Natural Grocers by Vitamin Cottage, Inc. — FY2019 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended September 30, 2019; it is an annual report, not a standalone Q4 filing. Natural Grocers operates natural and organic grocery and supplement stores. At year-end it had 153 stores in 19 states and one reporting segment. Q4 figures below are for the three months ended September 30, 2019.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $903.6 million | $849.0 million |
| Gross profit / gross margin | $238.8 million / 26.4% | $225.6 million / 26.6% |
| Operating income / margin | $16.8 million / 1.9% | $15.1 million / 1.8% |
| Net income / diluted EPS | $9.4 million / $0.42 | $12.7 million / $0.56 |
| EBITDA / adjusted EBITDA (non-GAAP) | $45.7 million / $46.1 million | $44.5 million / $45.1 million |
| Cash from operations | $37.4 million | $42.9 million |
| Cash and cash equivalents at year-end | $6.2 million | $9.4 million |
| Credit-facility borrowings at year-end | $5.7 million | $13.2 million |
Total debt, including capital and financing lease obligations, was $58.2 million at September 30, 2019, versus $54.3 million a year earlier. The $50 million revolving facility had $43.3 million available to borrow, net of outstanding letters of credit, and the company reported covenant compliance. The company also reported $170.2 million in total liabilities and $156.9 million in stockholders’ equity.
Net cash used in investing activities was $31.9 million, mainly reflecting capital expenditures; net cash used in financing activities was $8.7 million. FY2020 planned capital expenditures were approximately $28–$33 million.
Material changes versus the prior comparable period
- Sales increased 6.4%, reflecting 3.1% comparable-store sales growth and $30.8 million in new-store sales. Comparable-store growth slowed from 5.8% in FY2018; FY2019 growth reflected a 2.9% increase in average transaction size and a 0.2% increase in transaction count.
- Gross margin declined 0.2 percentage points, attributed primarily to a shift toward lower-margin products. Store expenses as a share of sales improved slightly, from 22.0% to 21.9%.
- Reported net income fell 25.6%, but FY2018 included a $4.3 million non-cash tax benefit from tax-reform-related deferred-tax remeasurement. Excluding that benefit, FY2018 net income was $8.3 million; FY2019 net income was higher.
- Operating cash flow declined 12.8%, while investing cash outflow rose to $31.9 million, including purchases of three store properties. Credit-facility borrowings fell by $7.5 million during FY2019.
- FY2019 Q4 sales were $227.2 million versus $217.5 million in FY2018 Q4; Q4 net income was $1.4 million versus $2.1 million.
Outlook, risks, and unusual items
- Management planned five to six store openings and one to two relocations in FY2020; one new store had opened after year-end and before filing. The company also had leases signed for five additional sites and had purchased two store properties.
- Management cited opportunities from customer loyalty, nutrition education, store growth, and scale, while cautioning that competition, economic conditions, new-store performance, fixed occupancy costs, and sourcing economics could constrain sales or margins. No numerical sales or earnings guidance is provided in the filing text.
- UNFI supplied approximately 65% of FY2019 purchases, a significant supplier concentration. Other prominent risks include intense competition, dependence on qualified labor, product safety and regulatory compliance, organic-product supply and weather disruption, cybersecurity, and regional concentration in Colorado and Texas.
- Lease obligations are substantial. The company disclosed $469.1 million of future operating-lease payments before adoption of the new lease standard. It expected FY2020 adoption of ASC 842 to add up to $390 million of operating lease liabilities and corresponding right-of-use assets of up to $370 million; management did not expect a cash-flow impact.
- In Q4 FY2019, the company recorded $0.4 million of long-lived-asset impairment charges. There were no store-closing costs recorded at year-end. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
- After year-end, the board authorized a quarterly dividend of $0.07 per share, with the initial payment scheduled for December 17, 2019. The credit facility was amended to extend its maturity to November 13, 2024 and permit specified dividends and repurchases within an aggregate $10 million annual limit.
Important facts for investors to verify
- Whether comparable-store growth and transaction trends sustain or weaken, and how new stores perform against targeted returns.
- Whether gross-margin pressure, labor and occupancy costs, and planned capital spending affect profitability and cash generation.
- The company’s exposure to UNFI and its ability to maintain supply continuity and favorable terms.
- The impact of ASC 842 adoption on reported lease liabilities, assets, and expense presentation.
- Dividend and share-repurchase capacity under the credit-facility covenants, alongside the company’s lease commitments and available liquidity.