Natural Grocers' Q1 Earnings Rise Y/Y on Cost Discipline

Core Insights - Natural Grocers by Vitamin Cottage, Inc. (NGVC) shares have decreased by 9.8% since the earnings report for the quarter ended December 31, 2025, while the S&P 500 index grew by 0.9% during the same period [1] - For the fiscal first quarter of 2026, the company reported earnings per share of 49 cents, an increase from 43 cents in the same period last year [1] Financial Performance - Net sales reached $335.6 million, reflecting a 1.6% increase compared to the previous year, driven by a 1.7% rise in daily average comparable store sales, which was supported by a 1% increase in transaction count and a 0.7% rise in transaction size [2] - Net income rose by 14% year over year to $11.3 million [2] Profitability Metrics - Gross profit remained relatively flat at $98.9 million, with a gross margin contraction of 40 basis points to 29.5% from 29.9%, primarily due to lower product margins from increased inventory shrink [3] - Store expenses decreased by 0.7% to $73 million, and as a percentage of net sales, fell to 21.8% from 22.3% [4] - Administrative expenses decreased by 5.9% to $10.8 million, contributing to a 9.7% increase in operating income to $14.6 million, with the operating margin expanding to 4.4% from 4% [4] EBITDA and Operational Efficiency - Adjusted EBITDA grew by 3.1% to $23.5 million, while EBITDA rose by 6.2% year over year to $22.6 million, improving as a percentage of net sales to 6.7% from 6.4% [5] - Adjusted EBITDA represented 7% of net sales, a slight increase from 6.9%, indicating continued operational efficiency despite margin pressures [5] Management Commentary - Management expressed that the quarterly performance met expectations and reaffirmed full-year guidance, highlighting the effectiveness of the "Always AffordableSM" pricing strategy and the appeal of high-quality natural and organic products [6] - The management emphasized confidence in the company's competitive position amid economic uncertainty [6] Sales Dynamics - Sales performance was influenced by comparable store sales contributing $5.7 million and new store sales adding $2.4 million, partially offset by a $2.8 million decline from closed store locations [7] - The contraction in gross margin was identified as the main challenge, primarily due to inventory shrink affecting product margins [7] Guidance and Future Outlook - Natural Grocers reaffirmed its fiscal 2026 outlook, projecting daily average comparable store sales growth between 1.5% and 4%, with earnings per share expected to range from $2.00 to $2.15 [10] - Capital expenditures are anticipated to be between $50 million and $55 million, with plans to open six to eight new stores and two to three store relocations or remodels [10] Recent Developments - In the first quarter, the company relocated one store and invested $9.6 million in net capital expenditures, primarily for new, relocated, and remodeled store projects [11]