Natural Grocers by Vitamin Cottage logo
Q1 results were in line with expectations: net sales rose 1.6% to $335.6 million, daily average comparable-store sales grew 1.7% (two-year comp 10.6%), diluted EPS increased 14% to $0.49, and management reaffirmed fiscal 2026 guidance.
The Npower rewards program is driving outperformance — penetration rose 2 points to 83%, with rewards members delivering stronger sales while less-engaged, income-constrained shoppers pulled back.
Gross margin declined 40 basis points to 29.5% mainly due to higher inventory shrink (partly cyclical and isolated events), but operating income rose and the company plans to open six to eight new stores while targeting fiscal 2026 diluted EPS of $2.00–$2.15.
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Natural Grocers by Vitamin Cottage (NYSE:NGVC) executives told investors the company’s first quarter fiscal 2026 results were “in line with expectations,” citing continued comparable sales growth, double-digit earnings-per-share growth, and ongoing momentum in its {N}power rewards program. Management also maintained its full-year outlook while acknowledging cautious consumer spending behavior across the grocery sector.
Co-President Kemper Isely said first-quarter daily average comparable store sales grew 1.7%, cycling an 8.9% comp in the year-ago period. He highlighted a two-year comp of 10.6%, which he said reflects “a robust growth rate relative to the broader grocery retail industry.”
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Chief Financial Officer Richard Hallé reported net sales increased 1.6% year over year to $335.6 million. Comparable transaction count rose 1%, while comparable transaction size increased 0.7%, which included “annualized product inflation of approximately 2% to 2.5%.” Items per basket were down less than half an item year over year.
Hallé said the company continued to see its greatest sales growth in meat, dairy, and produce, which he described as some of Natural Grocers’ most differentiated offerings. He also noted a modest decline in transactions using SNAP EBT, which represents approximately 2% of net sales, and said the reduction was “immaterial” to the overall sales comp for the quarter.
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Management pointed to a divergence in performance between rewards members and non-members. Isely said the first-quarter comp was “primarily” influenced by trends among customers who do not participate in the rewards program, while {N}power members continued to deliver stronger sales growth.
During the quarter, {N}power rewards net sales penetration increased 2 percentage points to 83%, supported by “strong membership gains and higher traffic by {N}power customers,” according to Isely. He characterized {N}power as an effective tool for optimizing promotional activity and strengthening customer engagement.
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In the Q&A, management attributed some customer pullback to income pressures. In response to a question about demographics, executives said “the demographic that’s income-constrained has pulled back,” describing those shoppers as nervous and looking for inexpensive alternatives. They added they have not seen a material demographic shift in third-party data, and said the pullback has been more evident among “less engaged customers,” not {N}power members.
Hallé said gross margin declined 40 basis points to 29.5%, driven by lower product margin primarily due to higher inventory shrink. He said the majority of the shrink increase was tied to “isolated events.”
On the call, Hallé provided additional color, explaining that the company was cycling unusually low shrink in the first quarter last year—about 15% below its three-year average—while this quarter ran about 10% above the three-year average. He cited factors including sales velocity, “weather-related power outages,” and some incremental shrink related to store closures, along with more typical quarter-to-quarter operational execution variance.
Pressed for magnitude, Hallé said cycling accounted for about 50% of the shrink-related variance, anomalies such as outages and closures were about 25%, and the balance was “standard variances.”
Despite the gross margin pressure, Hallé said store expenses declined 0.7%, primarily driven by expense management, and administrative expenses decreased 5.9%, largely due to costs incurred in the prior year tied to the CFO transition.
Operating income increased 9.7% to $14.6 million. Net income rose 14% to $11.3 million, and diluted EPS increased 14% to $0.49. Adjusted EBITDA increased 3.1% to $23.5 million.
Isely said the company’s private label continued to gain traction, with Natural Grocers brand products representing 9.6% of total sales, up 70 basis points from a year ago. He attributed the increase to rising customer awareness supported by more prominent marketing efforts and new product introductions.
In the Q&A, management noted that supplements—described as the company’s highest-margin category—posted a slight sales decline in the quarter, which executives tied to “zero inflation in the supplement sector.” They also said body care was similar, and that units declined most in body care and supplements, as well as health and household items. The company said grocery posted good growth, including growth in units.
Management acknowledged that weaker supplements impacted profitability to some extent, but said the company’s “cash register ring margin” was flat for the quarter, supported by margin pickup in other categories.
Natural Grocers said it relocated one store during the first quarter, with Isely describing relocations as a key element of the company’s store development strategy because they “typically generate accelerated sales growth off a higher sales base.”
Management reaffirmed its plan to open six to eight new stores in fiscal 2026 and said it is targeting 4% to 5% annual new store unit growth “for the foreseeable future.” In the Q&A, the company said it had one closure—its Austin Arbor Walk store in Texas in October—and does not expect additional closures this year.
Hallé said the company ended the quarter with $23.2 million in cash and cash equivalents, no outstanding borrowings, and $67.6 million available on its revolving credit facility. Operating cash flow was $21.1 million, net capital expenditures were $9.6 million, and free cash flow was $11.6 million.
The company maintained the fiscal 2026 guidance it originally provided in November, including:
Open six to eight new stores (with openings weighted to the back half of the fiscal year)
Relocate or remodel two to three existing stores
Daily average comparable store sales growth of 1.5% to 4%
Diluted EPS of $2.00 to $2.15
Capital expenditures of $50 million to $55 million
Hallé said comps are expected to be at the low end of the range through the second quarter as the company cycles strong results from the prior year, with improvement anticipated in the second half as comparisons ease. He added the outlook assumes modest inflation in line with current trends, gross margin relatively flat year over year (depending on promotional activity), and store expenses as a percentage of sales “relatively flat to slightly lower.”
Management also said that in fiscal 2026 it expects to invest approximately $0.12 of diluted EPS in new store openings, primarily through higher pre-opening and store expenses. In the Q&A, executives said the headwind reflects an acceleration in growth this year and indicated it could be “fairly flat” going forward if store openings remain at a similar pace, with more pressure if growth accelerates further.
In closing remarks, Isely reiterated confidence in the company’s differentiated model of offering “high quality, natural and organic products at always affordable prices,” and said Natural Grocers remains committed to driving profitable long-term growth.
Natural Grocers by Vitamin Cottage, Inc operates a chain of specialty grocery stores focused on natural and organic products. Founded in 1955 by Margaret and Philip Isely in Lakewood, Colorado, the company has built a reputation on strict product standards, including certified organic produce, non-GMO groceries and dietary supplements. Natural Grocers emphasizes whole, unprocessed foods and carries a broad assortment of private-label and national brands that meet its quality guidelines.
The company’s core offerings include fresh fruits and vegetables, bulk foods, vitamins, minerals and nutritional supplements, as well as natural body care and household items.
The article “Natural Grocers by Vitamin Cottage Q1 Earnings Call Highlights” was originally published by MarketBeat.
