Executive Summary

Strong Q1 FY2025: Net sales rose 9.4% to $330.2M, gross margin expanded 50 bps to 29.9%, and diluted EPS increased 26.5% to $0.43 on balanced traffic (+5.3%) and ticket (+3.4%) growth .
Guidance raised: FY2025 daily average comparable store sales growth to 5.0%–7.0% (from 4.0%–6.0%) and diluted EPS to $1.57–$1.65 (from $1.52–$1.60); new store, remodel/relocation, and capex outlooks maintained .
Operating leverage: Higher sales and occupancy leverage drove operating margin to 4.0% (+40 bps YoY), while admin expense rate ticked up to 3.5% on CFO transition and tech costs .
Potential stock catalysts: Guidance raise (comps/EPS), continued traffic-led comp momentum (8.9% comps), and private label/Npower penetration gains; watch tariff risk and anticipated gross margin flatness into 2H per management .

What Went Well and What Went Wrong

What Went Well
- Traffic-led comp acceleration: Daily average comparable store sales +8.9% with transaction count +5.3% and transaction size +3.4%; items per basket increased for the fourth consecutive quarter .
- Margin execution: Gross margin +50 bps YoY to 29.9% on occupancy leverage and higher product margin; operating income +23.6% to $13.3M .
- Strategic engagement: Npower penetration reached 81% (vs 78% a year ago) and Natural Grocers brand product penetration rose to 8.9%, supported by 23 new items; “many of our performance metrics are among the highest in grocery retail,” per management .
What Went Wrong
- Admin cost pressure: Administrative expenses rose 22.4% and deleveraged 40 bps to 3.5% of sales due to compensation (including CFO transition) and technology costs .
- Working capital drag on FCF: Operating cash flow of $2.7M was timing-driven (accounts payable) vs $16.6M in the prior-year quarter, per CFO .
- Outlook conservatism on margin: Management expects gross margin to be relatively flat YoY for the year and flagged tariff uncertainty that could affect product costs .

Financial Results

Quarterly trend (oldest → newest):

Metric	Q3 FY2024	Q4 FY2024	Q1 FY2025
Net Sales ($USD Millions)	$309.1	$322.7	$330.2
Gross Margin %	29.2%	29.6%	29.9%
Operating Margin %	4.2%	3.7%	4.0%
Net Income ($USD Millions)	$9.2	$9.0	$9.9
Diluted EPS ($)	$0.40	$0.39	$0.43
Adjusted EBITDA ($USD Millions)	$22.2	$22.6	$22.8
Adjusted EBITDA Margin %	7.2%	7.0%	6.9%

Q1 YoY comparison:

Metric	Q1 FY2024	Q1 FY2025
Net Sales ($USD Millions)	$301.8	$330.2
Gross Margin %	29.4%	29.9%
Operating Income ($USD Millions)	$10.8	$13.3
Net Income ($USD Millions)	$7.8	$9.9
Diluted EPS ($)	$0.34	$0.43
Daily Avg Comp Store Sales %	—	8.9%

KPIs (oldest → newest):

KPI	Q3 FY2024	Q4 FY2024	Q1 FY2025
Daily Avg Comp Store Sales %	7.2%	7.1%	8.9%
Transaction Count % (YoY)	4.7%	3.6%	5.3%
Transaction Size % (YoY)	2.4%	3.4%	3.4%
Items per Basket	≈+2 ppt	≈+2 ppt	≈+2 ppt
Npower Net Sales Penetration	80%	81%	81%
NGVC Brand % of Sales	8.5%	8.4%	8.9%

Segment breakdown: NGVC reports as a single retail segment; no segment disclosures in filings .

Balance sheet and cash flow highlights (Q1 FY2025):

Cash and equivalents $6.3M; revolver borrowings $8.9M outstanding (availability $61.4M) .
Cash from operations $2.7M; capex $9.4M (new/relocated stores) .
Quarterly dividend declared: $0.12 payable Mar 19, 2025; record date Mar 3, 2025 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Daily Avg Comparable Store Sales Growth	FY2025	4.0%–6.0%	5.0%–7.0%	Raised
Diluted EPS	FY2025	$1.52–$1.60	$1.57–$1.65	Raised
New Store Openings	FY2025	4–6	4–6	Maintained
Relocations/Remodels	FY2025	2–4	2–4	Maintained
Capital Expenditures	FY2025	$36–$44M	$36–$44M	Maintained
Quarterly Dividend	Current Run-Rate	$0.12 (raised in Nov-24)	$0.12 declared Feb-25	Maintained

Management added that comps likely land at the high end of the range in Q2, moderating in 2H as laps tough comps; expects gross margin relatively flat YoY and store expense rate flat to slightly lower; noted tariff uncertainty on costs .

Earnings Call Themes & Trends

Topic	Q3 FY2024 (Prior-2)	Q4 FY2024 (Prior-1)	Q1 FY2025 (Current)	Trend
Demand/Comps Drivers	Comps +7.2% on traffic +4.7%; items/basket up; modest ~1% inflation	Comps +7.1% on traffic +3.6%; items/basket up; modest inflation	Comps +8.9% on traffic +5.3%; items/basket up; modest 1–2% inflation	Strengthening
Gross Margin Outlook	+30 bps YoY on occupancy leverage; product mix offset	+100 bps YoY; occupancy leverage + higher product margin	+50 bps YoY; mgmt expects FY margin relatively flat from here	Stable to flat ahead
Npower Engagement	80% penetration	81% penetration	81% penetration; continues to drive loyalty and ticket	High/stable
Private Label Penetration	8.5% of sales; 33 new items	8.4% of sales; 19 new items	8.9% of sales; 23 new items	Trending up
Store Growth	Relocation/remodels; new Lake Tahoe store subsequently	4 new, 4 reloc/remodels FY24; plan 4–6 opens FY25	2 relocations in Q1; 1 new store opened post-Q1; plan 4–6 opens FY25	Re-accelerating
Online vs In-Store	In-store ~98% of sales, margin-neutral online; stability post-pandemic	Continued emphasis on in-store experience	Emphasis on in-store differentiation	Steady
Macro/Tariffs	Modest inflation (~1%)	Modest inflation; category tailwinds	Modest inflation; tariff risk flagged	Watch tariffs

Management Commentary

“Our first quarter results saw accelerating growth... comparable store sales increase accelerated to 8.9%... transaction counts, transaction size and items per basket all higher year-over-year.” – Kemper Isely, Co-President .
“Robust and balanced sales growth, combined with effective expense management, drove significant operating leverage... we are increasing our fiscal 2025 outlook for... sales growth and diluted earnings per share.” – Kemper Isely .
“Gross margin increased 50 basis points to 29.9%, driven by store occupancy cost leverage and higher product margin.” – Management commentary .
“Our current expectation is that sales comps will be at the high end of our outlook range in the second quarter, while moderating somewhat in the second half... we expect modest inflation... [and] year-over-year gross margin [to be] relatively flat.” – Richard Hallé, CFO .
On strategy: “We believe that many of our performance metrics are among the highest in grocery retail... our offering of high-quality products at always affordable prices creates a compelling value proposition.” – Kemper Isely .

Q&A Highlights

Gross margin trajectory and conservatism: Acknowledged Q1’s +50 bps improvement largely occupancy leverage; expect less leverage as comps moderate and flagged tariff uncertainty on product costs; outlook intentionally conservative .
Free cash flow timing: Q1 working capital changes were “predominantly accounts payable” timing; implies normalization ahead .
Operating margin potential vs peers: As sales leverage continues, margins should expand, but company prioritizes sharper value pricing vs competition, which can temper margin expansion .
Unit growth pacing: Targeting 4–6 openings in FY25; aiming 6–8 per year longer term as pipeline improves; Florida not near-term focus .

Estimates Context

S&P Global consensus (EPS, revenue, EBITDA) for Q1 FY2025 and forward quarters was unavailable at time of retrieval due to S&P Global daily request limits; as a result, we cannot provide “vs. estimates” comparisons in this recap. We will update comps to consensus when access is restored. [Values retrieved from S&P Global]*

Other Relevant Q1 Press Releases

Quarterly dividend: $0.12 per share declared (payable Mar 19, 2025; record Mar 3, 2025) – maintains the run-rate set in Nov 2024 .
Store development: Management noted one new store opened post-quarter in Brownsville, TX; separate PR announced upcoming Waco, TX opening (Feb 19) .

Key Takeaways for Investors

Traffic-led comp strength continued and accelerated: +8.9% comps with +5.3% traffic—a favorable quality of growth signal and likely driver of sustained operating leverage if maintained .
Guidance raised early in the year: Higher FY2025 comps (+100 bps at mid) and EPS (+$0.05 at mid) increases confidence in demand and execution momentum .
Margin path: Near-term gross margin likely flat YoY as occupancy leverage normalizes and tariff risks linger; continued discipline on store expense rate (flat to slightly lower) supports EBIT resiliency .
Loyalty and private label: Npower penetration at 81% and private label mix at 8.9% should continue to support ticket, mix, and value perception—key to defensible share and margin stability .
Capital returns with flexibility: Dividend maintained at $0.12 while liquidity remains solid ($6.3M cash; $61.4M revolver availability) to fund growth and remodels .
Watch list for 2H: Comps moderation on tough laps, tariff developments, and admin expense cadence post-CFO transition/tech investments—potential sources of estimate and multiple volatility .
Multi-quarter cadence: Three consecutive quarters around ~$22–23M Adjusted EBITDA and improving gross margin trend establish a sturdy base for FY25, with upside if comps remain at the high end longer than expected .

Natural Grocers by Vitamin Cottage, Inc. (NGVC)·Q1 2025 Earnings Summary