Natural Grocers by Vitamin Cottage, Inc.

Good day, ladies and gentlemen. Welcome to the Natural Grocers Third Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Mr. David Coulson, Vice President and Treasurer for Natural Grocers. Mr. Coulson, you may begin.

Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage third quarter fiscal year 2020 earnings conference call. On the call with me today are Kemper Isley, co-president, and Todd Dissinger, chief financial officer. As a reminder, certain information provided during this conference call are forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed forms 10Q and 10K. The company undertakes no obligation to update forward-looking statements. Today's press release is available on the company's website, and a recording of this call will be available on the website at investors.naturalgrocers.com. Now, I will turn the call over to Kemper.

Thank you, David, and good afternoon, everyone. Thank you for taking the time to join us today. We hope you are all well and staying safe as we continue to navigate these unprecedented times together, and we appreciate your continued support. The entire Natural Grocers family has worked diligently to support our communities and customers by supplying the highest quality natural and organic products in a safe and convenient shopping environment. I am extremely proud of the diligent work of our heroes in masks and aprons. We are successfully navigating these challenging times as we provide an invaluable service to all of our customers. The loyalty of our customers is a direct reflection of the entire organization's commitment to executing at the highest level in terms of safety, cleanliness, product availability, quality, and customer service. I'd like to walk through some of the highlights of the quarter and provide an update on how we are responding in natural grocers to the COVID-19 pandemic and related government mandates. I will then turn the call over to Todd to discuss our financial results in greater detail. During the third quarter, our strong sales trends continued with daily average comparable sales growth of 15.5%. We have seen consistently robust sales trends since late February. The stay-at-home orders were implemented and food-away-from-home offerings were limited in response to the onset of COVID-19 and government mandates. After the initial pantry loading period, which peaked in mid-March, our sales levels have continued at an elevated rate and remained relatively consistent throughout the third quarter. It is clear that consumers are reducing their frequency of shopping trips while purchasing higher volumes per visit. Our comp for the third quarter was driven by a 31.5% increase in basket size, partially offset by a 12.2% decrease in transaction count, reflecting customers' social distancing efforts. As the quarter progressed, average basket growth moderated from a 40.4% increase in April to a 31.6% increase in May, followed by a 23.3% increase in June. While average traffic declines improved from negative 17.9% to negative 10.8% to negative 7.8% by month for the same three respective months, we have seen these trends continue into July, with comps holding relatively stable with the prior three months. Reflecting the strong comparable store sales, we generated gross margin expansion of 130 basis points during the quarter. We also more than doubled net income and generated 32% EBITDA growth. We remain focused on delivering exceptional value to our consumers, which is more important now than ever given the economic challenges facing many of our customers and communities. Part of our efforts to deliver value include our most recent marketing campaign focused on providing customers the ability to create a meal for a family of four using Natural Grocers products for under $12. We have seen an increase in our inflation rates of about 2% to 3% during the quarter, which is more modest than the industry overall. Now I'd like to walk through how we continue to support our Good For You crew and communities we serve when they need us most. In March, we permanently increased wages by $1 per hour for all of our store hourly crew. We also increased our starting wages by $1 per hour for our store crew and have provided hero pay in the form of monthly bonuses. Collectively, all of these wage and bonus enhancements represented approximately $3.9 million and 82% of our third quarter net income. We remain focused on the safety of our Good For You crew and customers and continue to enhance our extensive in-store safety and cleaning measures. We are also committed to helping give back to our community during this time of great need. As part of our in-store efforts to commemorate the 50th anniversary of Earth Day in April, we donated over $50,000 in gift cards to local food banks. This donation was in addition to our ongoing daily donations to local food banks. Finally, I want to again thank each and every one of our crew who continue to help ensure that we are serving the communities that depend on us with the safest, most convenient shopping environment with the highest quality natural and organic products at always affordable prices. With that, let me turn the call over to Todd to discuss our financial results and guidance.