Natural Grocers by Vitamin Cottage, Inc.

Good day, ladies and gentlemen. Welcome to the Natural Grocers Second Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a 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, Treasurer for Natural Grocers. Ms. Thiessen, you may begin.

Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage second quarter fiscal year 2024 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, Jessica, and good afternoon, everyone. Today, I would like to highlight our second quarter financial results and speak to the key drivers of our performance. Then Todd will discuss the results in greater detail and review our updated fiscal year 2024 guidance. The second quarter results were outstanding. as we delivered record quarterly sales margin expansion and significant earnings growth our performance reflects a continuation of the positive trends we experienced in recent quarters Daily average comparable store sales accelerated to 7.5%, driven by a 3.9% increase in basket size, including item count growth, and a 3.5% increase in customer traffic. The sales comp on a two-year basis was 10.2%, and was the fifth consecutive quarter of strong two-year comps. New stores also contributed to the sales growth. During the second quarter, we opened one new store and we are pleased with the performance of all four new stores opened in the last 12 months. Strong sales growth combined with effective expense management generated operating leverage and drove a 34.6% increase in diluted earnings per share to 35 cents. We believe that our strong sales growth over the last year is primarily attributable to three key drivers, our differentiated business model, effective customer engagement, and productivity initiatives. I will elaborate on each driver. The first driver of accelerated sales is our differentiated business model, which sets us apart from our competitors in terms of our high product standards, affordable pricing, and free science-based nutrition education. These disciplines have been core to Natural Grocers since our founding in 1955 and are increasingly relevant to today's consumers. We carefully vet our natural and organic product offerings based upon rigorous product standards designed to support human health, animal welfare, and a more regenerative environment. A few examples of our strict standards include selling only 100% certified organic produce, only pasture-raised dairy, and only eggs from free-range or pasture-raised chickens. Our grocery peers may offer a limited selection of products with similar standards, whereas every natural grocery store only offers carefully vetted natural and organic products. Our carefully vetted products are offered at affordable prices, providing customers a very compelling value proposition. We strive to offer pricing that makes regenerative, sustainable, and healthier choices more affordable and accessible. We believe our pricing strategy, coupled with our compelling rewards program, enable our customers to shop our stores on a regular basis for their groceries, dietary supplements, and household essentials. Our strong sales momentum through the second quarter reflects our continuing engagement with our loyal and resilient customer base and our alignment with consumer trends. So who are our customers? Natural Grocers appeals to a diverse group of consumers. We believe that many consumers have a greater focus on health and wellness as a result of the pandemic. Inflation over the past two years has increased consumer emphasis on value. Our customers prioritize products with health and sustainability attributes. and understand our differentiation in the market. Our core customer skews slightly older and is focused on a healthy lifespan. This group tends to have a higher household income and their spending has been more resilient in recent years. We also appeal to younger generations who prioritize health and sustainability and embrace natural grocers' authenticity. The second driver of accelerated sales is effective customer engagement through marketing initiatives and offer management. We continue to leverage our NPower Rewards program as reflected in the net sales penetration of 78%, up from 76% a year ago. We continually refine and enhance the personalization, frequency, and range of our NPower offers. We also prioritize customer engagement through a convenient retail environment, as well as a high level of customer service. Additionally, We provide extensive free science-based nutrition education programs and coaching in our stores to help customers make informed health and nutrition choices. The third driver of accelerated sales is productivity initiatives. We developed targeted local and regional marketing campaigns that accelerated sales growth in underperforming stores. We also implemented operational productivity initiatives that enabled us to streamline and automate certain in-store tasks, allowing our crew to devote more time to customer-facing activities to further enhance sales and customer service in our stores. Our differentiated business model, relevance to consumer trends, customer engagement, and productivity initiatives resulted in profitable sales growth over the past several quarters. In closing, I would like to thank our Good4U crew for their commitment to operational excellence and exceptional customer service that were instrumental in driving our results. We are fortunate to have crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations, and supply chain reflect these values. With that, I will turn our call over to Todd to discuss our financial results and guidance.