Natural Grocers by Vitamin Cottage, Inc. — FY2015 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended September 30, 2015; it is an annual report, not a standalone fourth-quarter filing. Natural Grocers operates specialty natural and organic grocery and dietary-supplement stores. At year-end it had 103 stores in 18 states, up from 87 a year earlier.
Financial and operating performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $624.7 million | $520.7 million |
| Gross profit / gross margin | $182.1 million / 29.2% | $151.5 million / 29.1% |
| Operating income / margin | $28.6 million / 4.6% | $24.2 million / 4.7% |
| Net income / diluted EPS | $16.2 million / $0.72 | $13.5 million / $0.60 |
| EBITDA / EBITDA margin (non-GAAP) | $50.0 million / 8.0% | $41.5 million / 8.0% |
| Cash provided by operating activities | $41.0 million | $31.7 million |
| Cash and cash equivalents at year-end | $2.9 million | $5.1 million |
Sales rose 20.0%, driven by $73.3 million of new-store sales and 5.9% comparable-store sales growth. Comparable-store growth reflected a 3.6% increase in daily average transactions and a 2.2% increase in average transaction size. Gross margin edged up, while operating margin declined 0.1 percentage point as store expenses rose faster than sales.
Cash used in investing activities was $42.3 million, including $36.8 million for property and equipment and $5.6 million for the Nature’s Pantry store acquisition. Cash declined by $2.2 million over the year. Current assets were $82.3 million and current liabilities $69.9 million.
Reported total debt was $27.6 million, consisting of capital and financing lease obligations and other specified debt items; no revolving credit borrowings were outstanding at year-end. The existing $15 million facility had $14 million available, after letters of credit. A commitment to increase the facility to $25 million was obtained on November 17, 2015. The company reported compliance with its debt covenants.
Changes versus the prior year
- Net sales increased 20.0%, net income 20.3%, and operating cash flow 29.1%.
- Comparable-store sales growth improved to 5.9% from 5.6%, but mature-store sales growth slowed to 2.6% from 3.4%.
- Gross margin improved 0.1 percentage point; operating margin slipped from 4.7% to 4.6%, with store expenses increasing to 21.2% of sales from 20.9%.
- Year-end cash decreased by $2.2 million, while total debt, largely lease-related, increased to $27.6 million from $22.0 million.
- The company acquired one Missouri store, opening 16 new stores during FY2015 compared with 15 in FY2014.
Outlook, risks and unusual items
- Management planned 23 new stores, four relocations and two remodels in FY2016, with estimated capital expenditures of $54–$56 million. It expected average upfront investment of about $2.2 million per new store and said available cash, operating cash flow and credit availability should cover planned needs for at least 12 months.
- Management cited continued expansion, customer loyalty and nutrition-focused differentiation as growth drivers, while warning that competition, consumer preferences, new-store costs and higher lease costs could pressure performance and margins.
- UNFI supplied approximately 57% of FY2015 purchases, creating supplier-concentration exposure. Colorado and Texas represented 46.6% of stores, increasing regional concentration risk.
- Operating lease commitments totaled approximately $387.9 million and capital and financing lease payments approximately $47.2 million. These obligations are significant fixed commitments.
- A customer class-action lawsuit was filed following a FY2015 data-security incident. The company disputed the claims but said it could not predict class certification, outcome or potential loss.
- The Nature’s Pantry acquisition involved $6.1 million in cash payments and approximately $4.7 million of goodwill. The filing also identifies regulatory, product-safety, supply, labor, self-insurance and execution risks.
Important facts for investors to verify
- Whether comparable-store and mature-store sales growth can be sustained as the store base expands, and how much new openings may cannibalize existing stores.
- Whether FY2016 store-opening and capital-spending plans are achieved within budget and whether new stores meet targeted returns.
- The effect of long-term lease commitments and lease accounting on reported margins, debt measures and cash requirements.
- Developments in the data-security lawsuit and any related remediation costs or customer impacts.
- UNFI supply continuity, alternative distribution capacity, and progress on expanding the Colorado distribution and repackaging facility.
- EBITDA is a non-GAAP measure; assess it alongside GAAP earnings, cash flows, capital spending and lease obligations. The filing states that the audited financial statements received an unqualified audit opinion.