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What changed in Natural Grocers by Vitamin Cottage, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Natural Grocers by Vitamin Cottage, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+250 added−269 removedSource: 10-K (2023-12-07) vs 10-K (2022-12-08)

Top changes in Natural Grocers by Vitamin Cottage, Inc.'s 2023 10-K

250 paragraphs added · 269 removed · 218 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

64 edited+4 added−8 removed139 unchanged
Biggest changeThe articles aim to be relevant, science-based and written to reflect the most recent research findings. During fiscal year 2022, we continued to enhance our Health Hotline magazine. The Health Hotline magazine was published 11 times during fiscal year 2022, and we expect comparable publication frequency during fiscal year 2023.
Biggest changeThe Health Hotline is a four-color magazine that contains a mix of in-depth health and nutrition articles, along with a selection of popular sale items. The articles aim to be relevant, science-based and written to reflect the most recent research findings. During fiscal year 2023, we continued to enhance our Health Hotline magazine.
In addition, we have received the registration of service marks for EDAP – Every Day Affordable Price ®, {N}power ® , Organic Headquarters ® , Organic Month Headquarters ®, Organic Produce Headquarters ® , Natural Grocers Cottage Wine and Craft Beer ® and Resolution Reset Day ® and registrations of trademarks for These Came First ® and Natural Grocers Top 10 Nutrition Trends ®.
In addition, we have received the registration of service marks for EDAP – Every Day Affordable Price ®, {N}power ® , Organic Headquarters ® , Organic Month Headquarters ®, Organic Produce Headquarters ® , Natural Grocers Cottage Wine and Craft Beer ®, Natural Grocers Cottage Craft Beer ® and Resolution Reset Day ® and registrations of trademarks for These Came First ® and Natural Grocers Top 10 Nutrition Trends ®.
We maintain www.naturalgrocers.com as our official Company website to host store information, sale and discount offers, educational materials, product and standards information, policies and contact forms, advocacy and news items and e-commerce capabilities. Our website is intended to be part of an overall enhanced branding strategy to more effectively communicate our brand’s unique and compelling attributes, including our founding principles.
We maintain NaturalGrocers.com as our official Company website to host store information, sale and discount offers, educational materials, product and standards information, policies and contact forms, advocacy and news items and e-commerce capabilities. Our website is intended to be part of an overall enhanced branding strategy to more effectively communicate our brand’s unique and compelling attributes, including our founding principles.
As a commitment to this principle, we: ● provide extensive free educational services to customers in the form of lectures, classes, printed resources, online resources, publications and one-on-one nutrition coaching; ● participate in health fairs, school outreach, community wellness events and other activities to engage with and educate the community; ● partner with community and corporate wellness programs; ● disseminate new research on nutrition information; ● participate in the legislative and regulatory process at local, state and federal levels so that our customers have access to quality food and dietary supplements and the educational resources to guide their own wellness; ● continually strive to source products and services from local producers and vendors; ● carefully collect all of our excess or distressed food and merchandise and donate it to local non-profit organizations; ● do not provide single-use paper or plastic bags at our registers and encourage the use of reusable totes; ● provide cash to local food banks, making donation determinations based on the number of customers who shop our stores with their own bags; ● reduce our energy costs and carbon footprint using efficient heating, ventilation and air conditioning, lighting, and refrigerating systems; ● implement strategies to eliminate excess packaging, energy and transportation costs; ● recycle and reuse paper, plastic, glass and electronic products whenever possible; ● manage the waste stream services at all of our stores in order to optimize our diversion of waste to recycling and compost and increase the environmental sustainability of our operations; ● offer compostable paper bags for produce purchases; ● use healthy and environmentally responsible building materials and finishes in our new stores and remodels; ● promote environmentally responsible and sustainable practices in our supply chain; ● undertake fundraisers for organizations whose missions align with ours; and ● support the economic vitality of small producers and agricultural communities. 12 Table of Contents Marketing and Advertising A significant portion of our marketing efforts is focused on educating our customers on the benefits of natural and organic grocery products, dietary supplements and our quality standards.
As a commitment to this principle, we: ● provide extensive free educational services to customers in the form of lectures, classes, printed resources, online resources, publications and one-on-one nutrition coaching; ● participate in health fairs, school outreach, community wellness events and other activities to engage with and educate the community; ● partner with community and corporate wellness programs; ● disseminate new research on nutrition information; ● participate in the legislative and regulatory process at local, state and federal levels so that our customers have access to quality food and dietary supplements and the educational resources to guide their own wellness; ● continually strive to source products and services from local producers and vendors; ● carefully collect all of our excess or distressed food and merchandise and donate it to local non-profit organizations; ● do not provide single-use paper or plastic bags at our registers and encourage the use of reusable totes; ● provide cash to local food banks, making donation determinations based on the number of customers who shop our stores with their own bags; ● reduce our energy costs and carbon footprint using efficient heating, ventilation and air conditioning, lighting, and refrigerating systems; ● implement strategies to eliminate excess packaging, energy and transportation costs; ● recycle and reuse paper, plastic, glass and electronic products whenever possible; ● manage the waste stream services at all of our stores in order to optimize our diversion of waste to recycling and compost and increase the environmental sustainability of our operations; ● offer plant-based, compostable plastic bags and 100% recycled, recyclable and compostable paper bags for produce purchases; ● use healthy and environmentally responsible building materials and finishes in our new stores and remodels; ● promote environmentally responsible and sustainable practices in our supply chain; ● undertake fundraisers for organizations whose missions align with ours; and ● support the economic vitality of small producers and agricultural communities. 12 Table of Contents Marketing and Advertising A significant portion of our marketing efforts is focused on educating our customers on the benefits of natural and organic grocery products, dietary supplements and our quality standards.
Our Company strives to empower healthier communities by cultivating a culture focused on our core values, including caring for our customers and Crew members, having fun at work, inclusivity, working with passion, and being authentic. Our leadership reinforces our founding principles and core values by providing significant training on these topics to new store managers.
Our Company strives to empower healthier communities by cultivating a culture focused on our core values, including caring for our customers and Crew members, having fun at work, inclusivity, working with passion, and being authentic. Our leadership reinforces our founding principles and core values by providing significant training on these topics to new store managers and assistant store managers.
Our advertising activities in fiscal year 2022 included: (i) conducting television advertising campaigns; (ii) conducting radio advertising campaigns in support of new store openings and store relocations; (iii) conducting outdoor advertising campaigns; (iv) conducting targeted direct mail campaigns; (v) newspaper advertising; (vi) utilizing organic search, search engine marketing, search engine optimization and display advertisements to deliver more customer traffic to our website and stores; and (vii) investments in paid and organic placements on social media platforms.
Our advertising activities in fiscal year 2023 included: (i) conducting television advertising campaigns; (ii) conducting radio advertising campaigns in support of new store openings and store relocations; (iii) conducting outdoor advertising campaigns; (iv) conducting targeted direct mail campaigns; (v) newspaper advertising; (vi) utilizing organic search, search engine marketing, search engine optimization and display advertisements to deliver more customer traffic to our website and stores; and (vii) investments in paid and organic placements on social media platforms.
As a result of current global supply chain issues, we have on occasion experienced shortages and delays in the delivery of certain products to our stores.
As a result of global supply chain issues, we have on occasion experienced shortages and delays in the delivery of certain products to our stores.
We have also instituted measures to eliminate food waste, divert usable products to food banks, reduce single use plastic bags and reduce the use of toxic pesticides and antimicrobial products. We believe these efforts reflect our commitment to corporate social responsibility and demonstrate our support for sustainable regenerative agricultural practices. Experienced and committed management team with proven track record.
We have also instituted measures to reduce food waste, divert usable products to food banks, reduce single use plastic bags and reduce the use of pesticides and antimicrobial products. We believe these efforts reflect our commitment to corporate social responsibility and demonstrate our support for sustainable regenerative agricultural practices. Experienced and committed management team with proven track record.
Our accelerated store manager training program provides high-potential store department managers with management training, including leadership skills and financial aspects of management, equipping participants for potential management roles within the Company upon completion. We provide all new store managers and assistant store managers with four weeks of in-person operational and managerial training at our facility in Golden, Colorado.
Our accelerated store manager training program provides high-potential store department managers with management training, including leadership skills and financial aspects of management, equipping participants for potential management roles within the Company upon completion. We provide all new store managers and assistant store managers with five weeks of in-person operational and managerial training at our facility in Golden, Colorado.
Our comparable stores sell an average of approximately 21,000 SKUs of natural and organic products per store, including an average of approximately 6,900 SKUs of dietary supplements. Set out below is the layout for our new stores: Site Selection. Our real estate strategy is adaptable to a variety of market conditions.
Our comparable stores sell an average of approximately 21,000 SKUs of natural and organic products per store, including an average of approximately 6,700 SKUs of dietary supplements. Set out below is the layout for our new stores: Site Selection. Our real estate strategy is adaptable to a variety of market conditions.
We have longstanding relationships with our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores.
We have longstanding relationships with many of our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores.
We also use our Health Hotline magazine to educate our customers. The Health Hotline magazine, which was published 11 times in fiscal year 2022, includes in-depth articles on health and nutrition, along with a selection of sale items. The printed version of the Health Hotline magazine is mailed to subscribers and distributed in our stores.
We also use our Health Hotline magazine to educate our customers. The Health Hotline magazine, which was published 11 times in fiscal year 2023, includes in-depth articles on health and nutrition, along with a selection of sale items. The printed version of the Health Hotline magazine is mailed to subscribers and distributed in our stores.
We also plan to continue to utilize targeted marketing efforts to reach our existing customers, including through the {N}power® customer loyalty program ({N}power), which we anticipate will drive customer transactions, increase the average ticket and convert occasional, single-category customers into core, multi-category customers. Grow our customer base.
We also plan to continue to utilize targeted marketing efforts to reach our existing customers, including through the {N}power® customer rewards program ({N}power), which we anticipate will drive customer transactions, increase the average ticket and convert occasional, single-category customers into core, multi-category customers. Grow our customer base.
We operate both a full-service natural and organic grocery store and a dietary supplement store within a single retail location. The following is a breakdown of our sales mix for the fiscal year ended September 30, 2022: The products in our stores include: ● Grocery.
We operate both a full-service natural and organic grocery store and a dietary supplement store within a single retail location. The following is a breakdown of our sales mix for the fiscal year ended September 30, 2023: The products in our stores include: ● Grocery.
Please see the Consolidated Financial Statements of the Company for the fiscal year ended September 30, 2022, set forth in Part IV of this Form 10-K, for financial information regarding this segment. Available Information Our website is located at www.naturalgrocers.com .
Please see the Consolidated Financial Statements of the Company for the fiscal year ended September 30, 2023, set forth in Part IV of this Form 10-K, for financial information regarding this segment. Available Information Our website is located at www.naturalgrocers.com .
We offer our customers an average of approximately 21,000 Stock Keeping Units (SKUs) of natural and organic products per comparable store (stores open for 13 months or longer), including an average of approximately 6,900 SKUs of dietary supplements.
We offer our customers an average of approximately 21,000 Stock Keeping Units (SKUs) of natural and organic products per comparable store (stores open for 13 months or longer), including an average of approximately 6,700 SKUs of dietary supplements.
As of September 30, 2022, our store managers and assistant managers at comparable stores had average tenures of approximately five years with us. In addition, we have a track record of promoting store management personnel from within.
As of September 30, 2023, our store managers and assistant managers at comparable stores had average tenures of approximately five years with us. In addition, we have a track record of promoting store management personnel from within.
Our stores sell only pasture-raised, non-confinement dairy products and free-range eggs ( i.e., from chickens that are not only cage-free but also provided with sufficient space to move). 8 Table of Contents ■ Prepared Foods. Our stores have a convenient selection of refrigerated prepared fresh food items, including salads, sandwiches, salsa, hummus and wraps.
Our stores sell only pasture-raised, non-confinement dairy products and free-range eggs ( i.e., from chickens that are not only cage-free but also provided with sufficient space to move). ■ Prepared Foods. Our stores have a convenient selection of refrigerated prepared fresh food items, including salads, sandwiches, salsa, hummus and wraps.
In addition, we donated 1% of all our sales on one day in February for Crew member appreciation month and one day during our 67 th anniversary to our Natural Grocers Heroes in Aprons Fund. Website and Social Media.
In addition, we donated 1% of all our sales on one day in February for Crew member appreciation month and one day during our 68 th anniversary to our Natural Grocers Heroes in Aprons Fund. Website and Social Media.
In fiscal year 2022, our three new stores and two relocations/remodels averaged approximately 10,000 selling square feet. Approximately one quarter of our stores’ selling square footage is dedicated to dietary supplements. Most of our stores also include a dedicated community room available for public gatherings, a demonstration kitchen for cooking education and/or lecture space.
In fiscal year 2023, our three new stores and three relocations/remodels averaged approximately 10,000 selling square feet. Approximately one quarter of our stores’ selling square footage is dedicated to dietary supplements. Most of our stores also include a dedicated community room available for public gatherings, a demonstration kitchen for cooking education and/or lecture space.
Our seafood items are generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and reducing food spoilage and safety issues. The seafood we sell is generally sourced from sustainable fisheries or ecologically responsible farm-raised operations and excludes endangered species. ■ Dairy Products, Dairy Substitutes and Eggs.
Our seafood items are generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and reducing food spoilage and safety issues. The seafood we sell is generally sourced from sustainable fisheries or ecologically responsible farm-raised operations and excludes endangered species. 8 Table of Contents ■ Dairy Products, Dairy Substitutes and Eggs.
Our customer outreach programs provide practical general nutrition knowledge to a variety of groups and individuals, schools, businesses, families and seniors. These educational efforts fulfill one of our founding principles and also offer us the opportunity to build relationships with customers and community influencers. {N}power Customer Loyalty Program.
Our customer outreach programs provide practical general nutrition knowledge to a variety of groups and individuals, schools, businesses, families and seniors. These educational efforts fulfill one of our founding principles and offer us the opportunity to build relationships with customers and community influencers. {N}power Customer Rewards Program.
During fiscal year 2022, we organized a number of charitable sponsorships, including collecting donations from customers on behalf of local food banks and an environmental non-profit organization.
During fiscal year 2023, we organized a number of charitable sponsorships, including collecting donations from customers on behalf of local food banks and an environmental non-profit organization.
We believe our emphasis on science-based nutrition education differentiates us from our competitors and creates a unique shopping experience for our customers. 6 Table of Contents Our NHCs are a core element of our nutrition education program. Every store has a NHC position to educate customers and train Crew members on nutrition.
We believe our emphasis on science-based nutrition education differentiates us from our competitors and creates a unique shopping experience for our customers. Our NHCs are a core element of our nutrition education program. Every store has a NHC position to educate customers and train Crew members on nutrition.
We offer an in-store and online process to pre-order organic and free-range turkeys for the Thanksgiving and Christmas holidays. Competition The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry.
Pre-Ordering of Holiday Turkeys . We offer an in-store and online process to pre-order organic and free-range turkeys for the Thanksgiving and Christmas holidays. Competition The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry.
We intend to continue expanding our store base through new store openings in existing markets, as well as penetrating new markets, by leveraging our core competencies of site selection and efficient store openings. In each of fiscal years 2022 and 2021, we opened three new stores.
We intend to continue expanding our store base through new store openings in existing markets, as well as penetrating new markets, by leveraging our core competencies of site selection and efficient store openings. In each of the fiscal years 2023 and 2022, we opened three new stores.
We also employ regional managers to oversee all store operations for regions consisting of approximately 10 to 14 stores. Each regional manager reports to, and is supported by, a director of store operations and other staff. To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes and nutrition education.
We also employ regional managers to oversee all store operations for regions consisting of approximately 7 to 15 stores. Each regional manager reports to, and is supported by, a director of store operations and other staff. To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes and nutrition education.
In 1998, the second generation of the Isely family, including Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, purchased our predecessor and the Vitamin Cottage ® trademark and assumed control of the business. Since then, we have grown our store count from 11 stores in Colorado to 164 stores in 21 states as of September 30, 2022.
In 1998, the second generation of the Isely family, including Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, purchased our predecessor and the Vitamin Cottage ® trademark and assumed control of the business. Since then, we have grown our store count from 11 stores in Colorado to 165 stores in 21 states as of September 30, 2023.
As of the date of this report, we have signed leases or acquired property for an additional five new stores that we plan to open in fiscal years 2023 and beyond. 4 Table of Contents Store locations as of September 30, 2022. Increase sales from existing customers.
As of the date of this report, we have signed leases or acquired property for an additional two new stores that we plan to open in fiscal years 2024 and beyond. 4 Table of Contents Store locations as of September 30, 2023. Increase sales from existing customers.
As of September 30, 2022, we employed 3,235 full-time and 938 part-time (less than 30 hours per week) Crew members, including a total of 360 Crew members at our home office and our bulk food repackaging facility and distribution center. None of our Crew members are subject to a collective bargaining agreement.
As of September 30, 2023, we employed 3,235 full-time and 938 part-time (less than 30 hours per week) Crew members, including a total of 373 Crew members at our home office and our bulk food repackaging facility and distribution center. None of our Crew members are subject to a collective bargaining agreement.
Special Promotions and Sponsorships During fiscal year 2022, we organized special promotions to coincide with certain calendar events, such as Resolution Reset Week in January, Earth Day in April, and on the 67 th anniversary of the Company’s founding in August.
Special Promotions and Sponsorships During fiscal year 2023, we organized special promotions to coincide with certain calendar events, such as Resolution Reset Week in January, Earth Day in April, and on the 68 th anniversary of the Company’s founding in August.
As of September 30, 2022, we purchased approximately 78% of the goods we sell from our top 20 suppliers. For the fiscal year ended September 30, 2022, approximately 67% of our total purchases were from United Natural Foods Inc. and its subsidiaries (UNFI).
As of September 30, 2023, we purchased approximately 78% of the goods we sell from our top 20 suppliers. For the fiscal year ended September 30, 2023, approximately 68% of our total purchases were from United Natural Foods Inc. and its subsidiaries (UNFI).
Since the second generation of the Isely family assumed control of the business in 1998, we have grown our store count from 11 stores to 164 stores as of September 30, 2022 by remaining dedicated to our founding principles.
Since the second generation of the Isely family assumed control of the business in 1998, we have grown our store count from 11 stores to 165 stores as of September 30, 2023 by remaining dedicated to our founding principles.
We use a robust merchandise management and perpetual inventory system that values goods at moving average cost. We manage most shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity. Sourcing and Vendors. We source from approximately 1,000 suppliers and offer approximately 3,100 brands. These suppliers range from small independent businesses to multi-national conglomerates.
We use a robust merchandise management and perpetual inventory system that values goods at moving average cost. We manage most shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity. Sourcing and Vendors. We source from approximately 1,000 suppliers and offer approximately 2,900 brands. These suppliers range from small independent businesses to multinational conglomerates.
We plan to open four to six new stores in fiscal year 2023, none of which opened during the first quarter of fiscal year 2023 prior to the filing of this Form 10-K.
We plan to open four to six new stores in fiscal year 2024, two of which opened during the first quarter of fiscal year 2024 prior to the filing of this Form 10-K.
Home Delivery Services . As of September 30, 2022, we offered online ordering and home delivery services at 161 of our stores in partnership with a third party. 13 Table of Contents New Store Openings . We use various targeted marketing efforts to support the successful introduction of our new stores in their individual markets.
Home Delivery Services . As of September 30, 2023, we offered online ordering and home delivery services at 160 of our stores in partnership with a third party. New Store Openings . We use various targeted marketing efforts to support the successful introduction of our new stores in their individual markets.
We introduced the {N}power customer loyalty program in fiscal year 2015. {N}power members receive digital coupons, discounted pricing on certain staple items (such as free-range eggs), personalized offers and other rewards, all by providing their phone number at the time of checkout. We believe the {N}power program has enhanced customer loyalty and increased customer traffic and engagement levels.
We introduced the {N}power customer rewards program in fiscal year 2015. {N}power members receive digital coupons, discounted pricing on certain staple items (such as free-range eggs), personalized offers and other rewards, all by providing their phone number at the time of checkout.
We also focus on community relationship-building activities, including a series of lectures and cooking and other demonstrations in each new store’s community room and/or demonstration kitchen. Other new store promotional activities include gift card and prize giveaways, sweepstakes, musical performances, appearances by our sponsorship partners and participation by local community leaders and organizations. Pre-Ordering of Holiday Turkeys .
We also focus on community relationship-building activities, including a series of lectures and cooking and other demonstrations in each new store’s community room and/or demonstration kitchen. Other new store promotional activities include gift card and prize giveaways, sweepstakes, musical performances, appearances by our sponsorship partners, cash donations to local food banks, and participation by local community leaders and organizations.
The key elements of our pricing strategy include: ● Always Affordable Price throughout our stores; ● heavily advertised Health Hotline deals supported by manufacturer participation; 9 Table of Contents ● discounts offered to {N}power members, including promotions to highlight affordable family meals; ● short term price promotions related to holidays, targeted campaigns and other events; ● in-store specials generally lasting for one month and not advertised outside the store; ● managers’ specials, such as clearance, overstock, short-dated or promotional incentives; and ● specials on seasonally harvested produce.
We believe our pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements. 9 Table of Contents The key elements of our pricing strategy include: ● an Always Affordable Price throughout our stores; ● heavily advertised Health Hotline deals supported by manufacturer participation; ● discounts offered exclusively to {N}power members, including promotions to highlight affordable family meals; ● short term price promotions related to holidays, targeted campaigns and other events; ● in-store specials generally lasting for one month and not advertised outside the store; ● managers’ specials, such as clearance, overstock, short-dated or promotional incentives; and ● specials on seasonally harvested produce.
Our executive management team has an average of 37 years of experience in the natural grocery industry, while our entire management team has an average of 32 years of relevant experience.
Our executive management team has an average of 38 years of experience in the natural grocery industry, while our entire management team has an average of 33 years of relevant experience.
As of September 30, 2022, approximately 51% of our store managers and approximately 54% of our assistant store managers were women. We believe that setting Crew members up for success begins with a strong foundation.
As of September 30, 2023, approximately 45% of our store managers and approximately 58% of our assistant store managers were women. We believe that setting Crew members up for success begins with a strong foundation.
Our Store Operations Store Hours. Our stores typically are open from 8:30 a.m. to 8:36 p.m., Monday through Saturday, and from 9:00 a.m. to 7:35 p.m. on Sunday. Store Management and Staffing.
Our Store Operations Store Hours. Our stores typically are open from 8:27 a.m. to 8:36 p.m., Monday through Saturday, and from 8:57 a.m. to 7:36 p.m. on Sunday. Store Management and Staffing.
During fiscal year 2022, we promoted internal candidates to fill 100% of our vacant regional manager positions, 79% of our vacant store manager positions, 67% of our vacant assistant store manager positions, and approximately 70% of our vacant department manager positions. We are committed to inclusion and diversity in our approach to hiring and promotion, including among our store management.
During fiscal year 2023, we promoted internal candidates to fill approximately 64% of our vacant store manager positions, approximately 71% of our vacant assistant store manager positions, and approximately 67% of our vacant department manager positions. We are committed to inclusion and diversity in our approach to hiring and promotion, including among our store management.
Crew members are carefully trained and evaluated based on a requirement that they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store Crew members are cross-trained in various functions, including cashier duties, stocking and receiving product. Every store also maintains a NHC position.
Crew members are carefully trained and evaluated based on a requirement that they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store Crew members are cross-trained in various functions, including cashier duties, stocking and receiving product. Each of our stores provides in-store access to a NHC.
Our model for selecting viable new store locations incorporates factors such as target demographics, community characteristics, nearby retail activity and other measures and is based on first-hand observation of the community’s characteristics surrounding each site.
Our model for selecting viable new store locations incorporates factors such as target demographics, community characteristics, nearby retail activity and other measures and is based on first-hand observation of the community’s characteristics surrounding each site. We have Crew members dedicated to opening new stores efficiently and quickly.
Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements and providers on an ongoing basis.
Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims.
During fiscal year 2022, the measures we took that were aimed at enhancing our brand awareness included: (i) featuring {N}power promotions to highlight affordable family meals; (ii) utilizing {N}power to identify and send personalized offers to our customers, with an emphasis on dietary supplement sales; (iii) continuing to make enhancements to our monthly Health Hotline magazine; (iv) organizing month-long seasonal and topical special promotions; (v) expanding our social media reach through increased investment in paid and organic placements on platforms such as Instagram, TikTok, Facebook, Twitter, and YouTube and social media influencer campaigns; (vi) conducting television, radio, newspaper, outdoor advertising and targeted direct mail campaigns in select markets; and (vii) continuation of home delivery services.
During fiscal year 2023, the measures we took that were aimed at enhancing our brand awareness included: (i) featuring {N}power promotions, with a focus on local store marketing to drive customer traffic; (ii) utilizing {N}power to identify and send personalized offers to our customers, including through our new Natural Grocers mobile application; (iii) continuing to make enhancements to our monthly Health Hotline magazine; (iv) organizing month-long seasonal and topical special promotions; (v) expanding our social media reach through increased investment in paid and organic placements on platforms, such as Instagram, TikTok, Facebook, X, and YouTube and social media influencer campaigns; (vi) conducting television, radio, newspaper, outdoor advertising and targeted direct mail campaigns in select markets; and (vii) continuation of home delivery services.
Our website is interlinked with other online and social media outlets, including Facebook, Instagram, TikTok, Twitter, Pinterest and YouTube. During fiscal year 2022, we continued to increase our investment in paid and organic placements on platforms such as Facebook, Instagram, TikTok and YouTube, resulting in enhanced social media reach, and organized social media influencer campaigns in key markets.
Our website is interlinked with other online and social media outlets, including Facebook, Instagram, TikTok, X, Pinterest and YouTube. During fiscal year 2023, we continued to increase our investment in paid and organic placements on platforms such as Facebook, Instagram, TikTok, YouTube and mobile in-app display, resulting in enhanced brand reach.
During fiscal year 2022, we featured a number of events intended to promote sales to friends and family of our Crew members. We expect to continue offering similar special promotions and events in the future.
Our special promotions frequently include product discounts, sweepstakes, charitable fundraisers and nutrition education classes. During fiscal year 2023, we featured a number of events intended to promote sales to friends and family of our Crew members. We expect to continue offering similar special promotions and events in the future.
To maximize the impact of our NHCs, we stress the importance of their focusing on in-store educational events, offering health coaching sessions and holding nutrition classes in the community by partnering with school, municipal and corporate wellness programs. During fiscal year 2022, our NHCs resumed in-person health coaching sessions, community nutrition classes and in-store education events.
To maximize the impact of our NHCs, we stress the importance of their focusing on in-store educational events, offering health coaching sessions and holding nutrition classes in the community by partnering with school, municipal and corporate wellness programs. During fiscal year 2023, our NHCs introduced a free, in-store personalized shopping experience to customers, including a store walkthrough and product recommendations.
We offer a broad selection of natural chocolate bars and energy, protein and food bars. ■ Meats and Seafood. We only offer naturally raised or organic meat products.
We offer a wide variety of natural and organic dry, frozen and canned groceries, including cereals, soups, baby foods, frozen entrees and snack items. We offer a broad selection of natural chocolate bars and energy, protein and food bars. ■ Meats and Seafood. We only offer naturally raised or organic meat products.
Our Pricing Strategy We have an Always Affordable Price designation on many products, while also providing special sale pricing on hundreds of additional items. We believe our pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements.
Our Pricing Strategy We have an Always Affordable Price designation on many products, while also providing special sale pricing on hundreds of additional items.
Trademarks and Other Intellectual Property We believe that our intellectual property is important to the success of our business.
We evaluate our insurance requirements and providers on an ongoing basis. 14 Table of Contents Trademarks and Other Intellectual Property We believe that our intellectual property is important to the success of our business.
In fiscal year 2016, we extended our long-term relationship with UNFI as our primary supplier of grocery products through May 31, 2021, subject to automatic renewals for successive one-year periods unless otherwise terminated by either party, and we are currently operating under the automatic renewal term.
We strive to maintain good relations with UNFI and, in August 2023, we extended our long-term relationship with UNFI as our primary supplier of products in the natural, fresh and produce categories through September 3, 2028, subject to automatic renewals for successive one-year periods unless otherwise terminated by either party.
Generally, we negotiate with our suppliers for significantly lower costs on Health Hotline featured sale items, which in turn allows us to offer lower sale prices to our customers. Focused staff training at all locations occurs concurrently with the release of each Health Hotline to ensure that store staff are familiar with the content in each issue.
Focused staff training at all locations occurs concurrently with the release of each Health Hotline to ensure that store staff are familiar with the content in each issue.
Our trademarks are generally valid and may be renewed indefinitely as long as they are in use and their registrations are properly maintained. 14 Table of Contents Information Technology Systems We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems.
Information Technology Systems We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems.
We also organized month-long special promotions such as the “Body Care & Beauty Bonanza” in February, the “Rock the Grill” campaign during July, the “Organic Month” campaign during September, and the “Non-GMO Month” campaign in October. Our special promotions frequently include product discounts, sweepstakes, charitable fundraisers and nutrition education classes.
We also organized month-long special promotions such as the “Non-GMO Month” campaign in October, the “Body Care & Beauty Bonanza” in May, the “Rock the Grill” campaign during June, the “Splash into Savings” and “{N}power 2-Day Sale” campaigns in July, and the “Organic Month” campaign during September.
We do not own or license for use any patents, franchises or concessions that are material to our business.
We do not own or license for use any patents, franchises or concessions that are material to our business. Our trademarks are generally valid and may be renewed indefinitely as long as they are in use and their registrations are properly maintained.
In some instances, laws and regulations may be amended in the future to allow for private rights of action to enforce laws and regulations through lawsuits.
In some instances, laws and regulations may be amended in the future to allow for private rights of action to enforce laws and regulations through lawsuits. At present, many consumer class action lawsuits are based on violations of federal laws, regulations, rules and guidance where the claim is that the alleged violation results in consumer deception.
During fiscal year 2022, we expanded our line of Natural Grocers brand products with a number of new offerings, including frozen prepared seafood, chocolate truffles and coconut oil. ■ Dry, Frozen and Canned Groceries. We offer a wide variety of natural and organic dry, frozen and canned groceries, including cereals, soups, baby foods, frozen entrees and snack items.
During fiscal year 2023, we expanded our line of Natural Grocers brand products with a number of new offerings, including organic eggs from regenerative farms, organic flavored coffee, and organic mustard. ■ Dry, Frozen and Canned Groceries.
The printed version of the Health Hotline magazine is mailed to subscribers and distributed in our stores. In addition, an electronic version of the Health Hotline magazine and a weekly electronic Health Hotline newsletter are distributed to subscribers via the internet.
In addition, an electronic version of the Health Hotline magazine and a weekly electronic Health Hotline newsletter are distributed to subscribers via the internet. Generally, we negotiate with our suppliers for significantly lower costs on Health Hotline featured sale items, which in turn allows us to offer lower sale prices to our customers.
In recent years, we have enhanced the {N}power program to simplify the accumulation of rewards for users and improve the customer loyalty program experience. During fiscal year 2022, we continued to enhance the personalization, frequency and range of our {N}power offerings and featured {N}power promotions highlighting affordable family meals.
We believe the {N}power program has enhanced customer loyalty and engagement while increasing customer traffic and average basket size. In recent years, we have enhanced the {N}power program to simplify the accumulation of rewards for users and improve the customer rewards program experience.
We have Crew members dedicated to opening new stores efficiently and quickly, typically within approximately nine months from the time of lease execution, subject to construction permitting and the availability of construction materials and equipment. Store-Level Economics.
We strive to open new stores within approximately nine to twelve months from the time of lease execution, subject to construction permitting and the availability of construction materials and equipment. 6 Table of Contents Our Focus on Nutrition Education Nutrition education is one of our founding principles and is a primary focus for all Crew members.
We had approximately 1.8 million registered {N}power members as of September 30, 2022 compared to approximately 1.5 million {N}power members as of September 30, 2021. Health Hotline. The Health Hotline is a four-color magazine that contains a mix of in-depth health and nutrition articles, along with a selection of popular sale items.
We believe these steps helped to increase membership in the {N}power program during fiscal year 2023. We had approximately 2.1 million registered {N}power members as of September 30, 2023 compared to approximately 1.8 million {N}power members as of September 30, 2022. Health Hotline and Holly Deals.
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Our new stores are typically leased and require an average upfront capital investment of approximately $2.4 million, consisting of capital expenditures of approximately $1.9 million, net of tenant allowances, initial inventory of approximately $0.3 million, net of payables, and pre-opening expenses of approximately $0.2 million.
Added
During fiscal year 2023, we continued to enhance the personalization, frequency and range of our {N}power offerings and featured {N}power promotions, with a focus on local store marketing. In August 2023, we launched a new Natural Grocers mobile application, which provides {N}power members with enhanced access to exclusive {N}power offers, digital coupons, recipes and articles through their smartphones and tablets.
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We target approximately five years to recoup our initial net cash investments and approximately 30% cash-on-cash returns by the end of the sixth year following the opening. Our actual payback period averages approximately six years.
Added
The Health Hotline magazine was published 11 times during fiscal year 2023, and we expect comparable publication frequency during fiscal year 2024. The printed version of the Health Hotline magazine is mailed to subscribers and distributed in our stores.
Removed
Individual new store investment levels and the performance of new store locations may differ widely from originally targeted levels and from store-to-store due to competitive considerations and a variety of other factors, and these differences may be material.
Added
Each December, in lieu of our Health Hotline magazine, we publish and mail our Holly Deals magazine, which features holiday recipes, gift ideas and promotions available at our December Holly Deals sales event.
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In particular, investments in individual stores, store-level sales, profit margins, payback periods and cash-on-cash return levels are impacted by a range of risks and uncertainties beyond our control, including those described under the caption “Risk Factors.” Our Focus on Nutrition Education Nutrition education is one of our founding principles and is a primary focus for all Crew members.
Added
We also organized social media influencer campaigns in key markets. We expect to continue investing in digital engagement activities during fiscal year 2024. Our recently launched Natural Grocers mobile application provides a new marketing channel to deliver the same content strategy already in place for our website. 13 Table of Contents Advertising.
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In May 2018, we entered into an amendment to our agreement with UNFI pursuant to which we appointed Albert’s Organics, a wholly owned subsidiary of UNFI, as our primary supplier of organic produce products for the majority of our stores.
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We maintain good relations with UNFI and while we are exploring a longer-term extension of our relationship with UNFI beyond the expiration of the current annual auto renewal term on May 31, 2023, we believe we have adequate alternative supply methods, including self-distribution.
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We implemented an email campaign to introduce {N}power members to a variety of our offerings and sponsored sweepstakes, purchase challenges and digital scavenger hunts for {N}power members to promote program membership and sales, with an emphasis on dietary supplement sales. We believe these steps helped to increase membership in the {N}power program during fiscal year 2022.
Removed
We expect to continue investing in digital engagement activities during fiscal year 2023. Advertising.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks related to government regulations and policies • If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet our specifications, our business and our reputation could suffer; • We, as well as our suppliers, are subject to numerous federal, state and local laws and regulations and our compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, require recalls of certain products, raise regulatory enforcement risks not present in the past or otherwise adversely affect our business, results of operations and financial condition; • Our sale of products containing cannabidiol (CBD) could lead to regulatory action by federal, state and/or local authorities or legal proceedings brought by or on behalf of consumers; • The activities of our NHCs and our nutrition education services may be impacted by government regulation or an inability to secure adequate liability insurance; • Consumers or regulatory agencies may challenge certain claims made regarding the products we sell; • The products we sell could suffer from real or perceived quality or food safety concerns and may cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, any of which could result in unexpected costs and damage to our reputation; and 19 Table of Contents • Our political advocacy activities may reduce our customer count and sales.
Biggest changeRisks related to government regulations and policies • If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet our specifications, our business and our reputation could suffer; • We, as well as our suppliers, are subject to numerous federal, state and local laws and regulations and our compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, require recalls of certain products, raise regulatory enforcement risks not present in the past or otherwise adversely affect our business, results of operations and financial condition; • Our sale of products containing cannabidiol (CBD) could lead to regulatory action by federal, state and/or local authorities or legal proceedings brought by or on behalf of consumers; • The activities of our NHCs and our nutrition education services may be impacted by government regulation or an inability to secure adequate liability insurance; • Consumers or regulatory agencies may challenge certain claims made regarding the products we sell; • The products we sell could suffer from real or perceived quality or food safety concerns and may cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, any of which could result in unexpected costs and damage to our reputation; and • Our political advocacy activities may reduce our customer count and sales. 19 Table of Contents Risks related to our indebtedness and liquidity • Our credit facility could limit our operational flexibility; • We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business; • Our liquidity needs may require us to raise additional capital through debt or equity financings; and • Our share repurchase program may adversely affect our liquidity and cause fluctuations in our stock price.
A variety of factors affect our store sales growth and quarterly financial performance, including: ● changes in our merchandising strategy or product mix; 21 Table of Contents ● the performance of our newer and remodeled stores; ● the effectiveness of our inventory management; ● the timing and concentration of new store openings, and the related additional human resource requirements and pre-opening and other start-up costs; ● slowing in the natural and organic retail sector; ● the cannibalization of existing store sales by our new store openings; ● levels of pre-opening expenses associated with new stores; ● the timing and effectiveness of our marketing activities; ● consumer preferences, buying trends and spending levels; ● food and commodity price inflation or deflation; ● the number and dollar amount of customer transactions in our stores; ● seasonal fluctuations due to weather conditions and extreme weather-related disruptions; ● our ability to generate new and repeat visits to our stores and adequate levels of customer engagement; ● actions by our existing or new competitors, including pricing changes and delivery and fulfillment options; ● regulatory changes affecting availability and marketability of products; ● supply shortages or other operational disruptions; ● general United States economic conditions and, in particular, the retail sales environment; ● executive, legislative or regulatory actions that restrict or limit our access to foreign-sourced goods; and ● the impact of global health pandemics on our operations and the U.S. economy.
A variety of factors affect our store sales growth and quarterly financial performance, including: ● changes in our merchandising strategy or product mix; ● the performance of our newer and remodeled stores; ● the effectiveness of our inventory management; ● the timing and concentration of new store openings, and the related additional human resource requirements and pre-opening and other start-up costs; ● slowing in the natural and organic retail sector; ● the cannibalization of existing store sales by our new store openings; ● levels of pre-opening expenses associated with new stores; ● the timing and effectiveness of our marketing activities; 21 Table of Contents ● consumer preferences, buying trends and spending levels; ● food and commodity price inflation or deflation; ● the number and dollar amount of customer transactions in our stores; ● seasonal fluctuations due to weather conditions and extreme weather-related disruptions; ● our ability to generate new and repeat visits to our stores and adequate levels of customer engagement; ● actions by our existing or new competitors, including pricing changes and delivery and fulfillment options; ● regulatory changes affecting availability and marketability of products; ● supply shortages or other operational disruptions; ● general United States economic conditions and, in particular, the retail sales environment; ● executive, legislative or regulatory actions that restrict or limit our access to foreign-sourced goods; and ● the impact of global health pandemics on our operations and the U.S. economy.
Our principal intellectual property rights include registered marks on Natural Grocers ® , Vitamin Cottage ®, Health Hotline ® , Natural Grocers by Vitamin Cottage ®, Vitamin Cottage Natural Grocers ®, EDAP - Every Day Affordable Price ® , {N}power ® , Organic Headquarters ® , Organic Month Headquarters ® , Organic Produce Headquarters ® , Natural Grocers Cottage Wine and Craft Beer ® , Resolution Reset Day ® , These Came First ® and Natural Grocers Top 10 Nutrition Trends ®, common law intellectual property rights in certain other marks used in our business, copyrights of our website content, rights to our domain names, including www.naturalgrocers.com and www.vitamincottage.com , and trade secrets and know-how with respect to our product sourcing, sales and marketing and other aspects of our business.
Our principal intellectual property rights include registered marks on Natural Grocers ® , Vitamin Cottage ®, Health Hotline ® , Natural Grocers by Vitamin Cottage ®, Vitamin Cottage Natural Grocers ®, EDAP - Every Day Affordable Price ® , {N}power ® , Organic Headquarters ® , Organic Month Headquarters ® , Organic Produce Headquarters ® , Natural Grocers Cottage Wine and Craft Beer ® , Natural Grocers Cottage Craft Beer ® , Resolution Reset Day ® , These Came First ® and Natural Grocers Top 10 Nutrition Trends ®, common law intellectual property rights in certain other marks used in our business, copyrights of our website content, rights to our domain names, including www.naturalgrocers.com and www.vitamincottage.com , and trade secrets and know-how with respect to our product sourcing, sales and marketing and other aspects of our business.
In addition, if we do not adequately refine and improve our various ordering, tracking and allocation systems, we may not be able to increase sales and reduce inventory shrink. Further, pricing pressures from competitors and the impact of the product discounts offered by the {N}power customer loyalty program may also adversely impact our operating margins.
In addition, if we do not adequately refine and improve our various ordering, tracking and allocation systems, we may not be able to increase sales and reduce inventory shrink. Further, pricing pressures from competitors and the impact of the product discounts offered by the {N}power customer rewards program may also adversely impact our operating margins.
Risks related to our business and operations • We may not be successful in our efforts to grow profitably; • If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease; • Our store sales growth and quarterly financial performance may fluctuate for a variety of reasons; • Adverse economic conditions and political instability could adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy; • Inflation or deflation could adversely affect our business; • The COVID-19 pandemic has impacted our operations and this or other potential future pandemics could materially impact our business, results of operations and financial condition; • We may be unable to compete effectively in our markets, which are highly competitive; • An inability to maintain or increase our operating margins could adversely affect our results of operations; • A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations; • We may experience product recalls, withdrawals or seizures which could reduce our sales and adversely affect our results of operations; • Our future business, results of operations and financial condition may be adversely affected by reduced availability of certified organic products or products that meet our other internal standards; • Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our business; • Adverse weather conditions, natural disasters and the effects of climate change could disrupt our supply chain and adversely impact our sales and financial performance; • Acts of violence at or threatened against our stores or the shopping centers in which they are located, including active shooter situations and terrorist acts, could adversely impact our sales, which could materially adversely affect our financial performance; • The current geographic concentration of our stores creates exposure to local economies, regional downturns, severe weather and other catastrophic occurrences; • If we fail to maintain our reputation and the value of our brand, our sales may decline; • Perishable food product losses could materially impact our results of operations; • The decision by certain of our suppliers to distribute their specialty products through other retail distribution channels could negatively impact our revenue from the sale of such products; • Our ability to operate our business effectively could be impaired if we fail to retain or attract key personnel or are unable to attract, train and retain qualified employees; 18 Table of Contents • Any significant interruption in the operations of our bulk food repackaging facility and distribution center or our supply chain network could disrupt our ability to deliver our merchandise in a timely manner; • Higher wage and benefit costs could adversely affect our business; • Union activity at third-party transportation companies or labor organizing activities among our Crew members could disrupt our operations and harm our business; • Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results of operations and capitalization; • We have significant lease obligations, which may adversely affect our liquidity and require us to raise additional capital or continue paying rent for store locations that we no longer operate; • Any material disruption to or failure of our information systems could negatively impact our operations; • Failure to protect our information systems against cyber-attacks or information security breaches, including failure to protect the integrity and security of individually identifiable data of our customers and Crew members, could expose us to litigation, damage our reputation and have a material adverse effect on our business; • Claims under our self-insurance program may differ from our estimates, which could negatively impact our results of operations; • If we are unable to protect our intellectual property rights, our ability to compete and the value of our brand could be harmed; • Energy costs are a significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability; • Increases in certain costs affecting our marketing, advertising and promotions may adversely impact our ability to advertise effectively and reduce our profitability; • Legal proceedings could adversely affect our business, financial condition and results of operations; • Effective tax rate changes and results of examinations by taxing authorities could materially impact our results of operations; • Failure to maintain effective internal control over financial reporting could lead to material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline; and • Changes in accounting standards may materially impact reporting of our financial condition and reported results of operations.
Risks related to our business and operations • We may not be successful in our efforts to grow profitably; • If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease; • Our store sales growth and quarterly financial performance may fluctuate for a variety of reasons; • Adverse economic conditions and political instability could adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy; • Inflation or deflation could adversely affect our business; • Widespread health pandemics could materially impact our business, results of operations and financial condition; • We may be unable to compete effectively in our markets, which are highly competitive; • An inability to maintain or increase our operating margins could adversely affect our results of operations; • A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations; • We may experience product recalls, withdrawals or seizures which could reduce our sales and adversely affect our results of operations; • Our future business, results of operations and financial condition may be adversely affected by reduced availability of certified organic products or products that meet our other internal standards; • Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our business; • Adverse weather conditions, natural disasters and the effects of climate change could disrupt our supply chain and adversely impact our sales and financial performance; • Acts of violence at or threatened against our stores or the shopping centers in which they are located, including active shooter situations and terrorist acts, could adversely impact our sales, which could materially adversely affect our financial performance; • The current geographic concentration of our stores creates exposure to local economies, regional downturns, severe weather and other catastrophic occurrences; • If we fail to maintain our reputation and the value of our brand, our sales may decline; • Perishable food product losses could materially impact our results of operations; • The decision by certain of our suppliers to distribute their specialty products through other retail distribution channels could negatively impact our revenue from the sale of such products; • Our ability to operate our business effectively could be impaired if we fail to retain or attract key personnel or are unable to attract, train and retain qualified employees; 18 Table of Contents • Any significant interruption in the operations of our bulk food repackaging facility and distribution center or our supply chain network could disrupt our ability to deliver our merchandise in a timely manner; • Higher wage and benefit costs could adversely affect our business; • Union activity at third-party transportation companies or labor organizing activities among our Crew members could disrupt our operations and harm our business; • Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results of operations and capitalization; • We have significant lease obligations, which may adversely affect our liquidity and require us to raise additional capital or continue paying rent for store locations that we no longer operate; • Any material disruption to or failure of our information systems could negatively impact our operations; • Failure to protect our information systems against cyber-attacks or information security breaches, including failure to protect the integrity and security of individually identifiable data of our customers and Crew members, could expose us to litigation, damage our reputation and have a material adverse effect on our business; • Claims under our self-insurance program may differ from our estimates, which could negatively impact our results of operations; • If we are unable to protect our intellectual property rights, our ability to compete and the value of our brand could be harmed; • Energy costs are a significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability; • Legal proceedings could adversely affect our business, financial condition and results of operations; • Effective tax rate changes and results of examinations by taxing authorities could materially impact our results of operations; • Failure to maintain effective internal control over financial reporting could lead to material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline; and • Changes in accounting standards may materially impact reporting of our financial condition and reported results of operations.
During fiscal year 2022, we invested in increased wages for our store Crew members and may be required to do so in the future. Union activity at third-party transportation companies or labor organizing activities among our Crew members could disrupt our operations and harm our business.
During fiscal year 2023, we invested in increased wages for our store Crew members and may be required to do so in the future. Union activity at third-party transportation companies or labor organizing activities among our Crew members could disrupt our operations and harm our business.
In addition, the FDA has not yet promulgated a definitive list of ODIs, but if it does, such a list of ODIs could disrupt the supply of any dietary supplements made from ingredients that are currently believed to pre-date DSHEA but are not ultimately classified as an ODI.
In addition, the FDA has not yet promulgated a definitive list of ODIs, but if it does, such a list of ODIs could disrupt the supply of any dietary supplements made from ingredients that are currently believed to pre-date DSHEA but are not ultimately classified as ODIs.
Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Credit Facility. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.3 million.
Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Credit Facility. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.1 million.
For more information on our results of operations for fiscal years 2022 and 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Adverse economic conditions and political instability could adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy.
For more information on our results of operations for fiscal years 2023 and 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Adverse economic conditions and political instability could adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy.
Although the potential effects that COVID-19 may continue to have on us, or that global health pandemics unrelated to COVID-19 may have in the future, are not clear, such impacts could materially adversely affect our business, financial condition and results of operations. 23 Table of Contents We may be unable to compete effectively in our markets, which are highly competitive.
Although the potential effects that COVID-19 may continue to have on us, or that global health pandemics unrelated to COVID-19 may have in the future, are not clear, such impacts could materially adversely affect our business, financial condition and results of operations. We may be unable to compete effectively in our markets, which are highly competitive.
Any such situation could adversely impact customer traffic and make it more difficult to fully staff our stores, which could have a material adverse effect on our business, financial condition and results of operations. The current geographic concentration of our stores creates exposure to local economies, regional downturns, severe weather and other catastrophic occurrences.
Any such situation could adversely impact customer traffic and make it more difficult to fully staff our stores, which could have a material adverse effect on our business, financial condition and results of operations. 25 Table of Contents The current geographic concentration of our stores creates exposure to local economies, regional downturns, severe weather and other catastrophic occurrences.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements.” Risks related to government regulations and policies If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet our specifications, our business and our reputation could suffer.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements.” 30 Table of Contents Risks related to government regulations and policies If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet our specifications, our business and our reputation could suffer.
Any such regulatory action or legal proceeding could have a material adverse effect on our business, financial position and results of operations. The activities of our Nutritional Health Coaches and our nutrition education services may be impacted by government regulation or an inability to secure adequate liability insurance.
Any such regulatory action or legal proceeding could have a material adverse effect on our business, financial position and results of operations. 33 Table of Contents The activities of our Nutritional Health Coaches and our nutrition education services may be impacted by government regulation or an inability to secure adequate liability insurance.
However, there can be no assurance that data security breaches will not occur in the future, or that any such data security breach will be detected in a timely manner. 29 Table of Contents Claims under our self-insurance program may differ from our estimates, which could negatively impact our results of operations.
However, there can be no assurance that data security breaches will not occur in the future, or that any such data security breach will be detected in a timely manner. Claims under our self-insurance program may differ from our estimates, which could negatively impact our results of operations.
This could have a material adverse effect on our business, financial condition and results of operations. 27 Table of Contents In addition, unexpected, prolonged delays in deliveries from vendors that ship directly to our stores or increases in transportation costs (including as a result of increased fuel costs) could have a material adverse effect on our business, financial condition and results of operations.
This could have a material adverse effect on our business, financial condition and results of operations. In addition, unexpected, prolonged delays in deliveries from vendors that ship directly to our stores or increases in transportation costs (including as a result of increased fuel costs) could have a material adverse effect on our business, financial condition and results of operations.
Public disclosure of our suppliers’ violations of the National Bioengineered Food Disclosure Standard could result in a loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims. 33 Table of Contents FSMA Implementation Risks. The FSMA significantly expanded food safety requirements and the FDA’s regulatory authority over food safety.
Public disclosure of our suppliers’ violations of the National Bioengineered Food Disclosure Standard could result in a loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims. FSMA Implementation Risks. The FSMA significantly expanded food safety requirements and the FDA’s regulatory authority over food safety.
As long as we intend to remain a “controlled company,” these voting requirements will constrain our ability to issue additional shares of our common stock in the future. 37 Table of Contents Our share repurchase program may adversely affect our liquidity and cause fluctuations in our stock price.
As long as we intend to remain a “controlled company,” these voting requirements will constrain our ability to issue additional shares of our common stock in the future. Our share repurchase program may adversely affect our liquidity and cause fluctuations in our stock price.
In addition, we could become subject to investigations by the SEC, the NYSE or other regulatory authorities, which could require additional financial and management resources. 31 Table of Contents Changes in accounting standards may materially impact reporting of our financial condition and reported results of operations.
In addition, we could become subject to investigations by the SEC, the NYSE or other regulatory authorities, which could require additional financial and management resources. Changes in accounting standards may materially impact reporting of our financial condition and reported results of operations.
While we have been able to mitigate this impact to date through our pricing strategies, we are unable to predict how long the current inflationary environment will continue or the impact of inflationary trends on consumer behavior and our sales and profitability in the future.
We have been able to mitigate this impact to date through our pricing strategies. We are unable to predict how long the current inflationary environment will continue or the long-term impact of inflationary or deflationary trends on consumer behavior and our sales and profitability in the future.
The loss of any certifications could reduce the availability of organic products that we can sell in our stores and harm our business. Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our business. UNFI is our single largest third-party supplier, accounting for approximately 67% of our total purchases in fiscal year 2022.
The loss of any certifications could reduce the availability of organic products that we can sell in our stores and harm our business. Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our business. UNFI is our single largest third-party supplier, accounting for approximately 68% of our total purchases in fiscal year 2023.
Further, class action lawsuits have been filed against certain CBD manufacturers alleging that their products are misbranded, mislabeled and falsely advertised under state consumer protection laws. 34 Table of Contents We sell products containing CBD at certain of our stores.
Further, class action lawsuits have been filed against certain CBD manufacturers alleging that their products are misbranded, mislabeled and falsely advertised under state consumer protection laws. We sell products containing CBD at certain of our stores.
We are party to a credit facility consisting of a $50.0 million revolving loan facility (our Revolving Facility) and a fully drawn $35.0 million term loan facility (our Term Loan Facility, and together with our Revolving Facility, our Credit Facility).
We are party to a credit facility consisting of a $75.0 million revolving loan facility (our Revolving Facility) and a fully drawn $35.0 million term loan facility (our Term Loan Facility, and together with our Revolving Facility, our Credit Facility).
Our inability to generate sufficient cash flow to satisfy our debt service obligations could have important consequences, including: ● reducing our ability to execute our growth strategy and open new stores; 36 Table of Contents ● impacting our ability to continue to execute our operational strategies in existing stores; ● impairing our liquidity position; ● impacting our ability to obtain merchandise from our vendors; ● requiring us to delay capital expenditures and divert funds intended for other purposes; ● increasing our vulnerability to competitive and general economic conditions; ● placing us at a competitive disadvantage compared to our competitors that have less debt; ● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and ● adversely affecting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, share repurchases, dividends or other general corporate purposes.
Our inability to generate sufficient cash flow to satisfy our debt service obligations could have important consequences, including: ● reducing our ability to execute our growth strategy and open new stores, impacting our ability to continue to execute our operational strategies in existing stores; ● impairing our liquidity position; ● impacting our ability to obtain merchandise from our vendors; ● requiring us to delay capital expenditures and divert funds intended for other purposes; ● increasing our vulnerability to competitive and general economic conditions; ● placing us at a competitive disadvantage compared to our competitors that have less debt; ● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and ● adversely affecting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, share repurchases, dividends or other general corporate purposes. 35 Table of Contents If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.
As of September 30, 2022, we had primary store concentration in Colorado and Texas, operating 43 stores and 25 stores in those states, respectively. As a result, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions.
As of September 30, 2023, we had primary store concentration in Colorado and Texas, operating 44 stores and 23 stores in those states, respectively. As a result, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions.
Suppliers may become more conservative in response to these conditions and seek to reduce their production. 22 Table of Contents Economic conditions and consumer spending may also be adversely impacted by political instability.
Suppliers may become more conservative in response to these conditions and seek to reduce their production. Economic conditions and consumer spending may also be adversely impacted by political instability.
During fiscal year 2022, we experienced levels of inflation that are higher than we have experienced in recent years, resulting in part from various supply disruptions, the ongoing military conflict between Ukraine and Russia, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, and other disruptions caused by the COVID‐19 pandemic and the uncertain economic environment.
During fiscal years 2022 and 2023, we experienced levels of inflation that are higher than we have experienced in recent years, resulting in part from various supply disruptions, the conflict between Ukraine and Russia, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, other disruptions and the uncertain economic environment.
Higher construction material prices could increase the capital expenditures needed to construct a new store or remodel an existing store and, as a result, could increase the investment required and our rent obligations. The COVID-19 pandemic has impacted our operations and this or other potential future pandemics could materially impact our business, results of operations and financial condition.
Higher construction material prices could increase the capital expenditures needed to construct a new store or remodel an existing store and, as a result, could increase the investment required and our rent obligations. Widespread health pandemics could materially impact our business, results of operations and financial condition. The COVID-19 pandemic and resulting government mandates significantly impacted our operations.
If the cost of goods changes as a result of inflation or deflation, we may be unable to adjust our retail prices accordingly, which could adversely impact our sales or earnings.
Inflationary or deflationary pressures on the products we sell could impact our net sales and earnings. If the cost of goods changes as a result of inflation or deflation, we may be unable to adjust our retail prices accordingly, which could adversely impact our sales or earnings.
Accordingly, changes in dietary supplement regulation could also materially adversely affect the cost and availability of the dietary supplement products that we sell.
Accordingly, changes in dietary supplement regulation could also materially adversely affect the cost and availability of the dietary supplement products that we sell. 31 Table of Contents Advertising and Products Claims Risks.
During fiscal year 2022, our shipping costs increased due to higher fuel and freight prices, and these costs may continue to increase. We may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives.
From time to time, we have experienced increased shipping costs due to higher fuel and freight prices, and these costs may continue to be volatile. We may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives.
As each lease expires, we may fail to negotiate renewals, either on commercially acceptable terms or any terms at all, and may not be able to find replacement locations that will provide for the same success as current store locations.
As each lease expires, we may fail to negotiate renewals, either on commercially acceptable terms or any terms at all, and may not be able to find replacement locations that will provide for the same success as current store locations. Any material disruption to or failure of our information systems could negatively impact our operations.
We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business. As of September 30, 2022, we had no outstanding indebtedness under our Revolving Facility and $15.7 million of outstanding indebtedness under our Term Loan Facility. We may incur additional indebtedness in the future, including borrowings under our Credit Facility.
We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business. As of September 30, 2023, we had no outstanding indebtedness under our Revolving Facility and $7.7 million of outstanding indebtedness under our Term Loan Facility.
Our comparable store sales growth could be lower than our historical average for various reasons, including the opening of new stores that cannibalize sales in existing stores, increased competition, general economic conditions, regulatory changes, price changes as a result of competitive factors and product pricing and availability. 20 Table of Contents During fiscal years 2022 and 2021, we opened three new stores each year.
Our comparable store sales growth could be lower than our historical average for various reasons, including the opening of new stores that cannibalize sales in existing stores, increased competition, general economic conditions, regulatory changes, price changes as a result of competitive factors and product pricing and availability.
Failure to maintain effective internal control over financial reporting could lead to material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
Failure to maintain effective internal control over financial reporting could lead to material misstatements in our financial statements. If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
We may not be able to continue paying dividends on our common stock. We paid a quarterly cash dividend of $0.10 and $0.07 per share of common stock during each quarter of fiscal years 2022 and 2021, respectively. We paid a special cash dividend of $2.00 per share in December 2020.
We may not be able to continue paying dividends on our common stock. We paid a quarterly cash dividend of $0.10 per share of common stock during each quarter of fiscal years 2023 and 2022.
In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase which could impact our profitability, financial condition and results of operations. 30 Table of Contents Increases in certain costs affecting our marketing, advertising and promotions may adversely impact our ability to advertise effectively and reduce our profitability.
In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase which could impact our profitability, financial condition and results of operations.
We believe our continued success depends on our ability to maintain and grow the value of the Natural Grocers brand. Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience.
Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience.
On November 16, 2022, our Board approved the payment of a quarterly cash dividend of $0.10 per share of common stock to be paid on December 14, 2022 to stockholders of record as of the close of business on November 28, 2022.
On November 16, 2023, our Board approved the payment of a special cash dividend of $1.00 per share of common stock and a quarterly cash dividend of $0.10 per share of common stock to be paid on December 13, 2023 to stockholders of record as of the close of business on November 27, 2023.
The loss of any member of our senior management team, particularly Kemper Isely or Zephyr Isely, our Co-Presidents since 1998, or Heather Isely or Elizabeth Isely, our Executive Vice Presidents since 1998, could have a material adverse effect on our ability to operate our business, financial condition and results of operations, unless, and until, we are able to find a qualified replacement.
The loss of any member of our senior management team could have a material adverse effect on our ability to operate our business, financial condition and results of operations, unless, and until, we are able to find a qualified replacement.
In addition, if UNFI or any of our other suppliers fail to comply with food safety, labeling or other laws and regulations, or face allegations of non-compliance, that supplier’s operations may be disrupted, which in turn could have a material adverse effect on our business, financial condition and results of operations. 25 Table of Contents We and certain of our vendors use overseas sourcing to varying degrees to manufacture some or all of the products we sell.
In addition, if UNFI or any of our other suppliers fail to comply with food safety, labeling or other laws and regulations, or face allegations of non-compliance, that supplier’s operations may be disrupted, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Our political advocacy activities may reduce our customer count and sales. We believe our ability to profitably operate our business depends, in part, upon our access to natural and organic products and dietary supplements.
We believe our ability to profitably operate our business depends, in part, upon our access to natural and organic products and dietary supplements.
If supplies of these products are reduced, or there is greater demand for such ingredients and products from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to our stores and may adversely affect our business, results of operations and financial condition.
If supplies of these products are reduced, or there is greater demand for such ingredients and products from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to our stores and may adversely affect our business, results of operations and financial condition. 24 Table of Contents The certified organic products we sell must be produced in compliance with government regulations and must comply with the requirements of the NOP in order to be labeled as such.
Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new customers and to provide products that appeal to customers at prices they are willing and able to pay. Prolonged unfavorable economic conditions or political instability may have an adverse effect on our sales and profitability.
Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new customers and to provide products that appeal to customers at prices they are willing and able to pay.
New stores build their sales volume and their customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our existing stores.
Additionally, our new store openings may not be successful or reach the sales and profitability levels of our existing stores. New stores build their sales volume and their customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our existing stores.
Any of these factors may disrupt our business and materially adversely affect our business, financial condition and results of operations. 26 Table of Contents If we fail to maintain our reputation and the value of our brand, our sales may decline.
Any of these factors may disrupt our business and materially adversely affect our business, financial condition and results of operations. If we fail to maintain our reputation and the value of our brand, our sales may decline. We believe our continued success depends on our ability to maintain and grow the value of the Natural Grocers brand.
In addition, because these holders have the ability to elect all of our directors, they are able to control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payments of dividends on our common stock and entering into extraordinary transactions, and their interests may not in all cases be aligned with our stockholders’ interests.
In addition, members of the Isely family and trusts controlled by them entered into a stockholders agreement by which they agreed to aggregate their voting power with regard to the election of directors. 36 Table of Contents In addition, because these holders have the ability to elect all of our directors, they are able to control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payments of dividends on our common stock and entering into extraordinary transactions, and their interests may not in all cases be aligned with our stockholders’ interests.
In addition, the failure of those products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from the market, which in certain cases could materially and adversely affect our business, financial condition and results of operations. 24 Table of Contents Our future business, results of operations and financial condition may be adversely affected by reduced availability of certified organic products or products that meet our other internal standards.
In addition, the failure of those products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from the market, which in certain cases could materially and adversely affect our business, financial condition and results of operations.
A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations.
As a result, our operating margins may stagnate or decline, which could have a material adverse effect on our business, financial condition and results of operations and adversely affect the price of our common stock. 23 Table of Contents A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, if one or more analysts who cover our Company downgrade our common stock, or if our operating results do not meet their expectations, our common stock price could decline. 38 Table of Contents Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if a sale of the Company could be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if a sale of the Company could be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.
In fiscal year 2016, we extended our long-term relationship with UNFI as our primary supplier of grocery products through May 31, 2021, subject to automatic renewals thereafter for successive one-year periods unless otherwise terminated by either party.
In fiscal year 2023, we extended our long-term relationship with UNFI as our primary supplier of products in the natural, fresh and produce categories through September 3, 2028, subject to automatic renewals thereafter for successive one-year periods unless otherwise terminated by either party.
In addition, other public and private actors are increasingly targeting dietary supplement retailers and manufacturers with class action lawsuits for selling products that allegedly fail to adhere to the requirements of FDCA, DSHEA, and other federal and state statutes and requirements, including for failing to adhere to current good manufacturing practices, making false or misleading product statements, providing inaccurate ingredient identity and potency, and failing to control or disclose allergens, contaminants, residues and adulterants, as well as for state common and statutory laws regarding deceptive trade practices. 32 Table of Contents In addition, DSHEA differentiates between old dietary ingredients, or ODIs ( i.e., those ingredients present in the food supply prior to October 15, 1994, which require no pre-market notification to the FDA), and new dietary ingredients, or NDIs ( i.e., those ingredients not proven to be present in the food supply prior to October 15, 1994, which do require pre-market notification to the FDA).
In addition, other public and private actors are increasingly targeting dietary supplement retailers and manufacturers with class action lawsuits for selling products that allegedly fail to adhere to the requirements of FDCA, DSHEA, and other federal and state statutes and requirements, including for failing to adhere to current good manufacturing practices, making false or misleading product statements, providing inaccurate ingredient identity and potency, and failing to control or disclose allergens, contaminants, residues and adulterants, as well as for state common and statutory laws regarding deceptive trade practices.
Any of these events could adversely affect our reputation and brand and decrease our sales, which could have a material adverse effect on our business, financial condition and results of operations. 35 Table of Contents The products we sell could suffer from real or perceived quality or food safety concerns and may cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, any of which could result in unexpected costs and damage to our reputation.
The products we sell could suffer from real or perceived quality or food safety concerns and may cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, any of which could result in unexpected costs and damage to our reputation.
However, even with adequate insurance and indemnification, the failure of any products to comply with applicable regulatory requirements could prevent us from marketing such products or require us to recall or remove such products from our stores. In addition, any claims of non-compliance could significantly damage our reputation and consumer confidence in the products we sell. Other Regulatory Risks.
In general, we seek certifications of compliance, representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers. However, even with adequate insurance and indemnification, the failure of any products to comply with applicable regulatory requirements could prevent us from marketing such products or require us to recall or remove such products from our stores.
If we were to receive an adverse judgment in such a matter, we could suffer further dilution of our trademarks or service marks and other rights, which could harm our ability to compete as well as our business prospects, financial condition and results of operations.
If we were to receive an adverse judgment in such a matter, we could suffer further dilution of our trademarks or service marks and other rights, which could harm our ability to compete as well as our business prospects, financial condition and results of operations. 29 Table of Contents Energy costs are a significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability.
This Policy reflects the FDA’s intent to begin more robust enforcement of the pre-market notification requirements for NDIs, which could result in the removal of certain dietary supplement products that we sell. Currently, there are bills pending in the U.S. House of Representatives and the U.S. Senate that would require the mandatory listing of all dietary supplements with the FDA.
This Policy reflects the FDA’s intent to begin more robust enforcement of the pre-market notification requirements for NDIs, which could result in the removal of certain dietary supplement products that we sell.
In the event there is a widespread regional, national or global health epidemic or pandemic, including future outbreaks of COVID-19 variants, our business could be severely impacted. The COVID-19 pandemic negatively impacted the economy, disrupted consumer behaviors and supply chains, and created volatility in the financial markets.
Although our operations have stabilized since the height of the pandemic, in the event there is a widespread regional, national or global health epidemic or pandemic in the future, including outbreaks of COVID-19 variants, our business could be severely impacted.
In October 2019, the FDA released new draft guidance on homeopathic drugs, stating that the agency intends to take a risk-based approach to reviewing how some homeopathic drug products are marketed, under which it will prioritize enforcement and regulatory actions involving certain categories of homeopathic drug products marketed without the required FDA approval.
On December 6, 2022, the FDA issued final guidance on homeopathic drugs, stating that the agency intends to take a risk-based approach to reviewing how some homeopathic drug products are marketed, under which it will prioritize enforcement and regulatory actions for homeopathic products posing the greatest risk to patients.
If we are unable to offer competitive wages, it may be more difficult for us to identify, hire and retain qualified personnel or the quality of our workforce could decline, causing customer service to be adversely impacted.
If we are unable to offer competitive wages, it may be more difficult for us to identify, hire and retain qualified personnel or the quality of our workforce could decline, causing customer service to be adversely impacted. 26 Table of Contents Any significant interruption in the operations of our bulk food repackaging facility and distribution center or our supply chain network could disrupt our ability to deliver our merchandise in a timely manner.
These anti-takeover provisions could substantially impede the ability of our common stockholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and our stockholders’ ability to realize any potential change-in-control premium.
These anti-takeover provisions could substantially impede the ability of our common stockholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and our stockholders’ ability to realize any potential change-in-control premium. 37 Table of Contents We are a “ controlled company ” within the meaning of the NYSE Listed Company Manual, and, as a result, rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
Such an occurrence could also cause negative publicity regarding our Company, brand or products, including negative publicity in social media. The real or perceived sale of contaminated or harmful products could therefore harm our reputation and net sales, have a material adverse effect on our business, financial condition and results of operations, or result in our insolvency.
The real or perceived sale of contaminated or harmful products could therefore harm our reputation and net sales, have a material adverse effect on our business, financial condition and results of operations, or result in our insolvency. 34 Table of Contents Our political advocacy activities may reduce our customer count and sales.
In particular, the ongoing military conflict between Ukraine and Russia has disrupted commodity markets, including for energy and agricultural products, and is contributing to global supply chain disruption and inflation. We expect continued volatility with respect to these trends while the Ukraine conflict is ongoing.
In particular, recent global events have disrupted commodity markets, including for energy and agricultural products, and have contributed to global supply chain disruption and inflation. We may experience continued volatility with respect to these trends.
We plan to open four to six new stores and relocate one to two existing stores in fiscal year 2023. We expect our rate of new store unit growth in the foreseeable future to be dependent on economic and business conditions and other factors, including construction permitting and the availability of construction materials and equipment.
We expect our rate of new store unit growth in the foreseeable future to be dependent on economic and business conditions and other factors, including construction permitting and the availability of construction materials and equipment. Delays or failures in opening new stores, or achieving lower than expected sales in new stores, could materially and adversely affect our growth.
Such borrowings will reduce the amount of capital available under our Credit Facility for other purposes, including our working capital needs, capital expenditures and funding the execution of our growth strategy. Repurchases under the share repurchase program may therefore adversely affect our liquidity, which in turn could impact our profitability, financial condition and results of operations.
Repurchases under the share repurchase program may therefore adversely affect our liquidity, which in turn could impact our profitability, financial condition and results of operations.
While we are exploring a longer-term extension of our relationship with UNFI beyond the expiration of the current annual auto renewal term on May 31, 2023, if our distribution agreement with UNFI were terminated or not renewed, we may be unable to establish alternative distribution channels on reasonable terms or at all.
While we strive to maintain good relations with UNFI, if our distribution agreement with UNFI were terminated or not renewed, we may be unable to establish alternative distribution channels on reasonable terms or at all.
Any significant interruption in the operations of our bulk food repackaging facility and distribution center or our supply chain network could disrupt our ability to deliver our merchandise in a timely manner. We repackage and distribute some of the products we sell through our bulk food repackaging facility and distribution center in Golden, Colorado.
We repackage and distribute some of the products we sell through our bulk food repackaging facility and distribution center in Golden, Colorado.
If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.
We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.
We rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory requirements and are made using FDA-mandated good manufacturing practices. In general, we seek certifications of compliance, representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers.
This guidance and related enforcement action may adversely impact the availability of certain homeopathic products for sale in our stores. 32 Table of Contents Third-Party Risks. We rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory requirements and are made using FDA-mandated good manufacturing practices.
Inflation or deflation could adversely affect our business. Our financial performance could be adversely impacted by relative rates of inflation or deflation, which are subject to market conditions. Inflationary or deflationary pressures on the products we sell could impact our net sales and earnings.
Prolonged unfavorable economic conditions or political instability may have an adverse effect on our sales and profitability. 22 Table of Contents Inflation or deflation could adversely affect our business. Our financial performance could be adversely impacted by relative rates of inflation or deflation, which are subject to market conditions.
Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any such events will increase the costs of operating our stores. The ongoing military conflict between Ukraine and Russia has disrupted energy markets, resulting in increased fuel costs.
We utilize natural gas, water, sewer and electricity in our stores and use gasoline and diesel in our trucks that deliver products to our stores. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any such events will increase the costs of operating our stores.
For example, our planned expansion will require us to increase the number of people we employ and may require us to upgrade our management information system and our distribution infrastructure. We currently operate a single bulk food repackaging facility and distribution center, which houses our bulk food repackaging operation.
Our plans for continued expansion could place increased demands on our financial, managerial, operational and administrative resources. For example, our planned expansion will require us to increase the number of people we employ and may require us to upgrade our management information system and our distribution infrastructure.
In order to support our recent and expected future growth and to maintain the efficient operation of our business, we may need to add additional capacity in the future. These increased demands and operating complexities could cause us to operate our business less efficiently, which could materially and adversely affect our operations, financial performance and future growth.
These increased demands and operating complexities could cause us to operate our business less efficiently, which could materially and adversely affect our operations, financial performance and future growth. 20 Table of Contents We may not be able to open new stores on schedule or operate them successfully.
Members of the Isely family have the ability to prevent change-in-control transactions as long as they maintain voting control of the Company. In addition, members of the Isely family and trusts controlled by them entered into a stockholders agreement by which they agreed to aggregate their voting power with regard to the election of directors.
Members of the Isely family have the ability to prevent change-in-control transactions as long as they maintain voting control of the Company.
As a result, our operating margins may stagnate or decline, which could have a material adverse effect on our business, financial condition and results of operations and adversely affect the price of our common stock.
Any of these events could adversely affect our reputation and brand and decrease our sales, which could have a material adverse effect on our business, financial condition and results of operations.
Although we have implemented procedures to protect our information, we cannot be certain that our security systems will successfully defend against rapidly evolving, increasingly sophisticated cyber-attacks as they become more difficult to detect and defend against. Our continued investment in our information technology systems may not effectively insulate us from potential attacks, breaches or disruptions to our business operations.
Privacy and information security laws and regulations change, and compliance with updates may result in cost increases due to necessary systems changes and the development of new administrative processes. 28 Table of Contents Although we have implemented procedures to protect our information, we cannot be certain that our security systems will successfully defend against rapidly evolving, increasingly sophisticated cyber-attacks as they become more difficult to detect and defend against.
Application of alternative assumptions could produce significantly different results. During fiscal year 2022, we recognized long-lived asset impairment charges of $2.9 million. We may be required to recognize impairments of long-lived assets based on future economic factors such as unfavorable changes in estimated future cash flows of an asset group, which may adversely affect our results of operations and capitalization.
We may be required to recognize impairments of long-lived assets based on future economic factors such as unfavorable changes in estimated future cash flows of an asset group, which may adversely affect our results of operations and capitalization. 27 Table of Contents We have significant lease obligations, which may adversely affect our liquidity and require us to raise additional capital or continue paying rent for store locations that we no longer operate.
Under DSHEA, no dietary supplement may bear a statement that expressly or implicitly represents that such supplement will diagnose, cure, treat or prevent a disease.
Under DSHEA, a person or firm that markets a dietary supplement with structure, function, general well-being or nutrient deficiency claims on the product labeling must notify FDA about the claim within thirty days after first marketing the dietary supplement with the claim and no dietary supplement may bear a statement that expressly or implicitly represents that such supplement will diagnose, cure, treat or prevent a disease.
The Draft Policy provides that the FDA will exercise “enforcement discretion” on dietary supplements containing NDIs marketed before May 20, 2022, for which no notice was given for a period of 180 days following publication of the final policy in the Federal Register.
The FDA has stated that it will exercise enforcement discretion on such products marketed before May 20, 2022, for which no NDINs were submitted, until 180 days after a final rule is published in the Federal Register.
Removed
Risks related to our indebtedness and liquidity • Our credit facility could limit our operational flexibility; • We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business; • Our liquidity needs may require us to raise additional capital through debt or equity financings; and • Our share repurchase program may adversely affect our liquidity and cause fluctuations in our stock price.
Added
We currently operate a single bulk food repackaging facility and distribution center, which houses our bulk food repackaging operation. In order to support our recent and expected future growth and to maintain the efficient operation of our business, we may need to add additional capacity in the future.
Removed
Delays or failures in opening new stores, or achieving lower than expected sales in new stores, could materially and adversely affect our growth. Our plans for continued expansion could place increased demands on our financial, managerial, operational and administrative resources.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOf the current leases for our stores, three expire in fiscal year 2023, five expire in fiscal year 2024, twelve expire in fiscal year 2025, fifteen expire in fiscal year 2026, ten expire in fiscal year 2027 and the remainder expire between fiscal years 2028 and 2062.
Biggest changeOf the current leases for our stores, four expire in fiscal year 2024, eleven expire in fiscal year 2025, twelve expire in fiscal year 2026, eleven expire in fiscal year 2027, twelve expire in fiscal year 2028 and the remainder expire between fiscal years 2029 and 2062.
As of September 30, 2022, we had 164 stores located in 21 states, as shown in the following chart: State Number of Stores Arizona 12 Arkansas 3 Colorado 43 Idaho 4 Iowa 6 Kansas 8 Louisiana 1 Minnesota 1 Missouri 7 Montana 4 Nebraska 3 Nevada 3 New Mexico 6 North Dakota 3 Oklahoma 6 Oregon 14 South Dakota 1 Texas 25 Utah 8 Washington 4 Wyoming 2 Our home office is located in Lakewood, Colorado.
As of September 30, 2023, we had 165 stores located in 21 states, as shown in the following chart: State Number of Stores Arizona 12 Arkansas 3 Colorado 44 Idaho 5 Iowa 6 Kansas 8 Louisiana 1 Minnesota 1 Missouri 7 Montana 4 Nebraska 3 Nevada 3 New Mexico 6 North Dakota 3 Oklahoma 6 Oregon 14 South Dakota 1 Texas 23 Utah 8 Washington 5 Wyoming 2 Our home office is located in Lakewood, Colorado.
As of September 30, 2022, we owned buildings in which twelve of our stores are located. Seven of those buildings are located on land that is leased pursuant to a ground lease; the remaining five stores are on land owned by the Company. Lease terms typically range between 10 and 20 years, with additional renewal options.
As of September 30, 2023, we owned buildings in which thirteen of our stores are located. Eight of those buildings are located on land that is leased pursuant to a ground lease; the remaining five stores are on land owned by the Company. Lease terms typically range between 10 and 25 years, with additional renewal options.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough we cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations. Item 4. Mine Safety Disclosures.
Biggest changeAlthough we cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.
Removed
Not applicable. 40 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn November 16, 2022, our Board approved a quarterly cash dividend of $0.10 per share, which will be paid on December 14, 2022 to stockholders of record as of the close of business on November 28, 2022.
Biggest changeOn November 16, 2023, our Board approved a special cash dividend of $1.00 per share and a quarterly cash dividend of $0.10 per share, which will be paid on December 13, 2023 to stockholders of record as of the close of business on November 27, 2023.
Dividend Policy We paid a quarterly cash dividend of $0.10 and $0.07 per share of common stock during each quarter of fiscal years 2022 and 2021, respectively. We paid a special cash dividend of $2.00 per share in December 2020.
Dividend Policy We paid a quarterly cash dividend of $0.10 per share of common stock during each quarter of fiscal years 2023 and 2022. We paid a special cash dividend of $2.00 per share in December 2020.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the NYSE under the symbol “NGVC.” Holders of Record As of December 5, 2022, there were 189 holders of record of our common stock, and the closing price of our common stock was $9.75.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the NYSE under the symbol “NGVC.” Holders of Record As of December 4, 2023, there were 172 holders of record of our common stock, and the closing price of our common stock was $16.66.
Issuer Purchases of Equity Securities The Company did not repurchase any shares of its common stock between June 30, 2022 and September 30, 2022.
The Company did not repurchase any shares of its common stock during the fourth quarter ended September 30, 2023.
Added
Issuer Purchases of Equity Securities In May 2016, the Board authorized a two-year share repurchase program pursuant to which we could repurchase up to $10.0 million in shares of the Company’s common stock. The Board subsequently extended the share repurchase program – most recently in May 2022 – and the program will terminate on May 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

67 edited+12 added−17 removed78 unchanged
Biggest changeOther Operating Data (Unaudited): Number of stores at end of period 164 162 159 Store unit count increase period over period 1.2 % 1.9 3.9 Change in daily average comparable store sales 2.6 % 0.7 12.0 Number of new stores opened during the period 3 3 6 Number of stores relocated/remodeled during the period 2 5 2 Gross square footage at end of period (1) 2,688,589 2,649,532 2,599,649 Selling square footage at end of period (1) 1,742,623 1,719,813 1,687,196 (1) Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open as of the end of the fiscal year presented. 46 Table of Contents Year ended September 30, 2022 compared to Year ended September 30, 2021 The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands: Year ended September 30, Change in 2022 2021 Dollars Percent Statements of Income Data: Net sales $ 1,089,625 1,055,516 34,109 3.2 % Cost of goods sold and occupancy costs 784,744 763,328 21,416 2.8 Gross profit 304,881 292,188 12,693 4.3 Store expenses 242,057 234,586 7,471 3.2 Administrative expenses 31,562 28,355 3,207 11.3 Pre-opening expenses 1,107 920 187 20.3 Operating income 30,155 28,327 1,828 6.5 Interest expense, net (2,371 ) (2,271 ) (100 ) 4.4 Income before income taxes 27,784 26,056 1,728 6.6 Provision for income taxes (6,419 ) (5,475 ) (944 ) 17.2 Net income $ 21,365 20,581 784 3.8 % Net sales Net sales increased $34.1 million, or 3.2%, to $1,089.6 million for the year ended September 30, 2022 compared to $1,055.5 million for the year ended September 30, 2021, due to a $27.1 million increase in comparable store sales and an $8.6 million increase in new store sales, partially offset by a $1.6 million decrease in net sales from one store that closed at the beginning of the third quarter of fiscal year 2022.
Biggest changeYear ended September 30, 2023 compared to Year ended September 30, 2022 The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands: Year ended September 30, Change in 2023 2022 Dollars Percent Statements of Income Data: Net sales $ 1,140,568 1,089,625 50,943 4.7 % Cost of goods sold and occupancy costs 813,637 784,744 28,893 3.7 Gross profit 326,931 304,881 22,050 7.2 Store expenses 257,282 242,057 15,225 6.3 Administrative expenses 35,973 31,562 4,411 14.0 Pre-opening expenses 2,007 1,107 900 81.3 Operating income 31,669 30,155 1,514 5.0 Interest expense, net (3,299 ) (2,371 ) (928 ) 39.1 Income before income taxes 28,370 27,784 586 2.1 Provision for income taxes (5,127 ) (6,419 ) 1,292 (20.1 ) Net income $ 23,243 21,365 1,878 8.8 % 45 Table of Contents Net sales Net sales increased $50.9 million, or 4.7%, to $1,140.6 million for the year ended September 30, 2023 compared to $1,089.6 million for the year ended September 30, 2022, due to a $39.3 million increase in comparable store sales and a $14.8 million increase in new store sales, partially offset by a $3.2 million decrease in net sales related to store closures.
However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industries and regional and general economic conditions, including inflationary or recessionary trends. In the future, we believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products.
However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industries and regional and general economic conditions, including inflationary or recessionary trends. We believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products.
Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the required lenders’ consent, provided that so long as no default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on our common stock in an aggregate amount not to exceed $10.0 million during any fiscal year.
Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the required lenders’ consent, provided that so long as no default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on our common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
Recent Accounting Pronouncements For a description of new applicable accounting pronouncements, including those recently adopted, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. 51 Table of Contents Critical Accounting Policies The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities.
Recent Accounting Pronouncements For a description of new applicable accounting pronouncements, including those recently adopted, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. 50 Table of Contents Critical Accounting Policies The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities.
The fair value of the asset group is estimated based on either: (i) discounted future cash flows using a market participant’s discount rate; or (ii) an appropriate third-party market appraisal or other valuation technique. 52 Table of Contents Our judgment regarding events or changes in circumstances that indicate the assets carrying value may not be recoverable is based on several factors such as historical and forecasted operating results, significant industry trends and other economic factors.
The fair value of the asset group is estimated based on either: (i) discounted future cash flows using a market participant’s discount rate; or (ii) an appropriate third-party market appraisal or other valuation technique. 51 Table of Contents Our judgment regarding events or changes in circumstances that indicate the assets carrying value may not be recoverable is based on several factors such as historical and forecasted operating results, significant industry trends and other economic factors.
The decrease in cash provided by operating activities was primarily due to a decrease in cash provided by working capital, partially offset by an increase in cash provided by net income as adjusted for non-cash items.
The increase in cash provided by operating activities was due to an increase in cash provided by working capital, partially offset by a decrease in cash provided by net income as adjusted for non-cash items.
Our operating results may be affected by the above-described factors as well as a variety of other internal and external factors and trends that are described more fully in Item 1A - “Risk Factors” in this Form 10-K. Key Financial Metrics in Our Business In assessing our performance, we consider a variety of performance and financial measures.
Our operating results may be affected by the above-described factors as well as a variety of other internal and external factors and trends described more fully in Item 1A - “Risk Factors” in this Form 10-K. Key Financial Metrics in Our Business In assessing our performance, we consider a variety of performance and financial measures.
There are significant judgments and estimates within the processes; it is therefore possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. As of September 30, 2022, the Company has recorded no impairment charges related to goodwill.
There are significant judgments and estimates within the processes; it is therefore possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. As of September 30, 2023, the Company has recorded no impairment charges related to goodwill.
The incremental borrowing rate is used as a factor in determining the present value of the minimum lease payments which is then used in determining whether the lease is accounted for as an operating lease or finance lease, as well as for allocating our rental payments on operating and finance leases between interest expense and a reduction of the outstanding obligation. 53 Table of Contents
The incremental borrowing rate is used as a factor in determining the present value of the minimum lease payments which is then used in determining whether the lease is accounted for as an operating lease or finance lease, as well as for allocating our rental payments on operating and finance leases between interest expense and a reduction of the outstanding obligation. 52 Table of Contents
Impairment of Long-Lived Assets and Store Closing Costs We assess our long-lived assets, principally property and equipment and lease right-of-use assets, for possible impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Impairment of Long-Lived Assets and Store Closing Costs We assess our long-lived assets, principally property and equipment and lease assets, for possible impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2022, we increased our store count at a compound annual growth rate of 3.2%.
The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2023, we increased our store count at a compound annual growth rate of 2.2%.
We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including construction permitting and the availability of construction materials and equipment. Over the long term, we believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales.
We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including construction permitting and the availability of construction materials and equipment. We believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales.
As of September 30, 2022, we operated 164 stores in 21 states, including Colorado, Arizona, Arkansas, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.
As of September 30, 2023, we operated 165 stores in 21 states, including Colorado, Arizona, Arkansas, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.
As of the date of this report, we have signed leases or acquired property for an additional five new stores and five relocations/remodels that we plan to open in fiscal years 2023 and beyond. Between October 1, 2022 and the date of this Form 10-K, we did not open or relocate/remodel any stores.
As of the date of this report, we have signed leases or acquired property for an additional two new stores and five relocations/remodels that we plan to open in fiscal years 2024 and beyond. Between October 1, 2023 and the date of this Form 10-K, we opened two new stores and did not relocate/remodel any stores.
Depreciation expense included in store expenses relates to depreciation for assets directly used at the stores, including depreciation on land improvements, leasehold improvements, fixtures and equipment and technology. Depreciation expenses on the right-of-use assets related to the finance leases of the stores are also considered store expenses.
Depreciation expense included in store expenses relates to depreciation for assets directly used at the stores, including depreciation on land improvements, leasehold improvements, fixtures and equipment and technology. Depreciation expenses on lease assets related to the finance leases of the stores are also considered store expenses.
Base rate borrowings under the Credit Facility bear interest at a fluctuating base rate as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate, and (iii) the Eurodollar rate plus 1.00%, less the lender spread based upon the Company’s consolidated leverage ratio.
Base rate loans under the Credit Facility bear interest at a fluctuating base rate as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate, and (iii) Term SOFR plus 1.00%, less the lender spread based upon the Company’s consolidated leverage ratio.
Year ended September 30, 2021 compared to Year ended September 30, 2020 A comparative discussion of operating, investing and financing activities for the years ended September 30, 2021 and September 30, 2020 is set out in our Annual Report on Form 10-K for the year ended September 30, 2020 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” Credit Facility The revolving commitment amount under the Revolving Facility is $50.0 million, including a $5.0 million sub-limit for standby letters of credit.
Year ended September 30, 2022 compared to Year ended September 30, 2021 A comparative discussion of operating, investing and financing activities for the years ended September 30, 2022 and September 30, 2021 is set out in our Annual Report on Form 10-K for the year ended September 30, 2021 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” 49 Table of Contents Credit Facility The revolving commitment amount under the Revolving Facility is $75.0 million, including a $5.0 million sub-limit for standby letters of credit.
In the aggregate, management estimates that the Company experienced annual cost inflation of approximately 5% in fiscal year 2022 and approximately 7% in the fourth quarter of fiscal year 2022. Cost inflation estimates are based on individual like items sold during the periods being compared.
In the aggregate, management estimates that the Company experienced annualized cost inflation of approximately 7% in fiscal year 2023 and approximately 5% in the fourth quarter of fiscal year 2023. Cost inflation estimates are based on individual like items sold during the periods being compared.
We had no amounts outstanding under the Revolving Facility as of September 30, 2022 and 2021. As of September 30, 2022 and September 30, 2021, we had undrawn, issued and outstanding letters of credit of $1.1 million and $1.0 million, respectively, which were reserved against the amount available for borrowing under the Revolving Facility.
We had no amounts outstanding under the Revolving Facility as of September 30, 2023 and 2022. As of September 30, 2023 and September 30, 2022, we had undrawn, issued and outstanding letters of credit of $1.5 million and $1.1 million, respectively, which were reserved against the amount available for borrowing under the Revolving Facility.
During fiscal year 2022, a number of macroeconomic and global trends impacted our business. The current labor market has impacted our ability to retain and attract store Crew members and we continue to be challenged by labor shortages broadly impacting the retail industry.
A number of macroeconomic and global trends have impacted our business. The current labor market has impacted our ability to retain and attract store Crew members and we continue to be challenged by labor shortages broadly impacting the retail industry.
We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The size of our stores range from approximately 7,000 to 16,000 selling square feet. For the year ended September 30, 2022, our new stores averaged approximately 10,000 selling square feet.
We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The sizes of our stores range from approximately 7,000 to 16,000 selling square feet. For the year ended September 30, 2023, our new stores averaged approximately 9,000 selling square feet.
In fiscal year 2022, we opened three new stores, relocated/remodeled two existing stores and closed one store. We plan to open four to six new stores and relocate/remodel one to two stores in fiscal year 2023.
In fiscal year 2023, we opened three new stores, relocated/remodeled three existing stores and closed two stores. We plan to open four to six new stores and relocate/remodel four to six stores in fiscal year 2024.
During fiscal year 2022, the costs of certain goods we sell were impacted by levels of inflation higher than we have experienced in recent years, resulting in part from supply disruptions, the military conflict between Ukraine and Russia, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, disruptions caused by the COVID‐19 pandemic and the uncertain economic environment.
During fiscal years 2023 and 2022, the costs of certain goods we sell were impacted by levels of inflation higher than we have experienced in recent years, resulting in part from supply disruptions, the conflict between Ukraine and Russia, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, other disruptions and the uncertain economic environment.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $58.1 million for the year ended September 30, 2022, an increase of $0.1 million, or 0.2%, compared to EBITDA of $58.0 million for the year ended September 30, 2021. EBITDA is not a measure of financial performance under generally accepted accounting principles in the United State of America (GAAP).
Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $60.6 million for the year ended September 30, 2023, an increase of $2.5 million, or 4.3%, compared to EBITDA of $58.1 million for the year ended September 30, 2022. EBITDA is not a measure of financial performance under generally accepted accounting principles in the United State of America (GAAP).
Daily average comparable store sales increased 2.6% for the year ended September 30, 2022 compared to an increase of 0.7% for the year ended September 30, 2021. The daily average comparable store sales increase in fiscal year 2022 resulted from a 2.1% increase in average transaction size and a 0.4% increase in daily average transaction count.
Daily average comparable store sales increased 3.6% for the year ended September 30, 2023 compared to an increase of 2.6% for the year ended September 30, 2022. The daily average comparable store sales increase in fiscal year 2023 resulted from a 1.8% increase in average transaction size and a 1.7% increase in daily average transaction count.
Daily average comparable store sales for the year ended September 30, 2022 increased 2.6% from the year ended September 30, 2021. ● Net income. Net income was $21.4 million for the year ended September 30, 2022, an increase of $0.8 million, or 3.8%, compared to net income of $20.6 million for the year ended September 30, 2021. ● EBITDA.
Daily average comparable store sales for the year ended September 30, 2023 increased 3.6% from the year ended September 30, 2022. ● Net income. Net income was $23.2 million for the year ended September 30, 2023, an increase of $1.9 million, or 8.8%, compared to net income of $21.4 million for the year ended September 30, 2022. ● EBITDA.
Refer to the “Non-GAAP Financial Measures” section in this MD&A for a definition of EBITDA and a reconciliation of net income to EBITDA. ● Adjusted EBITDA. Adjusted EBITDA was $62.2 million for the year ended September 30, 2022, an increase of $1.9 million, or 3.1%, compared to Adjusted EBITDA of $60.3 million for the year ended September 30, 2021.
Refer to the “Non-GAAP Financial Measures” section in this MD&A for a definition of EBITDA and a reconciliation of net income to EBITDA. ● Adjusted EBITDA. Adjusted EBITDA was $63.4 million for the year ended September 30, 2023, an increase of $1.2 million, or 2.0%, compared to Adjusted EBITDA of $62.2 million for the year ended September 30, 2022.
Adjusted EBITDA as a percentage of net sales was 5.7% for each of the years ended September 30, 2022 and 2021. 48 Table of Contents Year ended September 30, 2021 compared to Year ended September 30, 2020 A comparative discussion of EBITDA and Adjusted EBITDA for the years ended September 30, 2021 and September 30, 2020 is set out in our Annual Report on Form 10-K for the year ended September 30, 2021 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP financial measures – EBITDA and Adjusted EBITDA.” Management believes some investors’ understanding of our performance is enhanced by including EBITDA and Adjusted EBITDA, which are non-GAAP financial measures.
Year ended September 30, 2022 compared to Year ended September 30, 2021 A comparative discussion of EBITDA and Adjusted EBITDA for the years ended September 30, 2022 and September 30, 2021 is set out in our Annual Report on Form 10-K for the year ended September 30, 2022 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP financial measures – EBITDA and Adjusted EBITDA.” Management believes some investors’ understanding of our performance is enhanced by including EBITDA and Adjusted EBITDA, which are non-GAAP financial measures.
We had $48.9 million and $49.0 million available for borrowing under the Revolving Facility as of September 30, 2022 and September 30, 2021, respectively. We had $15.7 million of outstanding borrowings under the fully drawn Term Loan Facility as of September 30, 2022.
We had $48.5 million and $48.9 million available for borrowing under the Revolving Facility as of September 30, 2023 and September 30, 2022, respectively. We had $7.7 million of outstanding borrowings under the fully drawn Term Loan Facility as of September 30, 2023.
Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, debt service, cash dividends and corporate taxes. As of September 30, 2022, we had $12.0 million in cash and cash equivalents and $48.9 million available for borrowing under our Revolving Facility.
Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, debt service, cash dividends, share repurchases and corporate taxes. As of September 30, 2023, we had $18.3 million in cash and cash equivalents and $48.5 million available for borrowing under our Revolving Facility.
Results of Operations The following table presents key components of our results of operations expressed as a percentage of net sales for the periods presented: Year ended September 30, 2022 2021 2020 Statements of Income Data:* Net sales 100.0 % 100.0 100.0 Cost of goods sold and occupancy costs 72.0 72.3 72.7 Gross profit 28.0 27.7 27.3 Store expenses 22.2 22.2 21.9 Administrative expenses 2.9 2.7 2.6 Pre-opening expenses 0.1 0.1 0.1 Operating income 2.8 2.7 2.7 Interest expense, net (0.2 ) (0.2 ) (0.2 ) Income before income taxes 2.5 2.5 2.5 Provision for income taxes (0.6 ) (0.5 ) (0.5 ) Net income 2.0 % 1.9 1.9 __________________________ *Figures may not sum due to rounding.
Income tax expense also includes excess tax benefits and deficiencies related to the vesting of restricted stock units. 44 Table of Contents Results of Operations The following table presents key components of our results of operations expressed as a percentage of net sales for the periods presented: Year ended September 30, 2023 2022 2021 Statements of Income Data:* Net sales 100.0 % 100.0 100.0 Cost of goods sold and occupancy costs 71.3 72.0 72.3 Gross profit 28.7 28.0 27.7 Store expenses 22.6 22.2 22.2 Administrative expenses 3.2 2.9 2.7 Pre-opening expenses 0.2 0.1 0.1 Operating income 2.8 2.8 2.7 Interest expense, net (0.3 ) (0.2 ) (0.2 ) Income before income taxes 2.5 2.5 2.5 Provision for income taxes (0.4 ) (0.6 ) (0.5 ) Net income 2.0 % 2.0 1.9 *Figures may not sum due to rounding.
Occupancy costs as a percentage of net sales typically decrease as new stores mature and sales increase. Rent payments for leases classified as finance lease obligations are not recorded in cost of goods sold and occupancy costs. Rather, these rent payments are recognized as a reduction of the related obligations and as interest expense.
Occupancy costs as a percentage of net sales typically decrease as new stores mature and sales increase. Rent payments for leases classified as finance lease obligations are not recorded in cost of goods sold and occupancy costs.
Liquidity and Capital Resources Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under our Revolving Facility. Our Credit Facility consists of the $50.0 million Revolving Facility and the fully drawn $35.0 million Term Loan Facility.
Liquidity and Capital Resources Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under our Revolving Facility. Our Credit Facility consists of the $75.0 million Revolving Facility, which we increased on November 16, 2023 from $50.0 million to $75.0 million, and the fully drawn $35.0 million Term Loan Facility.
Store expenses Store expenses increased $7.5 million, or 3.2%, to $242.1 million for the year ended September 30, 2022 compared to $234.6 million for the year ended September 30, 2021. Store expenses as a percentage of net sales were 22.2% for each of the years ended September 30, 2022 and 2021.
Store expenses Store expenses increased $15.2 million, or 6.3%, to $257.3 million for the year ended September 30, 2023 compared to $242.1 million for the year ended September 30, 2022. Store expenses as a percentage of net sales were 22.6% and 22.2% for the years ended September 30, 2023 and 2022, respectively.
As of each of September 30, 2022 and September 30, 2021, the Company was in compliance with the financial covenants under the Credit Facility.
As of September 30, 2023 and September 30, 2022, the Company was in compliance with all covenants under the Credit Facility.
EBITDA as a percentage of net sales was 5.3% and 5.5% for the years ended September 30, 2022 and 2021, respectively. Adjusted EBITDA increased 3.1% to $62.2 million for the year ended September 30, 2022 compared to $60.3 million for the year ended September 30, 2021.
EBITDA as a percentage of net sales was 5.3% for each of the years ended September 30, 2023 and 2022. Adjusted EBITDA increased 2.0% to $63.4 million for the year ended September 30, 2023 compared to $62.2 million for the year ended September 30, 2022.
We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutrition education, differentiate us in the industry and provide a competitive advantage. 43 Table of Contents ● Consumer preferences.
We also face internally generated competition when we open new stores in markets we already serve. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutrition education, differentiate us in the industry and provide a competitive advantage. ● Consumer preferences.
Interest expense, net Interest expense consists of the interest associated with finance lease obligations, net of capitalized interest, and our Credit Facility. 45 Table of Contents Income tax expense Income taxes are accounted for in accordance with the provisions of Income Taxes (ASC 740).
Interest expense, net Interest expense consists of the interest associated with finance lease obligations, net of capitalized interest, and our Credit Facility. Income tax expense Income taxes are accounted for in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 “Income Taxes” (ASC 740).
The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands: Year ended September 30, 2022 2021 Net income $ 21,365 20,581 Interest expense, net 2,371 2,271 Provision for income taxes 6,419 5,475 Depreciation and amortization 27,906 29,633 EBITDA 58,061 57,960 Impairment of long-lived assets and store closing costs 2,920 1,455 Share-based compensation 1,186 877 Adjusted EBITDA $ 62,167 60,292 Year ended September 30, 2022 compared to Year ended September 30, 2021 EBITDA increased 0.2% to $58.1 million for the year ended September 30, 2022 compared to $58.0 million for the year ended September 30, 2021.
The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands: Year ended September 30, 2023 2022 Net income $ 23,243 21,365 Interest expense, net 3,299 2,371 Provision for income taxes 5,127 6,419 Depreciation and amortization 28,906 27,906 EBITDA 60,575 58,061 Impairment of long-lived assets and store closing costs 1,464 2,920 Share-based compensation 1,360 1,186 Adjusted EBITDA $ 63,399 62,167 Year ended September 30, 2023 compared to Year ended September 30, 2022 EBITDA increased 4.3% to $60.6 million for the year ended September 30, 2023 compared to $58.1 million for the year ended September 30, 2022.
By providing these non-GAAP financial measures, together with a reconciliation from net income, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
By providing these non-GAAP financial measures, together with a reconciliation from net income, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. 47 Table of Contents Our competitors may define EBITDA and Adjusted EBITDA differently, and as a result, our measures of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA of other companies.
Net sales were $1,089.6 million for the year ended September 30, 2022, an increase of $34.1 million, or 3.2%, compared to net sales of $1,055.5 million for the year ended September 30, 2021. ● Daily average comparable store sales.
Net sales were $1,140.6 million for the year ended September 30, 2023, an increase of $50.9 million, or 4.7%, compared to net sales of $1,089.6 million for the year ended September 30, 2022. ● Daily average comparable store sales.
Administrative expenses Administrative expenses were $31.6 million for the year ended September 30, 2022 compared to $28.4 million for the year ended September 30, 2021. Administrative expenses as a percentage of net sales were 2.9% and 2.7% for the years ended September 30, 2022 and 2021, respectively.
Administrative expenses as a percentage of net sales were 3.2% and 2.9% for the years ended September 30, 2023 and 2022, respectively. Pre-opening expenses Pre-opening expenses were $2.0 million for the year ended September 30, 2023 compared to $1.1 million for the year ended September 30, 2022.
Year ended September 30, 2021 compared to Year ended September 30, 2020 A comparative discussion of our results of operations and other operating data for the years ended September 30, 2021 and September 30, 2020 is set out in our Annual Report on Form 10-K for the year ended September 30, 2021 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Year ended September 30, 2021 compared to Year ended September 30, 2020.” Non-GAAP financial measures EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP.
Net income Net income was $23.2 million, or $1.02 diluted earnings per share, for the year ended September 30, 2023 compared to $21.4 million, or $0.94 diluted earnings per share, for the year ended September 30, 2022. 46 Table of Contents Year ended September 30, 2022 compared to Year ended September 30, 2021 A comparative discussion of our results of operations and other operating data for the years ended September 30, 2022 and September 30, 2021 is set out in our Annual Report on Form 10-K for the year ended September 30, 2022 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Year ended September 30, 2022 compared to Year ended September 30, 2021.” Non-GAAP financial measures EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP.
This increase was primarily the result of increases of $1.7 million and $1.5 million in property and equipment and other intangibles acquisitions during the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021, respectively, due to the purchase of previously leased property and the impact of the timing of new store openings, relocations/remodels, and software projects under development.
This increase was primarily the result of an increase in property and equipment acquisitions of $8.5 million, partially offset by a decrease in other intangibles acquisitions of $1.9 million during the fiscal year ended September 30, 2023 compared to the fiscal year ended September 30, 2022, attributed to the timing of new store openings, relocations/remodels, and software projects under development.
We use this metric to track the trends in average dollars spent in our stores per customer transaction. 44 Table of Contents Cost of goods sold and occupancy costs Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging facility), buying costs, shrink expense, third-party delivery fees and store occupancy costs.
Cost of goods sold and occupancy costs Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging facility), buying costs, shrink expense, third-party delivery fees and store occupancy costs.
Gross profit Gross profit increased $12.7 million, or 4.3%, to $304.9 million for the year ended September 30, 2022 compared to $292.2 million for the year ended September 30, 2021, primarily driven by increased sales volumes. Gross profit reflects earnings after product and store occupancy costs.
Gross profit Gross profit increased $22.1 million, or 7.2%, to $326.9 million for the year ended September 30, 2023 compared to $304.9 million for the year ended September 30, 2022. Gross profit reflects earnings after product and store occupancy costs.
Eurodollar rate borrowings under the Credit Facility bear interest based on the London Interbank Offered Rate, or its successor rate (LIBOR), for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is also based upon the Company’s consolidated leverage ratio.
Term SOFR loans under the Credit Facility bear interest based on Term SOFR for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is also based upon the Company’s consolidated leverage ratio.
Investing Activities Net cash used in investing activities increased $3.4 million, or 12.2%, to $31.1 million for the year ended September 30, 2022 compared to $27.8 million for the year ended September 30, 2021.
Investing Activities Net cash used in investing activities increased $6.8 million, or 21.9%, to $38.0 million for the year ended September 30, 2023 compared to $31.1 million for the year ended September 30, 2022.
The following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands: Year ended September 30, 2022 2021 Net cash provided by operating activities $ 39,693 53,880 Net cash used in investing activities (31,143 ) (27,755 ) Net cash used in financing activities (20,189 ) (30,981 ) Net decrease in cash and cash equivalents (11,639 ) (4,856 ) Cash and cash equivalents, beginning of year 23,678 28,534 Cash and cash equivalents, end of year $ 12,039 23,678 Year ended September 30, 2022 compared to Year ended September 30, 2021 Operating Activities Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, impairment of long-lived assets and store closing costs, share-based compensation, and changes in deferred taxes, and the effect of working capital changes.
Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale. 48 Table of Contents The following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands: Year ended September 30, 2023 2022 Net cash provided by operating activities $ 64,606 39,693 Net cash used in investing activities (37,950 ) (31,143 ) Net cash used in financing activities (20,353 ) (20,189 ) Net increase (decrease) in cash and cash equivalents 6,303 (11,639 ) Cash and cash equivalents, beginning of year 12,039 23,678 Cash and cash equivalents, end of year $ 18,342 12,039 Year ended September 30, 2023 compared to Year ended September 30, 2022 Operating Activities Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, impairment of long-lived assets, share-based compensation, and changes in deferred taxes, and the effect of working capital changes.
Additionally, negative publicity regarding the safety of dietary supplements, product recalls or new or stricter regulatory standards may adversely affect demand for the products we sell and could result in lower consumer traffic, sales and results of operations.
Additionally, negative publicity regarding the safety of dietary supplements, product recalls or new or stricter regulatory standards may adversely affect demand for the products we sell and could result in lower consumer traffic, sales and results of operations. 42 Table of Contents Outlook We believe there are several key factors that have contributed to our success and will enable us to increase our comparable store sales and continue to profitably expand.
Cash provided by operating activities decreased $14.2 million, or 26.3%, to $39.7 million for the year ended September 30, 2022 compared to $53.9 million for the year ended September 30, 2021.
Cash provided by operating activities increased $24.9 million, or 62.8%, to $64.6 million for the year ended September 30, 2023 compared to $39.7 million for the year ended September 30, 2022.
Gross margin increased to 28.0% for the year ended September 30, 2022 from 27.7% for the year ended September 30, 2021. The increase in gross margin during the year ended September 30, 2022 was driven by improved product margin and store occupancy cost leverage.
Gross margin increased to 28.7% for the year ended September 30, 2023 from 28.0% for the year ended September 30, 2022. The increase in gross margin during the year ended September 30, 2023 was driven by higher product margin attributed to effective pricing and promotions, partially offset by higher shrink expense.
Gross profit and gross margin Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a percentage of net sales.
Rather, these rent payments are recognized as a reduction of the related obligations and as interest expense. 43 Table of Contents Gross profit and gross margin Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a percentage of net sales.
As a result of current global supply chain issues, partially attributable to the COVID-19 pandemic and the war in Ukraine, we have on occasion experienced shortages and delays in the delivery of certain products to our stores.
We have invested in increased wages for our store Crew members and may be required to do so in the future. As a result of current global supply chain issues, we have on occasion experienced shortages and delays in the delivery of certain products to our stores.
The timing and the number of shares repurchased, if any, will be dictated by our capital needs and stock market conditions. On November 16, 2022, our Board approved a quarterly cash dividend of $0.10 per share, which will be paid on December 14, 2022 to stockholders of record as of the close of business on November 28, 2022.
On November 16, 2023, our Board approved the payment of a special cash dividend of $1.00 per share and a quarterly cash dividend of $0.10 per share, which will be paid on December 13, 2023 to stockholders of record as of the close of business on November 27, 2023.
The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.3 million. Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Revolving Facility.
Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Revolving Facility. The timing and the number of shares repurchased, if any, will be dictated by our capital needs and stock market conditions.
On November 18, 2020, we entered into the $35.0 million Term Loan Facility maturing November 13, 2024. 49 Table of Contents In May 2016, our Board authorized a two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company’s common stock.
In May 2016, our Board authorized a two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company’s common stock. Our Board subsequently extended the share repurchase program – most recently in May 2022 – and the program will terminate on May 31, 2024.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. Income tax expense also includes excess tax benefits and deficiencies related to the vesting of restricted stock units.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.
The increase in store expenses was primarily due to higher labor rates, partially offset by lower labor hours. Store expenses included long-lived asset impairment charges of $2.9 million for fiscal year 2022 and long-lived asset impairment charges and store closing costs of $1.5 million for fiscal year 2021.
The increase in store expenses as a percentage of net sales was primarily driven by higher labor expenses as a result of increased wage rates. Store expenses included long-lived asset impairment charges of $1.3 million and $2.9 million for fiscal years 2023 and 2022, respectively.
Net cash used in financing activities was $20.2 million for the year ended September 30, 2022 compared to $31.0 million for the year ended September 30, 2021.
Financing Activities Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders. Net cash used in financing activities was $20.4 million for the year ended September 30, 2023 compared to $20.2 million for the year ended September 30, 2022.
Income taxes Income tax expense was $6.4 million for the year ended September 30, 2022 compared to $5.5 million for the year ended September 30, 2021. The Company’s effective income tax rate was approximately 23.1% and 21.0% for the years ended September 30, 2022 and 2021, respectively.
Interest expense, net Interest expense, net of capitalized interest, was $3.3 million for the year ended September 30, 2023 compared to $2.4 million for the year ended September 30, 2022. Income taxes Income tax expense decreased $1.3 million to $5.1 million for the year ended September 30, 2023 compared to $6.4 million for the year ended September 30, 2022.
Acquisition of property and equipment not yet paid increased $2.2 million to $7.0 million in fiscal year 2022 compared to $4.8 million in fiscal year 2021 due to the timing of payments related to new store openings and relocations/remodels. 50 Table of Contents Financing Activities Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders.
Acquisition of property and equipment not yet paid decreased $0.9 million to $6.0 million in fiscal year 2023 compared to $7.0 million in fiscal year 2022 due to the timing of payments related to new store openings and relocations/remodels.
We paid quarterly cash dividends of $0.10 per share of common stock in each quarter of fiscal year 2022. We plan to continue to open new stores in the future, which may require us to borrow additional amounts under the Revolving Facility from time to time.
The special cash dividend will be funded through available cash and borrowings under our Revolving Facility. We plan to continue to open new stores in the future, which may require us to borrow additional amounts under the Revolving Facility from time to time.
Comparable store average transaction size was $45.11 for the year ended September 30, 2022. The increase in net sales during the year ended September 30, 2022 was primarily driven by retail price inflation, our customers’ response to COVID-19 pandemic trends, new store sales, marketing initiatives, and increased engagement in our {N}power customer loyalty program.
The increase in net sales during the year ended September 30, 2023 was primarily driven by retail price increases, transaction count, new store sales, and marketing initiatives, including market-specific campaigns and {N}power rewards program offers that drove customer engagement, partially offset by a moderation of the pandemic trends experienced in the first half of fiscal year 2022.
We plan to spend approximately $28.0 million to $35.0 million on capital expenditures during fiscal year 2023 in connection with four to six new store openings and one to two store relocations/remodels. We anticipate that our new stores will require, on average, an upfront capital investment of approximately $2.4 million per store.
We plan to spend approximately $30.0 million to $39.0 million on capital expenditures during fiscal year 2024 primarily in connection with expected new store openings and store relocations/remodels.
Our competitors may define EBITDA and Adjusted EBITDA differently, and as a result, our measures of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA of other companies. Items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance.
Items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance.
As of September 30, 2022, cash and cash equivalents was $12.0 million, and there was $48.9 million available for borrowing under our Revolving Facility, net of undrawn, issued and outstanding letters of credit of $1.1 million. 42 Table of Contents ● New store growth.
As of September 30, 2023, cash and cash equivalents was $18.3 million, and there was $48.5 million available for borrowing under our Revolving Facility, net of undrawn, issued and outstanding letters of credit of $1.5 million. 41 Table of Contents Industry Trends and Economics We have identified the following recent trends and factors that have impacted and may continue to impact our results of operations and financial condition: ● Impact of broader economic trends and political environment.
Removed
We opened 26 new stores between the beginning of fiscal year 2018 and the end of fiscal year 2022, with 164 stores open as of September 30, 2022. We opened three new stores in fiscal year 2022.
Added
We use this metric to track the trends in average dollars spent in our stores per customer transaction.
Removed
We plan to open a total of four to six new stores in fiscal year 2023, which would result in an annual new store growth rate of between 2.4% and 3.7% for fiscal year 2023. ● Store Relocations and Remodels. We relocated/remodeled 16 stores between the beginning of fiscal year 2018 and the end of fiscal year 2022.
Added
Other Operating Data (Unaudited): Number of stores at end of period 165 164 162 Store unit count increase period over period 0.6 % 1.2 1.9 Change in daily average comparable store sales 3.6 % 2.6 0.7 Number of new stores opened during the period 3 3 3 Number of stores relocated/remodeled during the period 3 2 5 Number of stores closed during the period 2 1 — Gross square footage at end of period (1) 2,676,607 2,688,589 2,649,532 Selling square footage at end of period (1) 1,745,701 1,742,623 1,719,813 (1) Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open as of the end of the fiscal year presented.
Removed
We relocated/remodeled two existing stores in fiscal year 2022. Industry Trends and Economics We have identified the following recent trends and factors that have impacted and may continue to impact our results of operations and financial condition: ● Impact of broader economic trends and political environment.
Added
Comparable store average transaction size was $45.92 for the year ended September 30, 2023.
Removed
During fiscal year 2022, we invested in increased wages for our store Crew members and may be required to do so in the future.
Added
Administrative expenses Administrative expenses increased $4.4 million, or 14.0%, to $36.0 million for the year ended September 30, 2023 compared to $31.6 million for the year ended September 30, 2022. The increase in administrative expenses was primarily driven by higher compensation expenses, technology amortization, software expenses and legal expenses.
Removed
In particular, the proposed merger of The Kroger Co. and Albertsons Companies, Inc., if consummated, would create a larger conventional supermarket retailer that could alter the competitive landscape of the grocery industry and adversely impact our ability to compete.
Added
The Company’s effective income tax rate was 18.1% and 23.1% for the years ended September 30, 2023 and 2022, respectively. The decrease in the effective income tax rate was primarily attributable to increased food donation deductions recorded during fiscal year 2023.
Removed
We also face internally generated competition when we open new stores in markets we already serve.
Added
Adjusted EBITDA as a percentage of net sales was 5.6% and 5.7% for the years ended September 30, 2023 and 2022, respectively.
Removed
Outlook We believe there are several key factors that have contributed to our success and will enable us to increase our comparable store sales and continue to profitably expand.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBased upon a sensitivity analysis at September 30, 2022, a hypothetical 100 basis point change in interest rates would change our annual interest expense by $0.2 million for the year ended September 30, 2022. 54 Table of Contents
Biggest changeBased upon a sensitivity analysis at September 30, 2023, a hypothetical 100 basis point change in interest rates would change our annual interest expense by $0.2 million for the year ended September 30, 2023. 53 Table of Contents
As of September 30, 2022, no amounts were outstanding under our Revolving Facility and $15.7 million was outstanding under our Term Loan Facility. Our Credit Facility carries floating interest rates that are tied to the Eurodollar rate, and therefore, our statements of income and our cash flows are exposed to changes in interest rates.
As of September 30, 2023, no amounts were outstanding under our Revolving Facility and $7.7 million was outstanding under our Term Loan Facility. Our Credit Facility carries floating interest rates that are tied to the Eurodollar rate, and therefore, our statements of income and our cash flows are exposed to changes in interest rates.

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