Natural Grocers by Vitamin Cottage, Inc. — FY2021 Form 10-K
Business and period. The company operates specialty retail stores focused on natural and organic groceries and dietary supplements. This annual report covers the fiscal year ended September 30, 2021; quarterly figures below include fiscal Q4 (three months ended September 30). The company operated 162 stores in 20 states and reports one business segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,055.5 million | $1,036.8 million |
| Daily average comparable-store sales change | +0.7% | +12.0% |
| Gross profit / gross margin | $292.2 million / 27.7% | $283.1 million / 27.3% |
| Operating income / margin | $28.3 million / 2.7% | $27.7 million / 2.7% |
| Net income / diluted EPS | $20.6 million / $0.91 | $20.0 million / $0.89 |
| EBITDA / Adjusted EBITDA | $58.0 million / $60.3 million | $58.9 million / $60.7 million |
| Cash from operations | $53.9 million | $66.5 million |
Fiscal Q4 net sales were $272.6 million and net income was $7.2 million, versus $264.2 million and $3.7 million, respectively, in fiscal Q4 2020.
- Sales grew 1.8% for the year: $14.5 million came from new stores and $4.2 million from comparable stores. Comparable-store basket size rose 4.7%, partly offset by a 3.8% decline in daily transaction count; average comparable-store transaction size was $44.24.
- Gross margin improved mainly on product margin and lower shrink and occupancy costs as a share of sales. Store expenses as a share of sales rose to 22.2% from 21.9%, reflecting higher labor costs in the first half.
- Net cash used in investing was $27.8 million; net cash used in financing was $31.0 million. Cash declined to $23.7 million from $28.5 million.
- At year-end, the company had $23.7 million outstanding on its term loan, no revolver borrowings, and $49.0 million available under the $50 million revolving facility. It reported compliance with debt covenants. The credit facility matures November 2024.
- Lease obligations were substantial: $377.8 million reported, including $335.2 million operating and $42.6 million finance lease liabilities. Undiscounted future lease payments totaled $466.4 million, excluding $28.2 million of executed leases not yet commenced.
- Current assets were $135.6 million and current liabilities $133.8 million. The filing states management believes cash, operating cash flow and borrowing availability will cover working capital, planned capital expenditures, debt repayment and shareholder returns for the next 12 months and foreseeable future.
Changes, outlook and material matters
- Compared with FY2020, comparable-store sales growth slowed sharply from 12.0% to 0.7%; the company attributed FY2020’s elevated sales and FY2021’s basket and traffic patterns partly to pandemic-related shopping behavior. Management cautioned that elevated sales may not persist as the pandemic subsides.
- Three stores opened and five were relocated or remodeled in FY2021. For FY2022, management planned four to six new stores, three to four relocations/remodels, and approximately $28 million to $35 million in capital expenditures. No new stores or relocations/remodels had occurred between fiscal year-end and the report date.
- Management’s longer-term priorities include store growth, comparable-store sales and margin improvement through labor, inventory-shrink, sourcing and cost efficiencies. No specific FY2022 earnings or sales guidance was provided.
- Shareholder distributions totaled $51.5 million in FY2021, including a $2.00-per-share special dividend paid in December 2020 and quarterly dividends of $0.07 per share. A $0.10-per-share quarterly dividend was approved in November 2021. The board retains discretion over future dividends, and credit-facility terms apply.
- COVID-19 effects remain uncertain. The company reported supply shortages and delivery delays, which had moderated but continued for some products. UNFI accounted for approximately 67% of FY2021 purchases; the company was exploring a longer-term extension beyond the current automatic renewal ending May 31, 2022.
- FY2021 included $1.1 million of long-lived-asset impairment charges and $1.5 million of impairment and store-closing costs in store expenses. The auditor identified store-level long-lived-asset recoverability as a critical audit matter, citing judgment in sales and expense forecasts. The financial-statement audit opinion was unqualified, and the auditor found internal control over financial reporting effective.
- A former assistant store manager’s wage-and-hour case remains in discovery; 101 plaintiffs remained in the FLSA collective action after 56 opt-in plaintiffs were ordered to individual arbitration. Damages were not quantified, and the company said it could not reasonably estimate a possible loss.
Important facts for investors to verify
- Whether post-pandemic customer traffic, basket size and comparable-store sales sustain performance after the unusually strong FY2020 comparison.
- Progress on FY2022 store openings, relocations and the $28–$35 million capital expenditure plan, including returns from newer stores.
- Operating cash flow and liquidity after dividends, capital spending and scheduled term-loan repayments; assess lease commitments alongside funded debt.
- UNFI contract renewal and mitigation of supplier concentration and continuing product availability issues.
- Developments in the wage-and-hour litigation and any resulting exposure, alongside the FY2021 impairment assumptions and store performance.
- Adjusted EBITDA is a non-GAAP measure; the company revised its definition to exclude share-based compensation and recast FY2020 for comparability. Consider the reconciliation and limitations alongside GAAP results.