Natural Grocers by Vitamin Cottage, Inc. Investor Presentation August 2016

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Transcription:

Natural Grocers by Vitamin Cottage, Inc. 1 Investor Presentation August 2016

Disclosures Forward-Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements that are not statements of historical fact, including those that relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information, are forward-looking statements. We may use the words anticipate, assume, believe, continue, could, estimate, expect, intend, may, plan, potential, predict, project, future, target and similar terms and phrases to identify forward-looking statements in this presentation. The forward-looking statements contained in this presentation are based on management s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. For further information regarding risks and uncertainties associated with our business, please refer to the Management s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 and our subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting our website at http://investors.naturalgrocers.com. Any forward-looking statement made by us in this presentation speaks only as of the date of this presentation. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. Non-GAAP Financial Measures In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), this presentation provides information regarding EBITDA, which is not in accordance with, or an alternative to, GAAP (i.e., a non-gaap measure). We define EBITDA as net income before interest expense, provision for income tax and depreciation and amortization. EBITDA is a supplemental measure of operating performance which should not be considered in isolation or as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as an indicator of financial performance. EBITDA has limitations as an analytical tool should not be considered in isolation or as an alternative to, or substitute for, analysis of our results as reported under GAAP. EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of our business. 2

Who We Are Specialty retailer of natural and organic groceries and dietary supplements Industry leading standards Everyday affordable prices Exceptional customer service Nutrition education Community outreach Expanding rapidly with favorable unit economics Small store format Highly portable to multiple markets 3

Where We Are Headquartered in Lakewood, CO Operate 120 stores in 19 states, as of 7/28/16 Signed leases for 19 additional stores in fiscal years 2016 and 2017, as of 7/28/16 8 2 1 3 4 4 2 36 1 3 8 1 1 3 11 5 7 2 18 4 # Number of stores per state

($ in billions) Our Opportunity Natural and organic products constitute a large and rapidly growing segment of the US food industry Organic food sales grew 10.8% in 2015 and now account for 5% of total food sales 1 61% of millennials prefer to buy organic fruits/vegetables 2 14% of millennials have tried to cut GMOs out of their diet 2 $250 $200 $150 $100 $50 $0 Natural Product Sales Food & Beverage Supplements Natural Living 5 1 Source: Organic Trade Association 2 Source: SunTrust Robinson Humphrey Source: Jefferies, LLC P=Preliminary, E=Estimate

Well positioned National Differentiated 100% focused on natural and organic New market opportunities Further penetration available in existing markets Buxton research has identified approximately 200 additional sites within existing markets 6 Conventional Regional Conventional Grocers Regional Opportunity Independent Natural Food Stores Natural & Organic

The right model in the right industry Large and growing market for natural and organic foods Proven and differentiated business model to compete in a competitive market Disciplined cost control Portable store model with scalable infrastructure Significant unit growth opportunities Enhanced marketing infrastructure and initiatives 7

Why we win at the register! 8

9 Our Founding Principles Drive our Core Competencies

Nutrition Education Full-time Nutritional Health Coach (NHC) in every store Free nutrition coaching and classes for customers Provides ongoing training for store associates Science-based nutrition education drives customer loyalty 10

Highest Quality Natural & Organic Products We only sell 100% certified organic produce Meats raised without hormones or antibiotics Industry leading dairy standards requiring that all dairy products are sourced from pasture raised non-confinement dairies Recently introduced egg standards--minimum standard is free range (cage free), no antibiotics, hormones or growth promoters Carefully approved products that do not contain artificial flavors, colors, preservatives, sweeteners or partially hydrogenated or hydrogenated oils Customer confidence in our quality drives loyalty 11

Always Affordable Pricing SM EDAP--Every Day Affordable Price Value without compromising quality Focus on cost efficiencies to deliver value Competitively priced against competition with a value advantage against our larger format competitors Our value proposition is a competitive advantage 12

Community Outreach Supporting our communities and environment Free nutritional education lectures Bag-free checkouts Donation program Local sourcing when available Building grass roots awareness and relationships with our community 13

Commitment to our Associates An engaged associate base that delivers excellent customer service Great jobs with excellent benefits Healthy employees enjoy free nutrition education and store discounts Our highly educated and engaged employees are the key to superior customer service 14

Attractive Unit Economics 15

Attractive Store Model that Supports Long-term Growth Smaller format store Highly portable to both large and small markets Modest initial capital investment that supports high unit growth Average capex of ~$1.7 million Initial inventory of ~$300,000 Pre-opening costs of ~$200,000 Attractive unit-level economics with ~4 year payback and high cash-oncash returns New store economics Upfront capital investment ~$2.2MM Payback period ~4 years All-in cash-on-cash return (5 yr) ~30% Store count at FYE 140 120 100 80 60 118 103 40 87 72 59 20 0 2012 2013 2014 2015 Q3:2016 16

New Unit Performance Continues to Support our Growth Equation New units are cash flow positive in second year of operation New unit ROI continues to meet expectations, with lower capital offsetting slightly lower sales New unit grand opening sales in 2016 are consistent with the prior year(s) grand opening sales Expansion into new markets has resulted in additional productive stores and a more diverse portfolio of stores Expansion within existing markets has yielded incremental market sales and mitigated regional risk, although existing stores have experienced cannibalization 17

New Store Layout Store-base averages 10,000 selling sq. ft. New units average 11,000 sq. ft. of selling space One-quarter of selling space dedicated to supplements 18

Focused on the Core Natural and Organic Categories Sales mix is aligned with the key natural product industry categories Dietary supplement sales and free nutrition education services are a key differentiator relative to mainstream competition Over 20,000 SKUs 6,500 SKUs in supplement category Private label in repackaged bulk and a variety of other categories Grocery 66% Dietary Supplements 23% Fiscal 2015 Sales Mix Body Care, Pet Care & Other 11% 19

Growth and Financial Model 20

A History of Growth Revenue ($ in millions) EBITDA ($ in millions)* 700 600 500 400 300 200 100 0 265 336 431 521 625 462 2011 2012 2013 2014 2015 2015 YTD 524 2016 YTD 60 50 40 30 20 10 0 2011 2012 2013 2014 2015 2015 EBITDA (in $M) EBITDA Margin YTD 2016 YTD 10% 8% 6% 4% 2% 0% Daily Average Comparable Store Sales Growth Earnings per Share** 12% 10% 8% 6% 4% 2% 0% 5% 11% 11% 6% 6% 6% 2011 2012 2013 2014 2015 2015 YTD 2% 2016 YTD $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $- $0.19 $0.32 $0.47 $0.60 $0.72 $0.59 2011 2012 2013 2014 2015 2015 YTD $0.44 2016 YTD 21 * See appendix for reconciliation of EBITDA (a non-gaap measure) to net income (a GAAP measure) ** 2011 and 2012 earnings per share reflect adjusted pro forma EPS

Strong Financial Position to Support Growth Investment Strong operating cash flow and limited leverage to support capital investment 90% of forecasted capital expenditures is to support new unit development, relocations and remodels $10 million two-year share repurchase program in place $25 million available on existing revolver, as of June 30, 2016 Balance Sheet metrics (6/30/2016) Cash $2.7M Debt $49.8M Debt/EBITDA* 1.0x Capital expenditures ($ in millions) 60 53 50 40 40 37 42 30 25 20 10 0 2012 2013 2014 2015 2016E Note: 2016 estimated capital expenditures is midpoint of $52-$54 million guidance 22 * Debt/EBITDA calculation utilizes trailing 12 month EBITDA * See appendix for reconciliation of EBITDA (a non-gaap measure) to net income (a GAAP measure)

Fiscal 2016 Guidance and 2017 Unit Growth Outlook 2016 2017 New stores 23 19-23 Relocations 4 Remodels 1 Daily avg. comps 0-1.5% EBITDA margin* 6.7-7.0% Net income margin 1.6-1.8% Diluted EPS $0.50-$0.56 Capital expenditures $52-$54M Guidance as of July 28, 2016 23 * See appendix for reconciliation of EBITDA (a non-gaap measure) to net income (a GAAP measure)

Financial Highlights Q3 2016 Opened 6 new stores, relocated 1 store and remodeled 1 store Comparable store sales increased 1.8% Daily average comparable store sales increased 0.7% Increase driven by 0.7% increase in average basket Stabilization in sales trends Mature comps declined 1.3% {N}Power SM enrollments rose to 208,000 good4u SM Challenges initiated in 5 markets with strong consumer participation Executed first repurchases under $10 million share repurchase plan 24

Appendix 25

EBITDA Reconciliation EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. We believe EBITDA provides additional information about: (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is a component of a measure in our financial covenants under the Credit Facility. Further, our incentive compensation plans base incentive compensation payments on EBITDA. Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that some investors understanding of our performance is enhanced by including this non-gaap financial measure as a reasonable basis for comparing our ongoing results of operations. By providing this non-gaap financial measure, together with a reconciliation from net income, we believe we are enhancing analysts and investors understanding of our business and our results of operations, as well as assisting analysts and investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent, and should not be considered as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as indicators of our financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are: EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; EBITDA does not reflect changes in, or cash requirements for, our working capital needs; EBITDA does not reflect any impact for straight-line rent expense for leases classified as capital and financing lease obligations; EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt; EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements. Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as supplemental information. 26

EBITDA Reconciliation Year ended September 30, 2015 2014 2013 2012 2011 Net income attributable to Natural Grocers by Vitamin Cottage, Inc. $ 16,204 13,473 10,552 6,649 3,504 Net income attributable to noncontrolling interest 828 1,106 Net income 16,204 13,473 10,552 7,477 4,610 Interest expense 2,993 2,496 2,166 568 669 Provision for income taxes 9,432 8,281 6,379 3,955 2,167 Depreciation and amortization 21,337 17,212 13,496 9,949 7,691 EBITDA $ 49,966 41,462 32,593 21,949 15,137 Three months ended June 30, Nine months ended June 30, 2016 2015 2016 2015 Net income $ 2,680 4,345 10,005 13,312 Interest expense 768 768 2,154 2,217 Provision for income taxes 567 2,121 4,999 7,529 Depreciation and amortization 6,380 5,402 18,617 15,532 EBITDA $ 10,395 12,636 35,775 38,590 27