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Natural Grocers posted modest second-quarter gains, with net sales up 0.5% to $337.4 million and diluted EPS rising to $0.58, helped by disciplined expense control and a higher gross margin.
Comparable sales increased just 0.5% as a larger basket size offset fewer transactions, while management said cautious, value-focused consumer behavior continued to pressure traffic among less loyal shoppers.
The company completed a major ERP system upgrade and kept its store expansion plan intact, targeting six to eight new stores in fiscal 2026, while narrowing comparable-sales guidance and raising the low end of its full-year EPS outlook to $2.07-$2.15.
Natural Grocers by Vitamin Cottage (NYSE:NGVC) reported modest sales growth and higher earnings for its fiscal second quarter, as management said disciplined expense controls and store execution helped offset a more cautious consumer environment.
On the company’s earnings call, Chairman and Co-President Kemper Isely said Natural Grocers “performed well in a challenging environment,” with diluted earnings per share rising 3.6% despite softer comparable sales growth against a difficult prior-year comparison. Comparable store sales increased 0.5% in the quarter, following an 8.9% comp in the same period last year. Isely said the company’s two-year comparable sales growth of 9.4% demonstrated “solid growth relative to the broader grocery retail industry.”
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Management attributed the slower near-term sales trend to continued economic uncertainty and value-focused shopping behavior across grocery retail. Isely said Natural Grocers continues to position itself as “the value option in natural and organic grocery retail,” pointing to its “always affordable” pricing strategy and promotional campaigns featuring staple products and the company’s private-label Natural Grocers brand.
Second-quarter sales rise as basket size offsets fewer transactions
Chief Financial Officer Richard Hallé said net sales increased 0.5% year over year to $337.4 million. Daily average comparable store sales also rose 0.5%, driven by a 1.6% increase in basket size, partly offset by a 1.1% decline in transaction count.
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Hallé said the basket comp included a decline of less than half an item per basket. He noted that dairy, produce and meat delivered the strongest sales growth, describing them as some of the company’s most differentiated offerings.
The company’s Natural Grocers brand accounted for 9.8% of total sales, up 120 basis points from a year earlier. Isely also highlighted continued momentum in the company’s {N}power Rewards program, with net sales penetration increasing 3 percentage points to 84%.
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“{N}power remains an effective tool for optimizing promotional activity and strengthening customer engagement,” Isely said.
Earnings improve despite higher technology costs
Gross margin increased 10 basis points to 30.4%, which Hallé said was driven by lower store occupancy costs as a percentage of net sales and stable product margin, including inventory shrink.
Store expenses decreased 1.6% from the prior-year quarter, primarily because of expense management. Administrative expenses rose 10%, which Hallé attributed mainly to higher technology expenses, including costs related to completion of the company’s enterprise resource planning system upgrade.
Net income increased 2.5% to $13.4 million, while diluted earnings per share rose to $0.58 from the prior-year period. Adjusted EBITDA increased 4% to $27.4 million.
Natural Grocers ended the quarter with $20.7 million in cash and cash equivalents, no outstanding borrowings and $67.6 million available under its revolving credit facility. During the first six months of fiscal 2026, the company generated $43.8 million in operating cash flow and invested $30.3 million in net capital expenditures, resulting in free cash flow of $13.5 million.
ERP upgrade completed, store growth continues
Isely said the company completed a major upgrade to its enterprise resource planning system during the quarter, calling it “the most comprehensive systems implementation the company has undertaken to date.” He said the upgraded platform should improve operational efficiency, data visibility and scalability, including future functionality tied to analytics and business intelligence tools.
In response to an analyst question about potential cost savings from the ERP system, Isely cautioned that near-term savings would likely be limited.
“It’ll take a little while to get efficiencies from the new system and to work out bugs in the new system,” Isely said. “Any cost savings that we do see, we usually reinvest in competitive pricing.”
The company opened one new store during the second quarter. After the quarter ended, it relocated one store and opened an additional store. Isely said Natural Grocers remains on track to open six to eight new stores in fiscal 2026 and is targeting a 4% to 5% annual new-store unit growth rate for the foreseeable future.
Guidance narrowed for comparable sales, EPS outlook raised at low end
Natural Grocers refined its fiscal 2026 outlook following the second-quarter results. The company now expects daily average comparable store sales growth of 1.5% to 2.5%, compared with its prior range of 1.5% to 4%.
The company raised the low end of its diluted EPS outlook and now expects earnings of $2.07 to $2.15 per share, compared with the prior range of $2.00 to $2.15. Capital expenditures are now expected to be $45 million to $50 million, down from the previous range of $50 million to $55 million.
New store openings: six to eight in fiscal 2026
Relocations or remodels: two to three existing stores
Comparable sales growth: 1.5% to 2.5%
Diluted EPS: $2.07 to $2.15
Capital expenditures: $45 million to $50 million
Hallé said the company expects comparable sales growth of 2% to 4% in the second half of fiscal 2026, with results at the lower end of the range in the third quarter as the company cycles strong prior-year comparisons and slightly higher growth in the fourth quarter as comparisons moderate. He said the forecast reflects uncertainty in the consumer environment and assumes modest inflation in line with current trends.
The company also said it received a $2 million insurance recovery after the quarter related to business interruption from a June 2025 cybersecurity incident that temporarily affected its main distributor’s ability to fulfill orders and distribute products, leading to product shortages and lost sales in June and July. Hallé said the recovery has been incorporated into the updated guidance.
Management cites pressure among less loyal customers
During the question-and-answer session, Isely said March was “a particularly difficult month,” while April was stronger. He said consumer enthusiasm was more robust a year earlier and noted that less loyal customers showed signs of pullback, while loyal customers continued shopping more consistently.
Hallé said the company continued to see “very good growth” from its {N}power customer base, which now accounts for 84% of revenue. Isely added that Natural Grocers is starting a program aimed at increasing {N}power sales penetration and enrolling more customers who are not currently members.
In closing remarks, Isely said the company remains focused on long-term value creation through store development, investments in people, processes and systems, and its positioning in high-quality natural and organic products supported by “always affordable prices.”
About Natural Grocers by Vitamin Cottage (NYSE:NGVC)
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.
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The article “Natural Grocers by Vitamin Cottage Q2 Earnings Call Highlights” was originally published by MarketBeat.