said during the earnings call that the retailer of natural and organic products has moderated promotions since March, but that they are starting to pick back up now, and they are focused on meal solutions.
"We have started to promote meal deals at our stores where you can feed your family of four for under $10 or under $12 or under $16, and those seem to be resonating pretty well with customers," Isely said.
Sales of supplements have been way up during the pandemic, but Natural Grocers says sales of supplements were down relative to the second quarter. Isley did say they are seeing an improvement in supplements in June and into July.
During the quarter ended June 30, net sales at Natural Grocers increased 18.1% to $265.1 million. Net income increased 134.8% to $4.7 million with diluted earnings per share of 21 cents. And EBITDA increased 32.2% to $14.6 million.
Gross profit increased $14 million, or 23.9%, to $72.4 million for the quarter. Gross margin increased to 27.3%. The increase in gross margin for the third quarter was primarily driven by a decrease in store occupancy expense, as a percentage of sales, and an improved product margin.
Store expenses during the third quarter of fiscal 2020 increased 21% compared to the same period in fiscal 2019 to $58.6 million. The increase in store expenses was primarily driven by increased labor-related expenses.
In May, the company extended its $2-per-hour pay increase for employees through May 31. Previously, the natural and organic grocery store chain announced that the pay increase would be in effect from March 23 until May 3 for hourly store, bulk repack production and warehouse crew, with $1 of the increase being permanent and $1 being temporary. Collectively, all of these wage and bonus enhancements represented approximately $3.9 million and 82% of the retailer's third quarter net income.
During the third quarter, the company opened two new stores, resulting in a 4.6% new store growth rate for the 12-month period ended June 30.
Natural Grocers plans to celebrate its upcoming 65th anniversary over three full days, Aug 13-15 – an event billed as highlighting the retailer’s history “of empowering their communities to take charge of their health, … providing free, life-changing nutrition education, and …offering nutritionally sound, sustainably produced foods at Always Affordable prices.”
“As the second and third generation of Iselys to operate Natural Grocers, we are honored to preserve the legacy our parents created as leaders in the organic and natural food industry,” Isely said. “Since the beginning, we’ve been rooted in health and have looked toward our founding principles when making business decisions that impact our crew and our customers. In turn, we have been embraced by our communities and for that, we are thankful. We are excited to celebrate sixty-five years of healthy living with our valued customers.”