Natural Grocers by Vitamin tage(NGVC) - 2023 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements This section presents the unaudited interim consolidated financial statements for the quarter ended December 31, 2022, detailing the company's financial position, performance, and cash flows Consolidated Balance Sheets As of December 31, 2022, total assets were $658.5 million, liabilities decreased to $500.3 million, and stockholders' equity increased to $158.2 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Assets | $658,529 | $663,108 | | Total Current Assets | $140,133 | $140,660 | | Total Liabilities | $500,343 | $507,296 | | Total Current Liabilities | $139,538 | $137,728 | | Total Stockholders' Equity | $158,186 | $155,812 | Consolidated Statements of Income For Q1 FY2023, net sales increased slightly to $280.5 million, but operating income decreased to $6.4 million, leading to a 50.6% drop in net income to $4.4 million Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q1 FY2023 (ended Dec 31, 2022) | Q1 FY2022 (ended Dec 31, 2021) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $280,457 | $277,288 | +1.1% | | Gross Profit | $78,719 | $78,737 | -0.02% | | Operating Income | $6,417 | $12,024 | -46.6% | | Net Income | $4,407 | $8,915 | -50.6% | | Diluted EPS | $0.19 | $0.39 | -51.3% | Consolidated Statements of Cash Flows Net cash from operations increased to $21.2 million in Q1 FY2023, while investing activities used $11.3 million, resulting in a net cash increase of $4.9 million Summary of Cash Flows (in thousands) | Activity | Three months ended Dec 31, 2022 | Three months ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,207 | $12,059 | | Net cash used in investing activities | $(11,275) | $(5,316) | | Net cash used in financing activities | $(5,032) | $(5,125) | | Net increase in cash | $4,900 | $1,618 | | Cash and cash equivalents, end of period | $16,939 | $25,296 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $158.2 million as of December 31, 2022, primarily due to net income, partially offset by cash dividends - For the three months ended December 31, 2022, total stockholders' equity increased by $2.4 million, resulting from $4.4 million of net income and $0.2 million from share-based compensation, offset by $2.3 million in cash dividends[23] Notes to Unaudited Interim Consolidated Financial Statements The notes detail accounting policies, revenue recognition, and debt facilities, highlighting 165 stores, primary revenue from groceries, and available credit - The company operates 165 stores in 21 states, specializing in natural and organic groceries, dietary supplements, and body care products[25] Revenue by Product Category (in thousands) | Category | Q1 FY2023 | % of Net Sales | Q1 FY2022 | % of Net Sales | | :--- | :--- | :--- | :--- | :--- | | Grocery | $197,358 | 70% | $192,029 | 69% | | Dietary supplements | $56,583 | 20% | $58,072 | 21% | | Body care, pet care and other | $26,516 | 10% | $27,187 | 10% | | Total | $280,457 | 100% | $277,288 | 100% | - As of December 31, 2022, the company had $48.9 million available under its Revolving Facility and $13.7 million outstanding under its Term Loan Facility, remaining in compliance with all debt covenants[44][45] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 FY2023 financial performance, highlighting sales growth, net income decline due to margin and expense pressures, and liquidity Performance Highlights Q1 FY2023 saw net sales grow 1.1% to $280.5 million, but net income decreased to $4.4 million and Adjusted EBITDA declined 29.1% to $13.8 million Q1 FY2023 Key Performance Metrics | Metric | Q1 FY2023 | Q1 FY2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $280.5M | $277.3M | +1.1% | | Daily Avg. Comparable Store Sales | +0.5% | +3.8% | N/A | | Net Income | $4.4M | $8.9M | -50.6% | | Adjusted EBITDA | $13.8M | $19.5M | -29.1% | Industry Trends and Economics The company faces significant cost inflation and supply chain disruptions, with an estimated 8% annualized cost inflation, yet plans to open four to six new stores in FY2023 - The company experienced annualized cost inflation of approximately 8% in Q1 FY2023, driven by supply disruptions, increased shipping, commodity, and labor costs[85] - The company plans to open four to six new stores in fiscal year 2023, representing an annual new store growth rate between 2.4% and 3.7%[86] Results of Operations Net sales increased 1.1% to $280.5 million in Q1 FY2023, but declining gross margin and rising expenses led to a 46.6% drop in operating income and a 50.6% decrease in net income - The 0.5% increase in daily average comparable store sales resulted from a 1.7% increase in average transaction size, offset by a 1.2% decrease in transaction count[102] - Gross margin declined from 28.4% to 28.1% year-over-year, primarily due to lower product margin attributed to higher shrink, freight, and distribution expenses[103] - Store expenses as a percentage of net sales increased from 21.4% to 22.7%, mainly driven by higher labor expenses from increased wage rates[104] Non-GAAP Financial Measures The company uses non-GAAP measures like EBITDA and Adjusted EBITDA, which decreased by 29.6% to $13.5 million and 29.1% to $13.8 million respectively in Q1 FY2023 Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Line Item | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net income | $4,407 | $8,915 | | Interest expense, net | $796 | $544 | | Provision for income taxes | $1,214 | $2,565 | | Depreciation and amortization | $7,062 | $7,113 | | EBITDA | $13,479 | $19,137 | | Impairment of long-lived assets | — | $95 | | Share-based compensation | $357 | $294 | | Adjusted EBITDA | $13,836 | $19,526 | Liquidity and Capital Resources The company maintains liquidity with $16.9 million in cash and $48.9 million available on its revolving credit facility, planning $16.7 million to $23.7 million in capital expenditures for FY2023 - As of December 31, 2022, the company had $16.9 million in cash and cash equivalents and $48.9 million available for borrowing under its Revolving Facility[117] - The company plans to spend approximately $16.7 million to $23.7 million on capital expenditures during the remainder of fiscal year 2023 for new store openings and relocations/remodels[124] - On February 1, 2023, the Board approved a quarterly cash dividend of $0.10 per share, consistent with the dividend paid in the first quarter[119] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to market risk, noting the transition of its Credit Facility interest rate benchmark from LIBOR to SOFR - On December 15, 2022, the Company amended its Credit Facility to replace the LIBOR-based interest rate benchmark with one based on SOFR, which is not expected to materially affect liquidity[138] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2022, with no material changes in internal control over financial reporting - As of December 31, 2022, the company's principal executive and financial officers concluded that disclosure controls and procedures were effective at a reasonable assurance level[140] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[141] PART II. Other Information Legal Proceedings The company is defending a class action lawsuit alleging FLSA and Colorado labor law violations, believing the claims are without merit and not materially adverse - The company is defending a putative class action lawsuit alleging misclassification of assistant store managers and unpaid overtime under FLSA and Colorado labor laws, believing the claims are without merit[74] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company's Annual Report on Form 10-K[145] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Credit Agreement amendment, Sarbanes-Oxley certifications, and iXBRL data files - The exhibits filed with this report include the Sixth Amendment to the Credit Agreement, Sarbanes-Oxley certifications, and iXBRL data files[148]