Natural Grocers offers only natural and organic products on its shelves: shoppers will find only USDA-certified organic produce, meats from animals raised naturally without the use of antibiotics or hormones, as well as other organic and natural groceries free of artificial colours, flavours, sweeteners and hydrogenated oils.

The grocery chain also offers an extensive dietary supplement and body care department, and a large selection of gluten-free and other special dietary need products.Today, Natural Grocers also offers in-store nutritional support programs, free public health & wellness seminars and free access to Nutritional Health Coaches. Coaching ranges from individualized sessions, to meal planning, to general questions about nutrition and health.The company also offers free seminars and speakers of interest to the community. Natural Grocers is dedicated to its local communities, stocking locally-made products whenever possible.

 

This company was founded in Colorado by Margaret & Philip Isely in 1955. It was built on the premise that consumers should have access to knowledge and affordable high-quality ingredients to help manage their own health. The family-run store has certainly delivered this and has since grown into a successful national chain with locations across Colorado, Texas, Utah, Wyoming, Oklahoma, Missouri, New Mexico, Montana, Kansas, Idaho, Nebraska and Arizona. They employ over 1700 employees to date.It operates in 11 states now and believes the U.S. market could support at least 1,100 Natural Grocers stores. Almost three-quarters of its current stores are in Texas and Colorado. The close proximity of its stores gives the company a competitive edge in regard to distribution costs. This is important because the organics market is very competitive nowadays. Natural Grocers also gives customers the ability to order products in bulk directly from its website. Selling products in bulk increases the potential savings for customers but also increases the company's margins by reducing distribution and material costs. The company says many of its stores are located close to shopping areas with other well-known anchor stores, and its sales are derived, in part, from the volume of traffic generated by those other anchor stores.

 

Since 1990, U.S. sales of organic food and beve rages has increased from $1 billion to $28.682 billion. From 2010-2014, the growth is projected at a 12.2% CAGR. U.S. demand for vitamins and supplements has also increased every year for the past 10 years. The amount spent per capita has increased as well.

But organic food sales still only represents 4% of the total sales of U.S. food, I believe, therefore that there is a huge opportunity for further growth of organic food sales. Today, the awareness of the benefits of eating natural foods is higher than ever and continues to grow, helping Natural Grocers expand to 12 states and over 60 stores.

 

The company went public in July 2012, with an initial public offering price of $15 per share. A total of 7.1 million shares was sold in the offering. Currently the shares are hovering around $19.

Before going public this summer, Natural Grocers had a $20 million Line-of-Credit and $15.7 million in long-term debt.  With the cash raised from its IPO, the company paid off all of this long-term debt and also lowered the Line-of-Credit from $20 to $15 million. The remaining long-term liabilities consist of deferred rent, leases and income tax liabilities. This bodes well for the company going forward.

 

Even after the IPO the top management team consists of many of the founding Isley family members. They are building upon the cornerstones of their parents' busines - Natural Grocers' popularity and success can be traced back to its founding principles - providing customers high quality products at every day affordable prices. Natural Grocers has seen strong growth under the current management, and I believe it will continue the current trend. At the beginning of November, Natural Grocers had 7% institutional ownership. By November 28th it had increased to 38%! Institutional Funds are beginning to take notice of the company's performance, and I believe that will be reflected in a higher  share price in the near future.

 

In the nine months that ended June 30th, net sales rose 27% to $246 million and same-store sales rose 11.1% compared to the same period a year earlier. Profit nearly doubled to $4 million. The company opened six new stores in the nine months that ended June 30th.

As of March 31st, the chain had more than 40 consecutive quarters of comparable-store sales growth. This is against a backdrop of difficult economic conditions.

From 2011 to 2012, Natural Grocers increased its cash flow from operations by over 50%. The amount re-invested in the company through capital investments also increased by 23.5%. The increase in cash flow and the cash generated from the IPO this past summer will allow Natural Grocers to increase its capital investments going forward, accelerating its growth.Sales increased 27.2% in 2012. All this shows that,Natural Grocers is a rapidly growing company, posting 89.47% adjusted EPS growth in 2012 and consistent organic sales growth for over 10 years. Natural Grocers has zero long-term debt, as well as an available $15 million Line-of-Credit.The company boasts an operating margin higher than the grocery store industry average, and increased its cash flow from operations by over 50% in this past year. Natural Grocers' business model matches consumer trends. Sales of organic foods in the U.S. has grown consistently over the past 20 years, and is poised to continue its growth indefinitely. I believe Natural Grocers is well positioned to capitalize on that growth.