Natural Grocers by Vitamin Cottage, Inc.

Good day, ladies and gentlemen, and welcome to the Natural Grocers Third Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct the 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 Ms. Jessica Thiessen, Vice President and Treasurer for Natural Grocers. Ms. Thiessen, you may begin.

Good afternoon and thank you for joining us for the Natural Grocers by Vitamin Cottage third quarter fiscal year 2022 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 10-Q and 10-K. 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, Jessica, and good afternoon, everyone. We are pleased with our results for the third quarter of fiscal 2022, including daily average comparable store sales growth of 2.5 percent and diluted earnings per share of 17 cents. Since the third quarter of fiscal 2019, or pre-pandemic levels, our daily average comparable store sales have increased 14.1 percent and diluted earnings per share have grown 88.9 percent. demonstrating the enduring strength of our business model. Key to our success in differentiation is our steadfast commitment to our founding principles, including offering the highest quality natural and organic products at always affordable prices and free science-based nutrition education. I would like to highlight a few key sales metrics from the quarter. The third quarter comp sales of 2.5% was positively positive. impacted by retail price inflation of about 6%. Historically, our specialized supply chain has yielded more stable inflation rates than conventional grocery. We continue to pass along the cost inflation impact via pricing on the majority of products. The average transaction size increased 2.7% and remained in the mid-$40 range, which is up more than 20% from pre-pandemic levels. The transaction count comp was relatively flat at negative 0.2%, which we believe was driven by a shift in consumer trends toward food away from home, in particular, consumers traveling more frequently than a year ago. The third quarter item count per basket remained relatively stable, down a fraction of an item compared to the previous four quarters. Our item count per basket increased by 12% compared to pre-pandemic levels. Through the third quarter, we did not observe customer trade-down in response to inflationary trends. Our egg offering is a good indicator of shifts in consumer behavior because there are three distinct categories offered at different price points, free-range, organic, and pasture-raised. Our analysis of the third quarter indicated that we did not experience trade-down in this vertical, and quantities remained relatively consistent across each category. Our NPower loyalty program remains an important tool for optimizing promotional activity and driving customer engagement. We ended the quarter with more than 1.7 million loyalty members, a year-over-year increase of 19%. The third quarter net sales penetration for NPower was 75%, up from 71% a year ago, evidencing our customers' awareness of the value provided by this program. The average NPower basket size is approximately 50% higher than a non-NPower basket. Our Natural Grocers brand products are premium quality products at affordable prices, creating a key point of differentiation that drives loyalty and sales growth. Our Natural Grocers brand products accounted for 7.7% of net sales in the third quarter, up from 7.1% in the third quarter of last year. During the quarter, we launched eight new branded products across body care, bulk, and supplements. During the quarter, we were excited to open a new store in Canyon City, Colorado, and subsequent to the quarter, we opened our first South Dakota store in Sioux Falls. We are pleased with both communities' responses to these new store openings. We are on track to open a total of three to four new locations and relocate two stores in fiscal year 2022. Over the next several years, we expect to return to opening between six and eight new stores per year, subject to improving construction and supply chain conditions. Caring for our crew is one of the company's five founding principles. We offer competitive pay, unique benefits, and career growth opportunities that attract, engage, develop, and retain our workforce. As part of our commitment to our crew, during the fiscal year we have invested more than $14 million in incremental wage increases on an annualized basis. In closing, I want to thank every member of our Good4U crew for their strong execution of our operating strategies, including a commitment to exceptional customer service which has been instrumental in driving our results. With that, let me turn the call over to Todd to discuss our financial results and guidance.