Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) Q4 2025 Earnings Call Transcript

Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) Q4 2025 Earnings Call Transcript November 20, 2025

Natural Grocers by Vitamin Cottage, Inc. beats earnings expectations. Reported EPS is $0.547, expectations were $0.4333.

Operator: Good day, ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today’s call is being recorded. I’d now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Miss Thiessen, you may begin.

Jessica Thiessen: Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. On the call with me today are Kemper Isely, Co-President, and Richard Helle, Chief Financial Officer. As a reminder, certain information provided during this conference call, including the company’s outlook for fiscal 2026, contains forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company’s most recently filed forms 10-Q and 10-Ks. The company undertakes no obligation to update forward-looking statements.

Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure. Please see our earnings release for a reconciliation of adjusted EBITDA to net income. Today’s earnings release is available on the company’s website and a recording of this call will be available on the website at investors.naturalgrocers.com. Now I will turn the call over to Kemper. Thank you, Jessica.

Kemper Isely: And good afternoon, everyone. We are pleased with our fourth quarter performance with sales in line with guidance and diluted earnings per share above guidance. On today’s call, I will highlight our financial results, including performance drivers, and provide an update on our key operational initiatives. Then Rich will discuss our fourth quarter results in greater detail and review our fiscal year 2026 outlook. Our fourth quarter sales were in line with guidance. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. The moderation in fourth quarter sales comps compared to the third quarter was driven by several factors. We cycled 7% comps in each of the fourth quarters of the previous two fiscal years.

As previously disclosed, UNFI’s June 2025 cybersecurity incident constrained UNFI’s ability to fulfill orders and distribute products to our stores and had a direct impact on our sales in June and July. Additionally, uncertainty in the economic environment has persisted and we saw consumer behavior shift toward more cautious retail spending in the fourth quarter. Over the past several years, we have focused on operational execution, including refining targeted promotions and store productivity initiatives. That ongoing effort combined with expense leverage from higher sales resulted in an operating margin improvement of 90 basis points for the fourth quarter, driving our fiscal year 2025 diluted earnings per share to a record $2 per share. We are proud that fiscal 2025 represented another year of record sales and earnings.

Q&A Session

Additionally, fiscal 2025 was our twenty-second consecutive year of positive comparable store sales growth. Consumers continued to be drawn to our differentiated offering of high-quality natural and organic products, reflecting their prioritization of health and wellness, including food and nutrition. We believe that consumers’ prioritization of health and wellness will prove to be resilient. While we are seeing some macro pressures affecting the broader retail landscape, we believe that our commitment to always affordable prices provides compelling value for our customers, strengthening our competitive position during periods of economic uncertainty. Next, I will share an update on our key priorities that have fueled recent growth and are expected to drive our long-term success.

We continue to enhance the personalization and interactivity of our nPower Rewards program offerings. During the fourth quarter, nPower net sales penetration held strong at 82%. The maturity and high penetration of our nPower Rewards program enables efficient and relevant customer engagement, including communicating our differentiation to new members, personalizing offers to tenured members, or presenting offers to customers who haven’t engaged with us recently. Our Natural Grocers branded products continue to experience elevated growth. In the fourth quarter, our house branded products accounted for 8.8% of total sales, up from 8.4% a year ago. During fiscal 2025, we extended our natural brand offerings with the launch of 119 new items, all of which exhibit premium quality at compelling prices.

Accelerating new store growth is another core element of our strategy. In fiscal 2025, we opened two new stores, relocated two stores, and remodeled one store. Today, we are reiterating our plan of opening six to eight new stores in fiscal 2026, underscoring the quality of our pipeline and execution capabilities. We are committed to 4% to 5% annual new store unit growth for the foreseeable future. We also remain committed to enhancing value for our stockholders by maintaining a balanced approach to capital allocation. In addition to investing in our business to drive faster unit growth, we are proud to announce that we are increasing the quarterly cash dividend by 25% to $0.15 per common share, reflecting our strong fiscal 2025 operating performance and financial position, as well as confidence in our ability to create long-term stockholder value.

In closing, I would like to thank our Good4U crew. Their commitment to operational excellence and exceptional customer service was instrumental in driving our strong results. We are fortunate to have a crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations, and supply chain reflect these values. 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. We are pleased with our fourth quarter results. Sales were in line with expectations, and diluted earnings per share exceeded our outlook. Net sales increased 4.2% from the prior year period to $336.1 million. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. Comps were at the lower end of our guidance range, which we believe primarily reflects the shift in consumer retail spending. Our daily average comparable transaction count increased 2.4%, and our daily average comparable transaction size increased 1.8%, primarily due to annualized product inflation of approximately 2%. Items per basket were relatively flat year over year. In consideration of the broader macro environment, we continue to monitor consumer trends closely.

We continued to see the greatest sales growth in our most differentiated offerings, including meat and dairy. These are often considered premium offerings because our product standards include humanely and sustainably sourced meat, pasture-raised and non-confinement dairy, and a minimum standard of free-range eggs. We saw a modest decline in the number of transactions using SNAP EBT in the fourth 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 10 basis points to 29.5%, driven by lower product margin. Store expenses as a percentage of net sales decreased 90 basis points, primarily driven by lower long-lived asset impairment charges and expense leverage.

These culminated in a net income increase of 31% to $11.8 million and diluted earnings per share of $0.51. Adjusted EBITDA increased 7.7% to $24.4 million. Briefly touching on the full year results, in fiscal 2025, total revenue increased 7.2% to $1.33 billion. Our daily average comparable store sales growth was 7.3%, and 14.3% on a two-year basis. Gross margin improved 50 basis points compared to the prior year, driven by higher product margin primarily attributed to effective promotions and store occupancy cost leverage. Store expenses as a percentage of sales were 50 basis points lower than the prior year, driven by expense leverage and lower long-lived asset impairment charges. For fiscal 2025, diluted earnings per share increased 36.1% to $2 compared to $1.47 in fiscal 2024, and adjusted EBITDA increased 17.5% to $97.9 million.

Turning to the balance sheet and cash flow, we ended the fourth quarter in a strong liquidity position, including $17.1 million in cash and cash equivalents, no outstanding borrowings, and $70.1 million available for borrowing on our revolving credit facility. During fiscal 2025, we generated cash from operations of $55.3 million and invested $31 million in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $24.3 million. Now I’d like to review the company’s outlook, which reflects both the opportunities we see in our differentiated market position and appropriate caution given the current consumer environment. We believe our value proposition will continue to be compelling during periods of economic uncertainty.

For fiscal year 2026, we expect to open six to eight new stores, relocate or remodel two to three existing stores, achieve daily average comparable store sales growth between 1.5% and 4%, and achieve diluted earnings per share between $2 and $2.15. We plan to direct $50 million to $55 million towards capital expenditures to support our growth initiatives. In addition, our outlook includes the benefits of our new store growth, targeted marketing focused on our value proposition and differentiation, and initiatives focused on driving higher productivity across our operations. The pace of new store openings will be weighted towards the back half of the fiscal year. Our current expectation is that sales comps will be at the low end of our outlook range in the first half of the year as we cycle relatively 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.

Kemper Isely: We expect modest inflation throughout the year in line with current trends.

Richard Helle: 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 percentage of net sales will be relatively flat to slightly lower. Lastly, we are investing approximately $0.12 of diluted earnings per share in new store openings, primarily through higher preopening expenses and store expenses.

Kemper Isely: We continue to believe that we have significant opportunity to achieve sustainable long-term growth due to our alignment with consumer trends, strong customer engagement through our nPower Rewards program, expansion of the Natural Grocers branded products, existing store productivity initiatives, and investment in new store unit growth. In closing, we had a solid quarter to conclude a record-setting fiscal year. We are confident in our ability to continue to drive profitable long-term growth and enhance value for all stakeholders. Now we’d like to open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys.

To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Chuck Cerankosky with Northcoast Research. Please go ahead.

Chuck Cerankosky: Good afternoon, everyone. Nice quarter.

Kemper Isely: Thanks, Chuck.

Chuck Cerankosky: Given the increased price sensitivity right now in the consumer environment, and the company’s 8.8% own brands penetration, is this a good time to get that number higher and to make customers more aware of the value in the Natural Grocers brands?

Kemper Isely: Yeah. I think that would be true. I mean, we definitely are marketing our own brand extensively right now, and we have some really compelling prices on items that we are promoting aggressively, and we do not have to discount those prices because they’re already substantially better priced than our competitors.

Chuck Cerankosky: Do you have any particular goals for the penetration over the next couple of years, like maybe 10%?

Kemper Isely: Our goal is to increase the penetration by one full percentage point per year, so we’re at 8.8%. So two years from now, we should be at 10.8% or even 11%.

Scott Mushkin: The next question is from Scott Mushkin with R5 Capital. Please go ahead.

Scott Mushkin: Hey guys, thanks for taking my questions. So one of the things we hear from investors about is kind of generally the space of natural organic is that it’s not the macro. That it’s similar to what we saw last decade that’s, you know, kind of traditional supermarkets and others in the marketplace kinda caught up given what they saw with how strong your sales and others have been. And are offering a lot of the same products at lower prices. What do you think about that thought process?

Kemper Isely: I think that that’s been going on since 1978. And we’ve done a really good job of differentiating from those from the other supermarkets. And having an authentic story and an authentic brand that resonates with consumers. And it’s helped us to build our business to over a billion-dollar business. The conventional supermarkets and Costco and Walmart, they only sell the product because it sells. It isn’t because of the story of the product. We sell the product because it is what we are. And so, it makes a huge difference to our customers and keeps our customers incredibly loyal. And it also helps us to keep on growing and expanding our customer base. And companies like Whole Foods are kind of losing track of that by becoming, as they said, the Amazon-ination, whatever it was, the Wall Street Journal article was the other day.

And then the Forbes article that followed up on it. And so that’s making our brand all the stronger. And then you have the wannabes like Sprouts who doesn’t really, I mean, they sell stuff because they it sells, but they don’t really have the standards that we do or the ethics that we do about the products that we sell.

Scott Mushkin: Then, Kemper, what specifically or Richard, what specifically in the business do you see that would kinda make you gravitate towards, hey. It’s things are become much more challenging in the economy. And that’s the root of you know, some of the more cautious comments.

Kemper Isely: Well, the people that are on the periphery of shopping in our stores that aren’t our most loyal customers have definitely pulled back and gone I don’t I don’t know where they’re shopping, but they’ve pulled back. And so that’s that’s that’s made it so that we’re just a little more cautious about our growth. But I think that some of our new marketing initiatives will start to gain traction in not this quarter, but next quarter, and we should see an uptick again in our growth.

Scott Mushkin: I mean, because of that. Doubt, Scott, that the economy is playing a factor today. I mean, we have massive economic uncertainty. Consumer sentiment is at historic lows. We’ve seen announcement of significant job layoffs. Had the government shutdown, the loss of government benefits.

Richard Helle: Tariffs, you know, and their impact to inflation. I mean, a majority of Americans are expecting that tariffs will result in higher prices.

Scott Mushkin: You’ve had a pretty large.

Richard Helle: Well, they are resulting in higher prices. And they are. But there’s an expectation of future higher prices from tariffs. All of it is kind of, you know, is creating this uncertainty. There’s definitely, as you’ve heard, you know, across all retail, a pullback by lower and middle-income consumers.

Kemper Isely: You know, and a bifurcation in the consumer segment where higher households are continuing to spend. But, you know, as we even heard this morning from Walmart, everybody is looking for value. And so we are going to lean into our differentiation.

Richard Helle: Everybody’s looking for value, part of our founding principles always affordable prices. And we’re gonna continue to lean hard into that. And as Kemper said, you know, we’re also very highly differentiated in terms of the quality of our shopping experience. We provide access to nutrition education.

Kemper Isely: And we have high product standards that you can trust. So we’re gonna continue to lean into those things. Our core customer base is resilient. Our core customer base is growing at a healthy rate.

Scott Mushkin: So we have a lot of confidence that, you know, there is a lot of economic concern. That is certainly a driver.

Kemper Isely: The natural and organic segment, yes, is pulling back, but so is the entire, I think, segment overall. And we still believe in the health and wellness trends. I mean, you look at GLP-1 penetration rates, they’ve doubled over the last year.

Richard Helle: Significant interest in continuing for many more Americans to try those drugs. We understand that those individuals are looking for more nutritious options post that. And so we you know, it’s not linear. Right? I mean, as Kemper said, natural and organic has been going through multiple cycles over the last four, five decades, and we’ll continue to do that. But we believe the trends, the long-term trends that they will continue to have, you know, 4% to 6% industry growth. It’s just not going to be a straight line.

Scott Mushkin: Thanks for that color. And then I actually had just one more, and I apologize because my model’s not front of me. So I probably should know this answer off top of my head. But are you guys thinking free cash flow next year will be positive, flat, and what’s your thought process around 2026 free cash flow?

Richard Helle: Yeah. Free cash flow will be positive next year. Yeah. That’s that’s our expectation. Yes. We are investing more in CapEx. Right? We are talking about increasing store openings, continuing to do relocations and remodels. We are looking at we’re guiding $50 to $55 million in CapEx to support those initiatives. We’re excited about the real estate pipeline that we have.

Kemper Isely: And about the growth prospects, you know. And we’ve we’ve really refined our site selection process and are excited about the communities that we’re going in and the positive impact that those communities will have to the overall business.

Richard Helle: And then also we’re strategically buying some of our buildings. So just to add a little bit more color to the CapEx.

Scott Mushkin: Yeah. Alright. Well, guys, I appreciate it. And for the record, I kind of I definitely agree with you guys on the economy. I think it’s a little bit tough sliding out there right now. But thanks for thanks for all the color.

Kemper Isely: Sure. Thanks, Scott.

Operator: Again, if you have a question, please press 1.

Operator: Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks.

Kemper Isely: Thank you for joining us to discuss our fourth quarter results. We take great pride in our sales and profitability growth in fiscal year 2025 and in recent years. We are committed to maximizing value for our stockholders as we look forward to fiscal year 2026. We expect to build upon our momentum by executing to our founding principles, including highlighting our always affordable pricing strategy and differentiated product offering, emphasizing operational excellence, and delivering on our new store unit growth plans. Thank you. And have a great day. Bye now.

Operator: The conference call has now concluded. Thank you for attending the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. You may now disconnect.