Operator: Good day, ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter and 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 would now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer, for Natural Grocers. Ms. Thiessen, you may begin.

Jessica Thiessen: Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. On the call with me today are Kemper Isely, Co-President, Todd Dissinger, Chief Financial Officer, and Richard Halle, our incoming 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. 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.

Kemper Isely: Thank you, Jessica, and good afternoon, everyone. Thank you for joining us for our fourth quarter call. Today, I will highlight our financial results, including key drivers of our performance, and provide an update on our priorities. Then Todd will discuss the fourth quarter results in greater detail and introduce our fiscal year 2025 guidance. We are pleased with our strong performance in the fourth quarter, particularly the balanced nature of our growth. We had 7.1% daily average comparable store sales growth and 14% on a two-year basis. Sales growth included increases in transaction counts and items per transaction, modest price inflation, and sales contribution from the new stores. Additionally, gross margin increased 100 basis points driven by both store occupancy cost leverage and higher product margin. The sales and margin improvements combined with expense management and leverage resulted in a 53% increase in net income. The full fiscal year performance was also balanced, including a daily average comparable store sales increase of 7% and gross margin improvement of 70 basis points. Furthermore, we delivered operating margin expansion of 100 basis points and diluted earnings per share growth of 44%. Our positive comps in fiscal 2024 represented our 21st consecutive year of positive comparable store sales growth. Our outstanding fourth quarter and fiscal year results underscore our customers' appreciation for our commitment to the exceptional quality, value, and convenience provided by our innovative business model. Additionally, we continue to benefit from consumers' increasing prioritization of products that support health and sustainability.

Kemper Isely: We provide a differentiated merchandising strategy that delivers affordable, high-quality, natural and organic grocery products and dietary supplements. In the fourth quarter and for the fiscal year, the departments with the highest sales growth were meat, dairy, and produce. We believe our high product standards in these departments resonate with consumers now more than ever. Our meat product standards prioritize humanely raised and sustainably sourced offerings. For example, our chicken product standard has always prohibited the use of antibiotics, hormones, and other growth promotants. Our dairy department standards require pasture-raised, non-confinement dairy products, and our minimum egg standard is free-range. Our produce offering is 100% certified organic and was organic even before there was an official USDA organic designation. Our commitment to offering high-quality products at always affordable prices creates a compelling value proposition that is distinctive within the market. Our marketing initiatives consistently emphasize these key characteristics to drive customer engagement. We believe that communicating and reinforcing our distinct position in the marketplace has been instrumental in generating our strong sales performance over the past several quarters. As we reflect upon our performance over a longer horizon, we have achieved sustained growth by consistently executing our founding principles and focusing on customer engagement and operational initiatives. Additionally, we have benefited from favorable category and consumer trends. Over the previous five years, we have grown net sales by 37% and more than tripled diluted earnings per share. Furthermore, during this period, we returned $108 million in capital to our stockholders through $4.76 of cumulative dividends per common share. We take great pride in our sustained and balanced growth. Consistent with our focus on returning capital to our stockholders, today we announced that our board of directors has approved increasing our quarterly cash dividend to $0.12 per common share, representing a 20% increase. Turning now to an update on key priorities for our business. We believe that our initiatives drove growth in fiscal 2024 and will continue to provide growth opportunities in the future. We continue to leverage our Npower rewards program as reflected in the fourth quarter net sales penetration of 81%, up from 77% a year ago. Npower has been an effective tool for increasing customer loyalty and engagement. Our Natural Grocers branded products continue to experience elevated growth in the fourth quarter. Our branded products accounted for 8.4% of total sales, up from 7.8% a year ago. During the quarter, we launched 19 new Natural Grocers brand items.

Kemper Isely: Including limited edition flavors of our organic coffee, expanded our household products line, and added new gourmet varieties of frozen pizza. For the year, we launched 80 new products, which, like all our Natural Grocers brand products, represent premium quality at compelling prices. Store unit growth and development continues to be a priority for our company. During the fourth quarter, we opened a store in Incline Village, Nevada, which is in the Lake Tahoe region.

Jessica Thiessen: During fiscal 2024, we opened a total of four new stores and relocated or remodeled four stores. We are pleased with their early performance. Subsequent to the quarter end, we relocated two stores and closed one store. Over the next several years, we are targeting a return to opening between six and eight new stores per year, subject to real estate opportunities and improving construction conditions. In closing, I would like to thank our Good For You crew. Their commitment to operational excellence and exceptional customer service were instrumental in driving our strong results. We are fortunate to have a crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations, and supply chain reflect these values. Our record earnings in fiscal 2024 supported the award of significant discretionary incentives for our Good For You crew. Our history of paying discretionary incentives tied to the company's performance unites the organization, driving profitable growth and reflecting our commitment to our crew. With that, I will turn our call over to Todd to discuss our financial results and guidance.

Todd Dissinger: Thank you, Kemper, and good afternoon. During the fourth quarter, we generated strong financial results, consistent with our trends throughout the year. For the fourth quarter, net sales increased 9.3% from the prior year period to $322.7 million. Daily average comparable store sales increased 7.1% and increased 14% on a two-year basis. Our daily average comparable transaction count increased 3.6%. This marks our seventh consecutive quarter with positive customer traffic comps. Our daily average comparable transaction size increased 3.4%. The transaction size comp included an increase in items per basket of approximately two percentage points. Importantly, this was the third consecutive quarter with an increase in items per basket. Every major product category had an increase in items per basket. Transaction size comp also included product cost inflation of approximately one percentage point. Sales growth continued to be broad-based across product categories. Our strongest performing departments were meat, dairy, and produce. The dietary supplement sales comp was slightly positive. For the fourth quarter, gross margin increased 100 basis points to 29.6%, driven by store occupancy cost leverage and higher product margin. Store expenses increased 10.2% in the fourth quarter, primarily driven by higher compensation expenses and long-lived asset impairment charges related to a store closure. Store expenses as a percentage of sales increased 20 basis points, primarily driven by higher long-lived asset impairment charges, partially offset by expense leverage. Administrative expenses as a percentage of sales decreased 10 basis points, reflecting expense leverage. Operating income increased 56% to $12.1 million. Net income was $9 million, with diluted earnings per share of $0.39 in the fourth quarter. This compares to net income of $5.9 million or $0.26 of diluted earnings per share in the fourth quarter of last year. Adjusted EBITDA increased 41% to $22.6 million in the fourth quarter. Briefly touching on the full year results, for fiscal 2024, total revenue increased 8.9% to $1.24 billion. Our daily average comparable store sales growth was 7%, resulting in an increase of 10.6% on a two-year basis. Gross margin was 70 basis points higher than the prior year. Store expenses as a percentage of sales were 30 basis points lower than the prior year and primarily reflect expense leverage. For fiscal 2024, diluted earnings per share were $1.47 compared to $1.02 in fiscal 2023. Adjusted EBITDA in fiscal 2024 was $83.3 million. Turning to the balance sheet and cash flow, we ended the fourth quarter in a strong liquidity position, including $8.9 million of cash and cash equivalents, and no outstanding borrowings on our $75 million revolving credit facility. During fiscal 2024, we generated cash from operations and invested $38.6 million in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $35.2 million. Today, we announced that our board of directors has increased our quarterly cash dividend to $0.12 from $0.10 per common share. The dividend will be paid on December 18, 2024, to all stockholders of record at the close of business on December 2, 2024. This increase reflects our strong operating performance and financial position, confidence in our future, and is consistent with our objective of enhancing stockholder value by returning capital. Now I would like to review the company's outlook, which was developed based upon the current operating momentum we are experiencing, consumer trends, as well as consideration of the uncertainty of the economic environment. For fiscal 2025, we expect to open four to six new stores, relocate or remodel two to four stores, achieve daily average comparable store sales growth between 4% and 6%, achieve diluted earnings per share between $1.52 and $1.60, and direct $36 to $44 million towards capital expenditures to support our growth initiatives. In addition, our outlook includes the benefits of our new store growth, targeted marketing focused on our value proposition differentiation, and customer engagement and operating initiatives focused on driving higher productivity in our stores. Our current expectation is that sales comps will be at the high end of our outlook range in the first half of the year while moderating somewhat in the second half of the year, as we continue to cycle relatively strong comps in the prior year.

Todd Dissinger: We expect modest inflation throughout the year in line with current trends. Our outlook anticipates that year-over-year gross margin will be relatively flat. Lastly, we expect that year-over-year store expenses as a percentage of sales will be relatively flat to slightly lower. Considering fiscal 2025 and beyond, we believe we have opportunities for growth from our alignment with consumer trends, strong customer engagement through our Npower rewards program, expansion of the Natural Grocers branded products, new store development, and driving existing store productivity. In closing, we had a strong quarter to conclude a record-setting fiscal year. We are confident in our ability to continue to drive profitable growth and enhance value for all stakeholders. With that, I turn our call back to Kemper.

Kemper Isely: Thank you, Todd. In late June, Todd announced his intention to retire at the end of the year. Since his appointment as CFO in 2017, Todd has been an invaluable member of our executive team, helping Natural Grocers to execute our founding principles while achieving record financial performance and enhancing shareholder value. Stepping into the CFO role on January 1 is Richard Halle, who served as a member of Natural Grocers' board of directors and audit committee since 2012. Rich's deep strategic knowledge of our company and strong background as a seasoned finance executive makes him the ideal fit as we continue to execute our founding principles. I am thrilled to welcome Rich to our executive team. Todd will continue in the CFO role through year-end to ensure a successful transition. Todd, I want to thank you for your many contributions to our success and wish you well in retirement. Now I would like to open the lines for questions. Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please take off your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Scott Mushkin with R5 Capital. Please go ahead.

Scott Mushkin: Great. Hey, guys. Todd, congratulations on retirement, and I am jealous, I think.

Todd Dissinger: Thank you, Scott.

Scott Mushkin: So I guess I just wanted to—I hate talking short term, but I guess I'll start off that way. Since one of your, you know, competitors, you know, kind of commented that they've seen acceleration September, October, like, maybe into a little November. I mean, are you guys—I know the comps get tougher, but, I mean, are you seeing the same, you know, kind of continuous acceleration that they're seeing in the business?

Kemper Isely: Well, their acceleration was off of the lower comp in the previous quarter than ours. But our comp for October was very similar to how we did throughout the year.

Scott Mushkin: Okay. That's good. That's good color. Sticking with this type of theme, you guys overlap in a number of markets, I think. Well, at least in the Colorado market, but also down in Texas. Do you see any difference in store performance, you know, whether you're competing with Sprouts or not competing with Sprouts?

Kemper Isely: Not really. You know, our store performance is pretty even throughout wherever we're located. I mean, one of our stronger markets right now is down in Arizona, Tucson, and Phoenix area. So that's their headquarters area.

Scott Mushkin: Actually, Texas is actually pretty strong too right now. Okay. And then Kemper, I don't know how much you put into the idea that some of the acceleration in the industry has to do with these weight loss drugs. Maybe you don't put any credence on that. I would like to get your input on that. But do you think that that burns out after a while if you think it's helping propel the industry? Or do you think it can keep going longer, again, if you think that's part of what's going on?

Kemper Isely: No, I don't really think that weight loss drugs have—I mean, they might be having somewhat of an effect just from the standpoint people are more aware of what they're putting into their body. So that's good for our business. But I think that's an overall throughout the country sort of thing that people are more worried about what they're consuming rather than just the people that are on the weight loss drugs. I actually think that people who take weight loss drugs probably are less likely to be our customers just because they want something—they want to solve their problem of weight without actually addressing what the underlying cause of the weight gain is.

Scott Mushkin: Right. And then how do you view the—I don't know if there's anyone else here to ask questions, so I figured I'll just keep throwing them out unless there is, and I'll get off.

Kemper Isely: No, we're good.

Scott Mushkin: Okay. So how do you think about—obviously, there's a Health and Human Services person nominated. He is very against food additives and kind of some of the stuff that I think is poison, but maybe I shouldn't say that. I'm doing a live conference call. I mean, how do you think that plays out? If he's successful, does it help you or hurt you?

Kemper Isely: It would be helpful if he succeeds in making people more aware of what they're putting into their bodies because we have an authentic story of not allowing artificial food additives into the products that we sell in our stores. So that, you know, just reaffirms that we're authentic and that we're the original player in the field of actual natural foods.

Scott Mushkin: Yeah. Okay. Well, yeah. That makes sense. I was trying to frame it. I think that helps. I mean, I think to a good degree, he draws more and more attention to it. It obviously helps. I agree with what you're saying. Gonna be—yeah. I mean, even if he is nominated, it's gonna be a big struggle for him to get a lot of stuff taken care of that probably should be taken care of in this country. I mean, the way we grow food and the way we manufacture food, etcetera, is quite problematic. I mean, it's part of the reason why so many people have weight issues and have to take the weight loss drugs.

Scott Mushkin: Yeah. It's amazing. Some of the stuff when I first was a young analyst, I did a lot of work around the chemicals and additives just back in the 2000s. Early 2000s. And it just amazed me as I did the research on some of the stuff in our food and the fact that a lot of it's known carcinogens and it's still there.

Kemper Isely: Oh, yeah. And then you have the artificial colors and flavors put into the candies for the kids, and they become super hyperactive. And the plastics in the packaging.

Scott Mushkin: Oh, yeah. Small one. Front. You guys have plastic? I don't think so. Right? Or do you allow plastics in?

Kemper Isely: No, we don't allow plastics into the foods.

Scott Mushkin: Alright. We digress just a little bit. So if you're gonna look at 2025, you went over some of the initiatives that you're excited about. But if you're looking at the top things for 2025, especially on the revenue drive side, but I guess also maybe the efficiency side, like, if I was gonna look at something for 2025, like, hey, this is really a focus for the company.

Kemper Isely: Well, we're really focused on, as far as revenue driving, is just marketing to our Npower customers because that's the most cost-effective way for us to market. So getting even a higher percentage of our sales—people, a higher percentage of our customer base signed up as Npower members. It's super effective in driving the top line of sales. And so, you know, if we can drive that from 81%—if we went from 77% to 81%, so we can go from 81% to 84% this year, that would be a tremendous driver of sales. And it's just because, I mean, just them—Npower members do a lot more transactions than other customers do because we're marketing to them and telling them about all of their good benefits, you know, five times a week.

Scott Mushkin: And is the sign-up like a broken.

Kemper Isely: Yeah. Sorry. I thought—go ahead.

Scott Mushkin: So are the efforts to get people to sign up, like, we just had the most tremendous—my partner and I, who she does a lot of the consulting for R5, we were actually in Keller, Texas. We were in your store, and we just had the most positive interaction with the—actually, it was the cashier who actually had us sign up. And is that how you're getting it done? Is it just, you know, is that how you get from 79% to 81%? Is it just like associates engaging with people?

Kemper Isely: Exactly. Exactly. Yeah. And then we're running contests. Yes. We have in-store friendly contests in each region so that stores, you know, once a quarter, we run a contest to see which store can sign up the most in a quarter and just things like that just to drive and grab the sign-ups.

Todd Dissinger: You need to be in the program to take advantage of promotions.

Scott Mushkin: Yeah. Right. I mean, you can't get your eggs at the really good price unless you're in the Npower program. So eggs seem to be a driver again because there's an egg shortage again. It's amazing.

Scott Mushkin: Gotta tell you, I was definitely impressed with that interaction. We both were. You know, to see how engaged the employee was and, unfortunately, this was a bit ago, but you guys were running a big—I think it's your annual sale or something like that. I forget what it was. We were kinda bummed that we weren't gonna be there for it, but we weren't.

Scott Mushkin: That's what I told you. You're gonna ever open a Natural Grocers down here in Florida. But you said no. Not right now.

Kemper Isely: Alright. Still have a lot. We still have a lot to sell west of the Mississippi.

Scott Mushkin: Yeah. There is a competitor down here, but not nearly as good as you. Someone that does the same thing, but they're not nearly as good.

Scott Mushkin: Alright. I think that's it. That's it for me. I appreciate it. And I see the company doing so well. Thanks for the dividend. I own the stock, so I appreciate it.

Kemper Isely: No. You're welcome. I mean, we—quite a bit—a few dollars given back in dividends over the last few years.

Scott Mushkin: Yep. That's the one good thing about having a smaller company.

Kemper Isely: We can actually—it's in our disclosures because this will probably be in print. But we can actually put our money where our mouth is.

Scott Mushkin: Yeah.

Kemper Isely: Appreciate it. And we appreciate your coverage. Thank you.

Scott Mushkin: Thanks. Thanks, guys. Bye.

Kemper Isely: Alright. Thanks, Scott. Bye.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks.

Kemper Isely: I never had been called Kemper Isely before. Anyway, thank you for joining us to discuss our fourth quarter results. We take great pride in our sustained and balanced growth in fiscal 2024 and over the past several years. We are committed to maximizing value for our stockholders. As we look forward to fiscal year 2025, we expect to build upon our momentum by executing our founding principles, leveraging our differentiated models, and emphasizing operational excellence to drive profitable growth. Thank you, and have a great day.