Natural Grocers by Vitamin Cottage, Inc.

Good day, ladies and gentlemen. Welcome to the Natural Grocers' second quarter fiscal year 2025 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 Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Ms. Thiessen, you may now begin.

Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage second quarter fiscal year 2025 earnings conference call. On the call with me today are Kemper Isley, Co-President, and Richard Halle, Chief Financial Officer. As a reminder, certain information provided during this conference call contains 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. Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure. Please see our earnings release for a reconciliation of adjusted EBITDA to net income. Today's earnings 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. Our second quarter results were exceptional as we delivered record sales and earnings. On today's call, I will highlight financial results, including key drivers of our performance. discuss what we are seeing in consumer trends, and provide an update on our initiatives. Then Rich will discuss our second quarter results in greater detail and review our updated fiscal year 2025 guidance. Sales growth remained robust in the second quarter and we continue to believe that the quality, breadth, and longevity of our sales performance are extraordinary for grocery retail. Daily average comparable store sales increased 8.9% and accelerated to 16.4% on a two-year basis. The transaction count comp increase of 5.9% marked our ninth consecutive quarter with positive traffic. The transaction size comp increased 2.8% and was our fifth consecutive quarter with an increase in items per basket and modest inflation. Additionally, sales performance was strong across vintages. Remarkably, Stores 5 years and older had an 8.5% comp for the quarter, underscoring the strong competitive position of our stores. We are also very pleased with the performance of the newer vintages. We believe the quality, breadth, and duration of our sales performance are indicators of the overall strength of our business model and productivity of our initiatives we believe there is a continuing trend in consumer prioritization of health and wellness including a heightened focus on food and nutrition and that we are well positioned to capitalize on this dynamic New customers are increasingly drawn to our relevant value offering of high quality, natural and organic products at always affordable prices. Furthermore, we are enhancing customer engagement through our effective marketing initiatives. compelling offers and end power rewards program we believe that communicating and establishing our differentiated position in the marketplace has been instrumental in generating our strong sales performance over the past several years For the second quarter, our focus on operational execution, including effective promotions and store productivity initiatives, combined with expense leverage from higher sales resulted in an operating margin improvement of 150 basis points. and a 60% increase in diluted earnings per share. Based on the strong second quarter results, we are increasing our fiscal 2025 outlook for daily average comparable store sales growth and diluted earnings per share. In light of the broader macro environment, we are monitoring consumer trends closely. To date, we have not observed any indicators of softer demand for our products, trade down, or fewer items per basket. Second quarter sales remain strong across product categories, with our highest comparable store sales growth in our most differentiated offerings. These include meat, in which we are committed to offering humanely raised and sustainably sourced meats, fish, and seafood, produce, which is 100% organic, and our dairy category, which includes 100% pasture-raised dairy and a minimum egg standard of free range. Furthermore, our robust and balanced sales trends were relatively consistent throughout the second quarter and have continued into the third quarter. We have confidence in our ability to navigate the uncertain economic environment in front of us. Our customer base is diverse in terms of age and income demographics. And our customers share a significant focus on health and sustainability. We believe that behaviors adopted by consumers to support their health and wellness are enduring. Additionally, our customers have historically been resilient during periods of economic uncertainty. We believe that our distinctive offering of high-quality natural and organic products at always affordable prices positions us to attract and retain customers across a spectrum of macro conditions. As we look to the remainder of fiscal 2025 and beyond, we will continue to focus on our key priorities to drive growth. including communicating our differentiated offering, further enhancing customer engagement through our NPower Rewards program, expanding our selection of Natural Grocers brand products, and driving new store development and existing store productivity. I will now highlight the second quarter performance of key initiatives. During the second quarter, net sales penetration of our NPower Rewards program was 81%, up from 78% a year ago, reflecting continued positive trends in customer loyalty and engagement. National Grocers brand products are affordable offerings, that meet our high standards for nutritional health and sustainability. In the second quarter, our branded products accounted for 8.6% of total sales, up from 8.5% a year ago, driven in part by new products. During the quarter, we launched 22 new Natural Grocers brand items. and we're excited about the new offerings in the queue for the balance of the year. During the second quarter, we opened new stores in Brownsville, Texas and Waco, Texas. Store unit growth and development continues to be a priority of our company. During fiscal 2025, we plan to open three to four new stores and relocate or remodel two to four stores. In the future, we plan to open six to eight new stores per year. In closing, I would like to thank our good-for-you crew for their commitment to operational execution and exceptional customer service that were instrumental in driving our results. We are fortunate to have crew who share an affinity for our company's founding principles and are dedicated to ensuring that our store's operations and supply chain reflect these values. With that, I will turn our call over to Rich to discuss our financial results and outlook.