Natural Grocers by Vitamin tage(NGVC) - 2025 Q3 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements Unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and equity changes, are presented with detailed accounting notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Dollars in thousands): | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :-------------- | :----------------- | | Total Assets | $658,997 | $655,476 | | Total Liabilities | $456,496 | $481,222 | | Total Stockholders' Equity | $202,501 | $174,254 | Consolidated Statements of Income Consolidated Statements of Income Highlights (Dollars in thousands, except per share data): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $328,705 | $309,082 | $994,695 | $918,924 | | Gross profit | $98,279 | $90,331 | $298,851 | $269,448 | | Operating income | $15,587 | $12,847 | $46,488 | $34,911 | | Net income | $11,605 | $9,209 | $34,644 | $24,925 | | Basic EPS | $0.51 | $0.40 | $1.51 | $1.09 | | Diluted EPS | $0.50 | $0.40 | $1.49 | $1.08 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Nine months ended June 30, Dollars in thousands): | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $39,677 | $49,280 | | Net cash used in investing activities | $(22,942) | $(31,808) | | Net cash used in financing activities | $(12,428) | $(21,899) | | Net increase (decrease) in cash and cash equivalents | $4,307 | $(4,427) | | Cash and cash equivalents, end of period | $13,178 | $13,915 | Consolidated Statements of Changes in Stockholders' Equity Total Stockholders' Equity (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $202,501 | | September 30, 2024 | $174,254 | Notes to Unaudited Interim Consolidated Financial Statements 1. Organization Natural Grocers operates 169 retail stores across 21 states, specializing in natural and organic products - Operates 169 stores in 21 states as of June 30, 2025[26] - Specializes in natural and organic groceries, dietary supplements, and body care products[26] 2. Basis of Presentation and Summary of Significant Accounting Policies Financial statements adhere to GAAP, with the company operating as a single segment, adopting recent ASUs without material impact - Financial statements prepared in accordance with U.S. GAAP for interim statements[27] - Company has a single reporting segment: natural and organic retail stores[29] - Adopted ASU 2023-01 (Common Control Arrangements) and ASU 2016-13 (Credit Losses) with no material impact[31][32] - Evaluating impact of ASU 2023-07 (Segment Disclosures), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Income Statement Expense Disaggregation) for future periods[33][34][35] 3. Revenue Recognition Revenue is recognized at point of sale; gift cards and rewards are liabilities, with grocery sales as the largest segment - Revenue recognized at point of sale when control of goods is transferred[37][38] - Gift card proceeds recorded as liability until redemption[39] Contract Liabilities for Unredeemed Gift Cards (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $1,700 | | September 30, 2024 | $1,500 | Revenue by Product Category (Three months ended June 30, Dollars in thousands): | Category | 2025 Amount | 2025 % of Net Sales | 2024 Amount | 2024 % of Net Sales | | :-------------------------- | :---------- | :------------------ | :---------- | :------------------ | | Grocery | $235,286 | 72% | $219,040 | 71% | | Dietary supplements | $61,988 | 19% | $59,966 | 19% | | Body care, pet care and other | $31,431 | 9% | $30,076 | 10% | | Total | $328,705 | 100% | $309,082 | 100% | 4. Earnings Per Share Basic EPS uses weighted average shares, while diluted EPS includes potential dilution from unvested restricted stock units Earnings Per Share (EPS) (Dollars in thousands, except per share data): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $11,605 | $9,209 | $34,644 | $24,925 | | Basic EPS | $0.51 | $0.40 | $1.51 | $1.09 | | Diluted EPS | $0.50 | $0.40 | $1.49 | $1.08 | 5. Debt The $72.5 million credit facility, amended in November 2023, has no outstanding loans and includes dividend restrictions - Credit Facility aggregate revolving commitment: $72.5 million as of June 30, 2025[44] - No revolving loan amounts outstanding under the Credit Facility as of June 30, 2025 and September 30, 2024[47] Available for Borrowing under Credit Facility (Dollars in millions): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $69.5 | | September 30, 2024 | $72.8 | - Credit Facility amended in November 2023 to increase revolving commitments to $75.0 million and extend maturity to November 16, 2028[46] - Company was in compliance with all covenants under the Credit Facility as of June 30, 2025 and September 30, 2024[48] Gross Interest Expense (Dollars in thousands): | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three months ended June 30 | $800 | $1,200 | | Nine months ended June 30 | $2,500 | $3,400 | 6. Stockholders' Equity Share repurchase program extended to May 2026 with $8.1 million remaining; quarterly dividends increased, and a special dividend was paid - Share repurchase program extended to May 31, 2026, with $8.1 million remaining[52] - No share repurchases during the three and nine months ended June 30, 2025 and 2024[53] - Quarterly cash dividend: $0.12 per share in FY2025, up from $0.10 per share in FY2024[54] - Special cash dividend of $1.00 per share paid in the first quarter of fiscal year 2024[54] - Accelerated vesting of restricted stock units for former CFO resulted in $0.5 million incremental share-based compensation expense[55] 7. Leases The Company leases most stores and facilities, classifying them as operating or finance leases, with related party leases totaling $8.6 million in assets - Leases most of its stores, a bulk food repackaging facility, and administrative offices[56] - Lease terms generally range from 10 to 25 years, with renewal options typically in 5 to 10-year increments[56][58] - Related party operating leases with Chalet Properties, LLC, Isely Family Land Trust LLC, and FTVC, LLC[65][77][78][79] Related Party Operating Leases (Dollars in thousands): | Metric | June 30, 2025 | | :-------------------------- | :-------------- | | Operating lease assets | $8,600 | | Operating lease liabilities | $8,800 | Total Lease Cost (Dollars in thousands): | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three months ended June 30 | $15,654 | $15,400 | | Nine months ended June 30 | $46,543 | $46,129 | Weighted-Average Remaining Lease Term (in years): | Lease Type | June 30, 2025 | September 30, 2024 | | :-------------------- | :-------------- | :----------------- | | Operating leases | 9.4 | 9.8 | | Finance leases | 14.0 | 13.7 | Future Undiscounted Lease Payments (Dollars in thousands): | Lease Type | Total Future Undiscounted Lease Payments | | :-------------------- | :------------------------------------- | | Operating leases | $350,074 | | Finance leases | $65,997 | 8. Property and Equipment Net property and equipment increased to $181.0 million as of June 30, 2025, with total depreciation and amortization expense at $23.8 million Property and Equipment, Net (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $181,037 | | September 30, 2024 | $178,609 | Total Depreciation and Amortization Expense (Dollars in thousands): | Period | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Three months ended June 30 | $7,953 | $7,845 | | Nine months ended June 30 | $23,791 | $22,998 | 9. Other Assets Total other assets significantly increased to $4.2 million, primarily due to higher implementation costs for software hosting arrangements Total Other Assets (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $4,218 | | September 30, 2024 | $458 | Amortizable Other Assets, Net (Implementation costs for software hosting arrangements, Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $3,950 | | September 30, 2024 | $171 | 10. Goodwill and Other Intangible Assets Goodwill and other intangible assets, net, decreased to $12.2 million due to amortization, while goodwill remained constant Total Goodwill and Other Intangibles, Net (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $12,195 | | September 30, 2024 | $13,488 | Amortizable Intangible Assets, Net (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $6,592 | | September 30, 2024 | $7,832 | - Goodwill remained constant at $5,198 thousand for both periods[73] 11. Accrued Expenses Total accrued expenses decreased to $31.5 million, mainly due to reductions in payroll and tax-related liabilities Total Accrued Expenses (Dollars in thousands): | Date | Amount | | :-------------------- | :------- | | June 30, 2025 | $31,481 | | September 30, 2024 | $35,847 | Key Components of Accrued Expenses (Dollars in thousands): | Component | June 30, 2025 | September 30, 2024 | | :------------------------------------ | :-------------- | :----------------- | | Payroll and employee-related expenses | $18,688 | $21,874 | | Accrued property, sales, and use tax payable | $8,029 | $9,607 | 12. Income Taxes Income taxes are accounted for under ASC 740, with the OBBBA not expected to materially impact financial statements for the period - Income taxes are accounted for in accordance with FASB ASC Topic 740[75] - The U.S. federal government enacted the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which is being evaluated but not expected to have a material impact on consolidated financial statements for the periods ended June 30, 2025[76] 13. Related Party Transactions The Company has ongoing operating lease agreements with related parties, with rent payments totaling $0.6 million for the three and nine months ended June 30 - Has five operating leases with Chalet Properties, LLC, owned by the Company's non-independent Board members and other related family members[77] - Has one operating lease with Isely Family Land Trust LLC[78] - Has one operating lease with FTVC, LLC, owned by the Company's non-independent Board members and other related family members[79] Rent Paid to Related Parties (Dollars in millions): | Related Party | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Chalet Properties, LLC | $0.2 | $0.2 | $0.6 | $0.6 | | Isely Family Land Trust LLC | $0.1 | $0.1 | $0.2 | $0.2 | | FTVC, LLC | < $0.1 | < $0.1 | < $0.1 | < $0.1 | 14. Commitments and Contingencies The Company is self-insured for certain losses and involved in legal proceedings, but management anticipates no material adverse effects - The Company is self-insured for certain losses, liabilities, and employee benefit costs[80] - Periodically involved in various legal proceedings, including labor and employment-related claims and customer injury claims[81] - Management does not believe any currently pending legal proceeding will have a material adverse effect on its financial statements[81] 15. Subsequent Event On August 6, 2025, the Board approved a quarterly cash dividend of $0.12 per share, payable on September 17, 2025 - On August 6, 2025, the Board approved the payment of a quarterly cash dividend of $0.12 per share of common stock, to be paid on September 17, 2025[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, including business overview, performance, industry trends, outlook, and key metrics Company Overview The Company operates 169 stores in 21 states, focusing on natural and organic products, with plans for new store openings and remodels - Operates 169 stores in 21 states as of June 30, 2025, specializing in natural and organic groceries, dietary supplements, and body care products[85] - Increased store count at a compound annual growth rate of 2.0% over the five fiscal years ended September 30, 2024[87] - Plans to open two new stores and relocate/remodel three existing stores in fiscal year 2025[87] - During the nine months ended June 30, 2025, opened two new stores, relocated/remodelled two existing stores, and closed two stores[87] Performance Highlights Key performance highlights include net sales growth of 6.3% and 8.2% for the three and nine months ended June 30, 2025, respectively Key Performance Highlights (YoY Growth): | Metric | Three months ended June 30, 2025 | Nine months ended June 30, 2025 | | :-------------------------------- | :------------------------------- | :------------------------------ | | Net sales growth | 6.3% | 8.2% | | Daily average comparable store sales growth | 7.4% | 8.4% | | Net income growth | 26.0% | 39.0% | | EBITDA growth | 13.8% | 21.4% | | Adjusted EBITDA growth | 10.1% | 21.2% | - Net sales for the three months ended June 30, 2025, were adversely impacted by approximately $3.5 million to $4.0 million due to a UNFI cybersecurity incident[108][96] - Diluted earnings per share for the three months ended June 30, 2025, was adversely impacted by $0.04 to $0.05 due to the UNFI cybersecurity incident[96] Industry Trends and Economics Sales are influenced by economic conditions, labor challenges, supply chain issues, and intense competition in the natural and organic industry - The grocery industry and Company sales are affected by general economic conditions, including consumer spending, disposable income, interest rates, inflation/deflation, and the political environment[89] - Experienced labor market challenges and increased wages for store Crew members due to labor shortages in the retail industry[89] - Global supply chain issues have led to product shortages and delivery delays, with mitigation efforts underway[89] - The natural and organic grocery and dietary supplements industry continues to grow, driven by increased public interest in health and nutrition[91] - Faces intense competition in a large, fragmented, and highly competitive industry, including from industry consolidation and expansion by existing competitors[91] Outlook The Company anticipates continued growth driven by its loyal customer base, increasing transaction size, and differentiated shopping experience - Believes key factors like a loyal customer base, increasing transaction size, growing consumer interest in nutrition, and a differentiated shopping experience will drive comparable store sales and profitable expansion[93] - New store unit growth rate in the foreseeable future will depend on economic and business conditions, construction permitting, and availability of materials, equipment, and labor[94] - Identifies opportunities for increased leverage of costs and economies of scale in sourcing products[94] Key Financial Metrics in Our Business This section defines key financial metrics such as net sales, daily average comparable store sales, cost of goods sold, and gross profit - Net sales are comprised of gross sales net of discounts, in-house coupons, returns, and allowances[96] - Daily average comparable store sales include sales from stores in the comparable store base for a reporting period against sales from the same stores for the same number of operating months in the prior fiscal year, including remodeled or relocated stores[97] - A cybersecurity incident at primary distributor UNFI in June 2025 adversely impacted daily average comparable store sales by 1.0 to 1.5 percentage points and diluted EPS by $0.04 to $0.05 for the three months ended June 30, 2025[96] - Cost of goods sold and occupancy costs include inventory cost, shipping and handling, distribution, buying, shrink expense, third-party delivery fees, and store occupancy costs[99] - Gross profit is net sales less cost of goods sold and occupancy costs; gross margin is gross profit as a percentage of net sales[100] Results of Operations Statements of Income Data as a Percentage of Net Sales: | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of goods sold and occupancy costs | 70.1% | 70.8% | 70.0% | 70.7% | | Gross profit | 29.9% | 29.2% | 30.0% | 29.3% | | Store expenses | 21.8% | 21.9% | 21.9% | 22.3% | | Administrative expenses | 3.3% | 3.1% | 3.4% | 3.1% | | Pre-opening expenses | 0.0% | 0.1% | 0.1% | 0.1% | | Operating income | 4.7% | 4.2% | 4.7% | 3.8% | | Interest expense, net | (0.2)% | (0.3)% | (0.2)% | (0.3)% | | Income before income taxes | 4.5% | 3.8% | 4.4% | 3.5% | | Provision for income taxes | (1.0)% | (0.8)% | (1.0)% | (0.7)% | | Net income | 3.5% | 3.0% | 3.5% | 2.7% | Other Operating Data: | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :-------------- | :-------------- | | Number of stores at end of period | 169 | 168 | | Twelve-month store unit growth rate | 0.6% | 2.4% | | Change in daily average comparable store sales | 7.4% | 7.2% | Three months ended June 30, 2025 vs. 2024 Net sales rose 6.3% to $328.7 million, driven by 7.4% comparable store sales growth, leading to 26.0% net income increase Key Financial Results (Three months ended June 30, Dollars in thousands, except per share data): | Metric | 2025 | 2024 | Change (Dollars) | Change (%) | | :-------------------------- | :------- | :------- | :--------------- | :--------- | | Net sales | $328,705 | $309,082 | $19,623 | 6.3% | | Gross profit | $98,279 | $90,331 | $7,948 | 8.8% | | Operating income | $15,587 | $12,847 | $2,740 | 21.3% | | Net income | $11,605 | $9,209 | $2,396 | 26.0% | | Diluted EPS | $0.50 | $0.40 | $0.10 | 25.0% | - Daily average comparable store sales increased 7.4%, driven by a 4.8% increase in daily average transaction count and a 2.4% increase in daily average transaction size[108] - Gross margin increased to 29.9% (2025) from 29.2% (2024), primarily attributed to higher product margin from effective promotions[109] - Administrative expenses increased 14.7% to $10.9 million, driven by higher technology expenses and compensation expenses[111] Nine months ended June 30, 2025 vs. 2024 Net sales increased 8.2% to $994.7 million, with 8.4% comparable store sales growth, driving 39.0% net income surge Key Financial Results (Nine months ended June 30, Dollars in thousands, except per share data): | Metric | 2025 | 2024 | Change (Dollars) | Change (%) | | :-------------------------- | :------- | :------- | :--------------- | :--------- | | Net sales | $994,695 | $918,924 | $75,771 | 8.2% | | Gross profit | $298,851 | $269,448 | $29,403 | 10.9% | | Operating income | $46,488 | $34,911 | $11,577 | 33.2% | | Net income | $34,644 | $24,925 | $9,719 | 39.0% | | Diluted EPS | $1.49 | $1.08 | $0.41 | 37.9% | - Daily average comparable store sales increased 8.4%, resulting from a 5.4% increase in daily average transaction count and a 2.9% increase in daily average transaction size[117] - Gross margin increased to 30.0% (2025) from 29.3% (2024), driven by higher product margin from effective promotions and store occupancy cost leverage[118] - Administrative expenses increased 17.6% to $33.5 million, driven by higher compensation expenses (including costs related to the Chief Financial Officer transition) and technology expenses[120] Non-GAAP Financial Measures (EBITDA and Adjusted EBITDA) This section defines and presents EBITDA and Adjusted EBITDA, key non-GAAP financial measures used to assess the Company's operating performance EBITDA and Adjusted EBITDA (Dollars in thousands): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | EBITDA | $23,540 | $20,692 | $70,279 | $57,909 | | Adjusted EBITDA | $24,385 | $22,156 | $73,500 | $60,635 | EBITDA and Adjusted EBITDA as a Percentage of Net Sales: | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | EBITDA % of Net Sales | 7.2% | 6.7% | 7.1% | 6.3% | | Adjusted EBITDA % of Net Sales | 7.4% | 7.2% | 7.4% | 6.6% | - EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, and amortization[125] - Adjusted EBITDA further excludes impairment charges, store closing costs, share-based compensation, and amortization of software hosting arrangement (SaaS) implementation costs[125] Liquidity and Capital Resources The Company's liquidity position includes $13.2 million in cash and $69.5 million available under its credit facility, with changes in cash flows detailed Liquidity Position (Dollars in millions): | Metric | June 30, 2025 | | :-------------------------- | :-------------- | | Cash and cash equivalents | $13.2 | | Available for borrowing under Credit Facility | $69.5 | Cash Flow Summary (Nine months ended June 30, Dollars in thousands): | Activity | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $39,677 | $49,280 | | Net cash used in investing activities | $(22,942) | $(31,808) | | Net cash used in financing activities | $(12,428) | $(21,899) | - Net cash provided by operating activities decreased by $9.6 million (19.5%) for the nine months ended June 30, 2025, compared to the prior year[139] - Net cash used in investing activities decreased by $8.9 million (27.9%) for the nine months ended June 30, 2025, primarily due to decreases in acquisitions of property and equipment and other intangibles[140] - Plans to spend approximately $7.1 million to $10.1 million on capital expenditures during the remainder of fiscal year 2025, primarily for new store openings and relocations/remodels[141] Critical Accounting Policies Critical accounting policies, including income taxes, asset impairment, and leases, involve significant judgments and estimates - Critical accounting policies include accounting for income taxes, impairment of long-lived assets, and leases, which involve significant judgments and estimates[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the Company's market risk position since the information provided in its annual Form 10-K - No material changes regarding the Company's market risk position from the information provided in its Annual Report on Form 10-K[153] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[155] - No material changes in internal control over financial reporting during the most recent fiscal quarter[156] PART II. Other Information Item 1. Legal Proceedings The Company is involved in various legal proceedings, but management does not anticipate any material adverse effects on its financial condition - Periodically involved in various legal proceedings, including labor and employment-related claims, customer personal injury claims, and investigations[159] - Management does not believe any currently pending legal proceeding will have a material adverse effect on its business, prospects, financial condition, cash flows, or results of operations[159] Item 1A. Risk Factors Updated risk factors highlight potential adverse impacts of new or increased tariffs on foreign-sourced goods, affecting costs and competitive position - New or increased tariffs on foreign-sourced goods or materials could have a material adverse effect on the Company's business, financial condition, and results of operations[161] - Tariffs may cause higher costs to procure products, potentially requiring price increases and adversely affecting competitive position[161] - A prolonged trade conflict could result in adverse and uncertain economic conditions and negatively impact demand for products[161] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance documents, executive certifications, and Inline XBRL financial statements - Includes certifications of principal executive officers and principal financial officer required under the Sarbanes-Oxley Act of 2002[163] - Consolidated financial statements are formatted in Inline XBRL (eXtensible Business Reporting Language)[163] SIGNATURES The report is signed by Kemper Isely, Co-President, and Richard Hallé, CFO, on behalf of Natural Grocers by Vitamin Cottage, Inc - Signed by Kemper Isely, Co-President (Principal Executive Officer)[167] - Signed by Richard Hallé, Chief Financial Officer (Principal Financial and Accounting Officer)[167] - Report signed on August 7, 2025[165]