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What changed in Natural Grocers by Vitamin Cottage, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Natural Grocers by Vitamin Cottage, Inc.'s 2023 and 2024 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 2024 report.

+276 added−278 removedSource: 10-K (2024-12-12) vs 10-K (2023-12-07)

Top changes in Natural Grocers by Vitamin Cottage, Inc.'s 2024 10-K

276 paragraphs added · 278 removed · 247 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe 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.
Biggest changeOur 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. 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.
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.
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 an NHC.
We strive to generate long-term relationships with our customers based on transparency and trust by: ● selling only natural and organic groceries, body care products and dietary supplements that meet our strict quality guidelines - we do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils; ● utilizing an efficient and flexible smaller-store format to offer affordable prices and a convenient, clean and shopper-friendly retail environment; ● enhancing our customers’ shopping experience by providing free science-based nutrition education to help our customers make well-informed health and nutrition choices; and ● incorporating principles of ecological sustainability into our product standards and Company practices. 1 Table of Contents Our History and Founding Principles Our founders, Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and organic products and dietary supplements.
We strive to generate long-term relationships with our customers based on transparency and trust by: ● selling only natural and organic groceries, body care products and dietary supplements that meet our strict quality guidelines - we do not approve for sale grocery products that are known to contain artificial flavors, preservatives or sweeteners, synthetic colors, or partially hydrogenated or hydrogenated oils; ● utilizing an efficient and flexible smaller-store format to offer affordable prices and a convenient, clean and shopper-friendly retail environment; ● enhancing our customers’ shopping experience by providing free science-based nutrition education to help our customers make well-informed health and nutrition choices; and ● incorporating principles of ecological sustainability into our product standards and Company practices. 1 Table of Contents Our History and Founding Principles Our founders, Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and organic products and dietary supplements.
For example: ● we do not approve for sale food known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils, regardless of the proportion of its natural or organic ingredients; ● we only sell USDA certified organic produce; ● we only sell dairy products from pasture-raised, non-confined livestock and only sell eggs from free-range or pastured hens; ● we only sell meats from naturally raised animals that are not known to have been treated with antibiotics, hormones or growth promoters, or fed animal by-products; ● we only sell seafood from sustainable fisheries or ecologically responsible farm-raised operations; and ● we do not sell distilled spirits, tobacco products or e-cigarettes.
For example: ● we do not approve for sale food known to contain artificial flavors, preservatives or sweeteners, synthetic colors, or partially hydrogenated or hydrogenated oils, regardless of the proportion of its natural or organic ingredients; ● we only sell USDA certified organic produce; ● we only sell dairy products from pasture-raised, non-confined livestock and only sell eggs from free-range or pastured hens; ● we only sell meats from naturally raised animals that are not known to have been treated with antibiotics, hormones or growth promoters, or fed animal by-products; ● we only sell seafood from sustainable fisheries or ecologically responsible farm-raised operations; and ● we do not sell distilled spirits, tobacco products or e-cigarettes.
In addition, the FSMA requires the FDA to undertake numerous rulemakings and to issue numerous guidance documents, as well as reports, plans, standards, notices and other tasks. Further, even statutes and regulations that have been enacted or promulgated, such as nutritional labeling, are periodically reviewed and updated with new requirements. As a result, final implementation of the legislation remains ongoing.
In addition, the FSMA requires the FDA to undertake rulemakings and to issue guidance documents, as well as reports, plans, standards, notices and other tasks. Further, even statutes and regulations that have been enacted or promulgated, such as nutritional labeling, are periodically reviewed and updated with new requirements. As a result, final implementation of the legislation remains ongoing.
We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed and single ingredient products that are not known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. Additionally, we carry a wide variety of products associated with special diets such as gluten free, vegetarian and non-dairy.
We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed and single ingredient products that are not known to contain artificial flavors, preservatives or sweeteners, synthetic colors, or partially hydrogenated or hydrogenated oils. Additionally, we carry a wide variety of products associated with special diets such as gluten free, vegetarian and non-dairy.
We believe our broad product offering enables our customers to shop our stores for substantially all of their grocery and dietary supplement purchases. In our grocery departments, we only sell USDA certified organic produce and do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils.
We believe our broad product offering enables our customers to shop our stores for substantially all of their grocery and dietary supplement purchases. In our grocery departments, we only sell USDA certified organic produce and do not approve for sale grocery products that are known to contain artificial flavors, preservatives or sweeteners, synthetic colors, or partially hydrogenated or hydrogenated oils.
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 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, equipment and labor. 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 sell an expanding range of Natural Grocers brand private label products, including grocery staples, household products, bulk foods, and vitamins and dietary supplements. We believe our Natural Grocers brand private label products provide our customers with high-quality, affordable offerings that satisfy our rigorous product standards.
We sell an expanding range of Natural Grocers brand private label products, including grocery staples, household products, bulk foods, and dietary supplements. We believe our Natural Grocers brand private label products provide our customers with high-quality, affordable offerings that satisfy our rigorous product standards.
The FDA has broad authority to enforce the provisions of the FDCA applicable to the safety, labeling, manufacturing, transport and promotion of cosmetics, foods and dietary supplements, including powers to issue a public warning letter to a company, publicize information about illegal products, institute an administrative detention of food, request or order a recall of illegal food products from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
The FDA has broad authority to enforce the provisions of the FDCA applicable to the safety, labeling, manufacturing, transport and promotion of cosmetics, foods and dietary supplements, including powers to issue a public warning letter to a company, publicize information about illegal, misbranded, or adulterated products, institute an administrative detention of food, request or order a recall of illegal, misbranded, or adulterated food products from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
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.
Our advertising activities in fiscal year 2024 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 mission includes providing the highest quality groceries and supplements, Natural Grocers branded products and only United States Department of Agriculture (USDA) certified organic, fresh produce. ● Always Affordable Price SM . We work hard to secure the best possible prices on all of our customers’ favorite natural and organic foods and supplements.
Our mission includes providing the highest quality groceries and supplements, Natural Grocers brand products and only United States Department of Agriculture (USDA) certified organic, fresh produce. ● Always Affordable Price SM . We work hard to secure the best possible prices on all of our customers’ favorite natural and organic foods and supplements.
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.
Our website is interlinked with other online and social media outlets, including Facebook, Instagram, TikTok, X, Pinterest and YouTube. During fiscal year 2024, 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.
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.
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 or state laws, regulations, rules and guidance where the claim is that the alleged violation results in consumer deception.
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.
Home Delivery Services . As of September 30, 2024, 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.
Our offerings include sustainable, hypo-allergenic and fragrance-free household products, including cleaning supplies, paper products, dish and laundry soap and other common household products, including diapers. We also offer Natural Grocers branded paper products, cleaning products, and other household products. ■ Books and Handouts. We stock approximately 200 titles in each store’s book department.
Our offerings include sustainable, hypo-allergenic and fragrance-free household products, including cleaning supplies, paper products, dish and laundry soap and other common household products, including diapers. We also offer Natural Grocers brand paper products, cleaning products, and other household products. ■ Books and Handouts. We stock approximately 200 titles in each store’s book department.
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 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 900 suppliers and offer approximately 2,800 brands. These suppliers range from small independent businesses to multinational conglomerates.
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.
As of September 30, 2024, 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.
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 addition, we donated 1% of all our sales on one day in February for Crew member appreciation month and one day during our 69 th anniversary to our Natural Grocers Heroes in Aprons Fund. Website and Social Media.
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.
During fiscal year 2024, we organized a number of charitable sponsorships, including collecting donations from customers on behalf of local food banks and an environmental non-profit organization.
Our competition varies by market and includes conventional supermarkets such as Kroger and Safeway; domestic mass or discount retailers such as Wal-Mart and Target; natural and gourmet markets such as Whole Foods and The Fresh Market; foreign-based discount retailers such as Aldi, Lidl and Ahold Delhaize; specialty food retailers such as Sprouts and Trader Joe’s; warehouse clubs such as Sam’s Club and Costco; dietary supplement retailers such as GNC and The Vitamin Shoppe; online retailers; meal delivery services; independent health food stores; drug stores; farmers’ markets; food co-ops; and multi-level marketers.
Our competition varies by market and includes supermarkets such as Kroger and Safeway; mass or discount retailers such as Wal-Mart and Target; natural and gourmet markets such as Whole Foods and The Fresh Market; foreign-based discount retailers such as Aldi, Lidl and Ahold Delhaize; specialty food retailers such as Sprouts and Trader Joe’s; warehouse clubs such as Sam’s Club and Costco; dietary supplement retailers such as GNC and The Vitamin Shoppe; online retailers; independent health food stores; drug stores; farmers’ markets; food co-ops; and multi-level marketers.
In addition, an electronic version of the Health Hotline magazine is distributed to subscribers via the internet and posted on our website. Our Products Product Selection Guidelines. We have a set of strict quality guidelines covering all products we sell.
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 is distributed to subscribers via the internet and posted on our website. Our Products Product Selection Guidelines. We have a set of strict quality guidelines covering all products we sell.
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.
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 year ended September 30, 2024: The products in our stores include: ● Grocery.
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 .
Please see the Consolidated Financial Statements of the Company for the year ended September 30, 2024, 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 .
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.
In fiscal year 2024, our four new stores and four 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 a lecture space.
The risks associated with these laws and regulations are further described under the caption “Risk Factors.” Segment Information We have one reporting segment, natural and organic retail stores, through which we conduct all of our business.
The risks associated with these laws and regulations are further described under the caption “Risk Factors.” Segment Information We have a single reporting segment, natural and organic retail stores, through which we conduct all of our business.
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.
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.
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).
As of September 30, 2024, we purchased approximately 78% of the goods we sell from our top 20 suppliers. For the year ended September 30, 2024, approximately 68% of our total purchases were from United Natural Foods Inc. and its subsidiaries (UNFI).
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.
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 169 stores in 21 states as of September 30, 2024.
As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and statutory requirements. In general, we seek certifications of compliance, representations and warranties, indemnification and insurance from our suppliers and contract manufacturers.
As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and statutory requirements. In general, we seek certifications of compliance, representations and warranties, indemnification and insurance from our suppliers and contract manufacturers, directly or through our distributor.
We believe we have good relations with our Crew members. We have an established set of standard operating procedures to manage our human capital management function, including hiring and human resource policies, training practices and operational instruction manuals. This allows each store to operate with strict accountability and still maintain independence to respond to its unique circumstances. Culture and Engagement.
We have an established set of standard operating procedures to manage our human capital management function, including hiring and human resource policies, training practices and operational instruction manuals. This allows each store to operate with strict accountability and still maintain independence to respond to its unique circumstances. Culture and Engagement.
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.
Special Promotions and Sponsorships During fiscal year 2024, we organized special promotions to coincide with certain calendar events, such as Resolution Reset Week in January, Earth Day in April, and on the 69 th anniversary of the Company’s founding in August.
While we believe that our nutrition education practices are compliant with federal and state requirements, a finding to the contrary could pose significant issues with respect to our business and our reputation among our customers or otherwise have a material adverse effect on our business. 16 Table of Contents New or revised federal, state and local laws and regulations affecting our business or our industry, such as those relating to industrial hemp products and genetically modified (bioengineered) foods, could result in additional compliance costs and civil remedies.
While we believe that our nutrition education practices are compliant with federal and state requirements, a finding to the contrary could pose significant issues with respect to our business and our reputation among our customers or otherwise have a material adverse effect on our business. 16 Table of Contents New or revised federal, state and local laws and regulations affecting our business or our industry, such as those relating to industrial hemp products, genetically modified (bioengineered) foods, or the presence of per- and polyfluoroalkyl substances (PFAS) in our products, whether intentional or unintentional, could result in additional compliance costs and civil remedies.
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.
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 169 stores as of September 30, 2024 by remaining dedicated to our founding principles.
The FDA also exercises broad jurisdiction over the labeling and promotion of cosmetics, food and dietary supplements. Labeling is a broad concept that, under most circumstances, extends even to product-related claims and representations made on a company’s website and printed or digital media.
The FDA also exercises broad jurisdiction over the labeling and promotion of cosmetics, food and dietary supplements. Labeling is a broad concept that, under most circumstances, extends even to product-related claims and representations made on package inserts, and in some cases, a company’s website and printed or digital media.
We have also invested in upgrading communication circuits and refreshing network and security hardware and systems at all our stores and our corporate headquarters. We plan to continue investing in our information technology infrastructure with systems that scale with and add efficiencies to our operations as we continue to grow.
We have also invested in upgrading communication circuits and refreshing network and security hardware and systems at all our stores and our corporate headquarters, and we are making investments to upgrade our ERP system. We plan to continue investing in our information technology infrastructure with systems that scale with and add efficiencies to our operations as we continue to grow.
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.
We also organized social media influencer campaigns in key markets. We expect to continue investing in digital engagement activities during fiscal year 2025. Our Natural Grocers mobile application provides a compelling and complementary marketing channel to deliver the same content strategy already in place for our website. 13 Table of Contents Advertising.
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 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 fiscal years 2024 and 2023, we opened four and three new stores, respectively.
Competition in the grocery industry may intensify, and shopping dynamics may shift, as a result of, among other things, industry consolidation, new technologies, expansion by existing competitors and the increasing availability of grocery ordering, pick-up and delivery options.
Competition in the grocery industry may intensify, and shopping dynamics may shift, as a result of, among other things, industry consolidation, new technologies, expansion by existing competitors and the increasing availability of grocery ordering, pick-up and delivery options, which may turn adjacent suppliers and retailers into direct competitors.
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.
Our executive management team has an average of 39 years of experience in the natural grocery industry, while our entire management team has an average of 32 years of relevant experience.
Information on our website or any other website is not incorporated by reference into this Form 10-K. 17 Table of Contents
Information on our website or any other website is not incorporated by reference into this Form 10-K.
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.
During fiscal year 2024, the measures we took that were aimed at enhancing our brand awareness included: (i) featuring promotions through our {N}power ® customer rewards program ({N}power), with a focus on local store marketing; (ii) continuing to make enhancements to our monthly Health Hotline magazine; (iii) organizing month-long seasonal and topical special promotions; (iv) 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; (v) conducting television, radio, newspaper, outdoor advertising and targeted direct mail campaigns in select markets; (vi) continuing home delivery services; and (vii) supporting local vendors and charities.
In addition to the FDA’s regulatory control over product labeling, the FTC also exercises jurisdiction over the advertising of foods and dietary supplements, including health benefit claims, general claims about environmental benefits, and claims about the geographic origin of products (e.g.
In addition to the FDA’s regulatory control over product labeling, the FTC also exercises jurisdiction over the advertising of foods and dietary supplements, including health benefit claims, claims about environmental benefits (such as claims about whether product packaging is recyclable or compostable), and claims about the geographic origin of products (e.g.
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.
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.
These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, ease of ordering and delivery or any combination of these or other factors. They may also compete with us for products and locations.
These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, ease of ordering and delivery or any combination of these or other factors. They may also compete with us for products and locations. In addition, many of our competitors increasingly offer a broad range of natural and organic foods.
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 also organized month-long special promotions such as the “Autumnfest” 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. Our special promotions frequently include product discounts, sweepstakes, charitable fundraisers and nutrition education classes.
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.
To maximize the impact of our NHCs, we stress the importance of their focusing on in-store educational events, offering health coaching sessions and personalized shopping experiences, and holding nutrition classes in the community by partnering with school, municipal and corporate wellness programs.
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.
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. 10 Table of Contents We have contracts with third-party manufacturers to produce groceries and dietary supplements under the Natural Grocers brand.
To maximize their impact, we encourage our NHCs to focus on relationship-building opportunities in our communities and with our customers, including promotions, educational cooking events, lectures and classes in our stores.
To maximize their impact, we encourage our NHCs to focus on relationship-building opportunities in our communities and with our customers, including nutrition classes, lectures, seminars and health fairs.
Each NHC trains our Crew members to use a compliant educational approach to customer service without attempting to diagnose or treat specific conditions or ailments. We believe our NHC position is a competitive differentiator and represents a key element of our customer service model. Our training and education programs are supplemented by outside experts, online materials and printed handouts.
Additionally, our NHCs are an onsite resource for nutrition training and education for our Crew members. Each NHC trains our Crew members to use a compliant educational approach to customer service without attempting to diagnose or treat specific conditions or ailments. We believe our NHC position is a competitive differentiator and represents a key element of our customer service model.
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 also plan to utilize targeted marketing efforts to reach our existing customers, including through {N}power, to identify and send personalized offers to our customers, which we anticipate will drive customer transactions, increase average transaction size and convert occasional, single-category customers into core, multi-category customers. Improve operating margins.
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 nutritional education, differentiate us in the industry and provide a competitive advantage.
We also face internally generated competition when we open new stores in markets we already serve. We believe our commitment to carrying carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional education, differentiate us and can provide a competitive advantage.
In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. In addition, private parties are increasingly initiating broad consumer class actions against food and dietary supplement manufacturers for false or misleading labeling and/or advertising. Compliance.
In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
“Made in the USA”) and claims about whether product packaging is recyclable or compostable, as well as deceptive advertising methods. The FTC has the power to levy monetary sanctions and impose “consent decrees” and penalties that can severely limit a company’s business practices.
“Made in the USA”) , as well as deceptive advertising methods. The FTC has the power to levy monetary sanctions and demand “consent decrees” or seek judgments that include penalties and restitution to consumers that can severely limit a company’s business practices.
The FSMA requires the FDA to impose comprehensive, prevention-based controls across the food supply chain, further regulates food products imported into the United States and provides the FDA with authority to enforce mandatory recalls.
The Food Safety Modernization Act (the FSMA), enacted in 2011, amended the FDCA and significantly expanded food safety requirements and the FDA’s regulatory authority over food safety. The FSMA requires the FDA to impose comprehensive, prevention-based controls across the food supply chain, further regulates food products imported into the United States and provides the FDA with authority to enforce recalls.
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.
Our training and education programs are supplemented by outside experts, online materials and printed handouts. We also use our Health Hotline magazine to educate our customers. The Health Hotline magazine, which was published 11 times in fiscal year 2024, includes in-depth articles on health and nutrition, along with a selection of sale items.
In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers affordable, high-quality natural and organic grocery products and dietary supplements.
We plan to continue offering an engaging customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers affordable, high-quality natural and organic grocery products and dietary supplements. We plan to continue building our brand awareness, including our differentiated offering, which we anticipate will increase sales from existing customers and grow our customer base.
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.
As of September 30, 2024, we employed 3,332 full-time and 813 part-time (less than 30 hours per week) Crew members, including a total of 388 Crew members at our home office and our bulk food repackaging facility and distribution center. We believe we have good relations with our Crew members.
Additionally, we seek to attract new customers by enhancing their nutrition knowledge through the distribution of printed and digital versions of our broad range of educational resources, including the Health Hotline magazine.
Additionally, we seek to enhance the nutrition knowledge of current and prospective customers through the distribution of printed and digital versions of our broad range of educational resources, including the Health Hotline magazine. In addition to offering nutrition education, our strategy is to retain current customers and attract new customers with our Always Affordable Price .
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.
Trademarks and Other Intellectual Property We believe that our intellectual property is important to the success of our business.
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.
We are committed to inclusion and diversity in our approach to hiring and promotion, including among our store management. As of September 30, 2024, approximately 46% of our store managers and approximately 57% of our assistant store managers were women. We believe that setting Crew members up for success begins with a strong foundation.
In recent years, we have implemented a new point of sale system and a Company-wide scheduling system for our stores, deployed new handheld technology and VoIP telephony solutions at all our stores, and increasingly leveraged cloud technology in our information technology systems.
We also have an enterprise-wide HRIS, which has enabled us to more efficiently and effectively manage our human resources and payroll needs at all locations. In recent years, we have implemented a new point of sale system, deployed new handheld technology and VoIP telephony solutions at all our stores, and increasingly leveraged cloud technology in our information technology systems.
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.
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.
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.
We plan to open four to six new stores in fiscal year 2025, none of which opened during the first quarter of fiscal year 2025 prior to the filing of this Form 10-K. 4 Table of Contents Store locations as of September 30, 2024. Increase sales from existing customers and grow our customer base.
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.
We do not own or license for use any patents, franchises or concessions that are material to our business.
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.
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, store scheduling, warehousing, distribution, accounting, reporting and financial systems.
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.
During fiscal year 2024, 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.
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.
Competition The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry.
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.
During fiscal year 2024, we promoted internal candidates to fill 100% of our vacant regional manager positions, approximately 91% of our vacant store manager positions, approximately 76% of our vacant assistant store manager positions, and approximately 74% of our vacant department manager positions.
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. 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.
The articles aim to be relevant, science-based and written to reflect the most recent research findings. During fiscal year 2024, we continued to enhance our Health Hotline magazine. The Health Hotline magazine was published 11 times during fiscal year 2024, and we expect comparable publication frequency during fiscal year 2025.
Additionally, our Crew members are offered a 401(k) retirement savings plan with discretionary contribution matching opportunities. We believe we pay above average retail wages. In addition, all Crew members receive in store discounts and earn an additional $1.00 per hour, up to $40 per week, in “Vitamin Bucks,” which can be used to purchase products in our stores.
Additionally, our Crew members are offered a 401(k) retirement savings plan with discretionary contribution matching opportunities. We believe we pay above average retail wages.
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.
During fiscal year 2024, we expanded our line of Natural Grocers brand products with 80 new offerings. As of September 30, 2024, we offered approximately 800 discrete Natural Grocers brand private label product SKUs. ■ Dry, Frozen and Canned Groceries.
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.
We had approximately 2.4 million registered {N}power members as of September 30, 2024 compared to approximately 2.1 million {N}power members as of September 30, 2023. Health Hotline and Holly Deals. 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.
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.
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 email.
We believe that our NHCs’ focus on relationship-building opportunities in our communities and with our customers helps to enhance our marketing and branding initiatives. Additionally, our NHCs are an onsite resource for nutrition training and education for our Crew members.
During fiscal year 2024, our NHCs launched a new partnership with a national non-profit organization to promote health nutritional habits for children through in-store nutrition classes geared toward families. We believe that our NHCs’ focus on relationship-building opportunities in our communities and with our customers helps to enhance our marketing and branding initiatives.
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.
During fiscal year 2024, we organized in-store scavenger hunts to increase store traffic and launched a number of promotions in collaboration with local businesses and non-profit schools to friends and family of our Crew members to increase brand awareness. We expect to continue offering similar special promotions and events in the future.
Removed
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.
Added
In addition, all Crew members receive in store discounts and earn an additional $1.00 per hour worked, including overtime and paid time off (some exclusions apply), in “Vitamin Bucks,” which can be used to purchase products in our stores.
Removed
We plan to continue building our brand awareness, which we anticipate will grow our customer base.
Added
In fiscal 2024, we continued to improve and promote our 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. We believe these steps have helped to increase membership in the {N}power program.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

78 edited+16 added−11 removed225 unchanged
Biggest changeRisks 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.
Biggest changeRisks related to our business and operations ● We may not be successful in our efforts to grow profitably and our growth and financial performance may fluctuate; ● If we are unable to successfully identify market trends and react, our sales may decrease; ● Adverse economic conditions (including inflation and deflation), pandemics and political instability could adversely affect our business; ● An inability to compete, maintain or increase our operating margins, or maintain traffic in our stores could adversely affect our results of operations; ● Product recalls, withdrawals or seizures could reduce our sales; ● Our future business, results of operations and financial condition may be adversely affected by reduced availability of certified organic products, products that meet our other internal standards, or issues related to our suppliers; ● 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 where they are located could materially adversely affect our financial performance; 17 Table of Contents ● 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, or fail to retain or attract key personnel, our sales may decline; ● Perishable food product losses or interruptions to our bulk food repackaging facility could materially impact our results of operations; ● Higher wage and benefit costs or union activity among our Crew members or third parties could adversely affect 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; ● Our significant lease obligations may adversely affect our liquidity; ● Any material disruption to, failure of, or cyber-attacks against our information systems could negatively impact our operations or expose us to litigation and reputational harm; ● 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 and adverse tax changes or examinations could adversely affect our business, financial condition and results of operations; and ● 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.
Accordingly, our results for any one fiscal year or quarter are not necessarily indicative of the results to be expected for any other year or quarter. Our comparable store sales during any particular future period may decrease. In the event of any future decrease, the price of our common stock could decline.
Accordingly, our results for any one fiscal year or quarter are not necessarily indicative of the results to be expected for any other fiscal year or quarter. Our comparable store sales during any particular future period may decrease. In the event of any future decrease, the price of our common stock could decline.
In addition, we face internally generated competition when we open new stores in markets we already serve. An inability to compete effectively may cause us to lose market share to our competitors and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may face internally generated competition when we open new stores in markets we already serve. An inability to compete effectively may cause us to lose market share to our competitors and could have a material adverse effect on our business, financial condition and results of operations.
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.
We utilize natural gas, water, sewer and electricity in our stores and use gasoline and diesel in 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.
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.
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; ● 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; 20 Table of Contents ● 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.
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.
Higher construction material and labor 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.
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.
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, equipment and labor. Delays or failures in opening new stores, or achieving lower than expected sales in new stores, could materially and adversely affect our growth.
Changes in food and commodity prices could also negatively impact our sales and earnings if our competitors react more aggressively. Additionally, the cost of construction materials we use to build and remodel our stores is also subject to price volatility based on market and economic conditions.
Changes in food and commodity prices could also negatively impact our sales and earnings if our competitors react more aggressively. Additionally, the cost of construction materials and labor we use to build and remodel our stores is also subject to price volatility based on market and economic conditions.
We are also subject to laws and regulations more generally applicable to retailers, including labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, advertising and selling practices, alcoholic beverage sales and handling and transport of products derived from industrial hemp.
We are also subject to laws and regulations more generally applicable to retailers, including labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, advertising and selling practices, alcoholic beverage sales, and handling, transport and sale of products derived from industrial hemp.
Our competition varies by market and includes conventional supermarkets, natural, gourmet and specialty food markets, mass and discount retailers, foreign-based discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, online retailers and multi-level marketers.
Our competition varies by market and includes supermarkets, natural, gourmet and specialty food markets, mass and discount retailers, foreign-based discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, online retailers and multi-level marketers.
We may publicly ally with and support trade groups, political candidates, government officials and regulators who support a particular policy we consider important to our business and are aligned with our principles regarding access to natural and organic products and dietary supplements.
We may publicly ally with and support trade groups, advocacy groups, political candidates, government officials and regulators who support a particular policy we consider important to our business and are aligned with our principles regarding 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. 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.
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. 23 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.
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.
Although our operations have stabilized since 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.
Further, we could be subject to regulatory action brought by federal, state and/or local authorities, or legal proceedings brought by or on behalf of consumers, that allege, among other things, that: (i) our sale of products containing CBD violates applicable federal or state law (including applicable state consumer protection laws); (ii) the products we sell that contain CBD are adulterated, contaminated, or have been misbranded or labeled in violation of applicable rules, regulations or standards of the FDA, the FDCA or any other federal or state law or agency; (iii) the products we sell that contain CBD have been labeled with (a) express or implied health claims that are not supported by appropriate scientific evidence or (b) claims that are difficult or impossible to verify; (iv) the products we sell that contain CBD have been labeled with inappropriate dosing instructions or use recommendations; (v) the products we sell that contain CBD have been improperly tested or evaluated or do not contain the stated concentration of CBD; and (vi) the products we sell that contain CBD contain more than the legally allowable concentration of THC.
Further, we could be subject to regulatory action brought by federal, state and/or local authorities, or legal proceedings brought by or on behalf of consumers, that allege, among other things, that: (i) our sale of products containing CBD violates applicable federal or state law (including applicable state consumer protection laws); (ii) the products we sell that contain CBD are adulterated, contaminated, or have been misbranded or labeled in violation of applicable rules, regulations or standards of the FDA, the FDCA or any other federal or state law or agency; (iii) the products we sell that contain CBD have been labeled with (a) express or implied health claims that are not supported by appropriate scientific evidence or (b) claims that are difficult or impossible to verify; (iv) the products we sell that contain CBD have been labeled with inappropriate dosing instructions or use recommendations; (v) the products we sell that contain CBD have been improperly tested or evaluated or do not contain the stated concentration of CBD; and (vi) the products we sell that contain CBD contain more than the legally allowable concentration of THC or other potentially intoxicating compounds.
We may, from time to time, publicly oppose other trade groups, candidates, officeholders and regulators whose point of view we believe will harm our business or impede access to nutritious food and dietary supplements.
We may, from time to time, publicly oppose other trade groups, advocacy groups, candidates, officeholders and regulators whose point of view we believe will harm our business or impede access to nutritious food and dietary supplements.
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.
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. 26 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.
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.
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. 28 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.
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.
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. 25 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.
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.
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. 27 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.
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.
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. 22 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.
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.
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. 24 Table of Contents The current geographic concentration of our stores creates exposure to local economies, regional downturns, severe weather and other catastrophic occurrences.
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.
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 2024.
We do not own or operate any manufacturing facilities, except for our bulk food repackaging facility and distribution center discussed below, and therefore depend upon independent third-party vendors to produce our private label branded products, such as vitamins, minerals, dietary supplements, body care products, food products and bottled water.
We do not own or operate any manufacturing facilities, except for our bulk food repackaging facility and distribution center discussed below, and therefore depend upon independent third-party vendors to produce our private label brand products, such as vitamins, minerals, dietary supplements, body care products, food products and bottled water.
In particular, customers may reduce the amount of natural and organic products that they purchase and instead purchase conventional offerings, which generally have lower retail prices, at other stores. In addition, consumers may choose to purchase private label products at other stores rather than branded products because they are generally less expensive.
In particular, customers may reduce the amount of natural and organic products that they purchase and instead purchase conventional offerings, which generally have lower retail prices, at other stores. In addition, consumers may choose to purchase private label products at other stores rather than brand products because they are generally less expensive.
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.
Prolonged unfavorable economic conditions or political instability may have an adverse effect on our sales and profitability. 21 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.
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.
For more information on our results of operations for fiscal years 2024 and 2023, 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.
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.
This guidance and related enforcement action may adversely impact the availability of certain homeopathic products for sale in our stores. 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.
As a result, new store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening. If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.
As a result, new store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening. 19 Table of Contents If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.
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.
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.
Members of the Isely family and certain persons, entities and accounts subject to a stockholders agreement relating to voting and limitations on the sale of shares, own or control approximately 59% of our common stock.
Members of the Isely family and certain persons, entities and accounts subject to a stockholders agreement relating to voting and limitations on the sale of shares, own or control approximately 58% of our common stock.
Furthermore, the Inflation Reduction Act of 2022, which was signed into law in August 2022, imposes a non-deductible 1% excise tax on the fair market value of stock repurchases after December 31, 2022 that exceed $1.0 million in a taxable year, which may impact the tax efficiency of our share repurchase program.
Furthermore, the Inflation Reduction Act of 2022, which was signed into law in August 2022, imposes a non-deductible 1% excise tax on the fair market value of stock repurchases that exceed $1.0 million in a taxable year, which may impact the tax efficiency of our share repurchase program.
We are also vulnerable to certain risks and uncertainties associated with our website, including changes in required technology interfaces, website downtime and other technical failures and consumer privacy concerns.
We are also vulnerable to certain risks and uncertainties associated with our website and mobile app, including changes in required technology interfaces, downtime and other technical failures and consumer privacy concerns.
In some cases, we may lose customers and sales because our political advocacy activities are perceived to be contrary to those customers’ points of view, political affiliations, political beliefs or voting preferences. Risks related to our indebtedness and liquidity Our credit facility could limit our operational flexibility.
In some cases, we may lose customers and sales because our political advocacy activities are perceived to be contrary to those customers’ points of view, political affiliations, political beliefs or voting preferences. 34 Table of Contents Risks related to our indebtedness and liquidity Our credit facility could limit our operational flexibility.
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.
Accordingly, changes in dietary supplement regulation could also materially adversely affect the cost and availability of the dietary supplement products that we sell. 30 Table of Contents Advertising and Products Claims Risks.
Any or all of such requirements could materially and adversely affect our business, financial condition and results of operations. 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.
Any or all of such requirements could materially and adversely affect our business, financial condition and results of operations. 32 Table of Contents 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 occurrence of any such developments could negatively impact the perception of our brand, our sales, our ability to attract new customers and liability for governmental or third party claims. Consumers or regulatory agencies may challenge certain claims made regarding the products we sell.
The occurrence of any such developments could negatively impact the perception of our brand, our sales, our ability to attract new customers and liability for governmental or third party claims. 33 Table of Contents Consumers or regulatory agencies may challenge certain claims made regarding the products we sell.
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 our common stock. Our Board subsequently extended the share repurchase program – most recently in May 2022 – and the program will terminate (unless further extended) on May 31, 2024.
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 our common stock. Our Board subsequently extended the share repurchase program – most recently in May 2024 – and the current program will terminate (unless further extended) on May 31, 2026.
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.
As of September 30, 2024, we had primary store concentration in Colorado and Texas, operating 46 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.
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.
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. We may not be able to open new stores on schedule or operate them successfully.
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.
During fiscal year 2024, we invested in increased wages for our store Crew members and may be required to do so in the future. Union activity among our Crew members or at third party transportation companies could disrupt our operations and harm our business.
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.
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.
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.
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 we offer may also adversely impact our operating margins.
Accordingly, for so long as we are a “controlled company,” stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
Accordingly, for so long as we are a “controlled company,” stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements. Item 1B. Unresolved Staff Comments. None.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. Two analysts currently cover our stock.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. One analyst currently covers our stock.
But at the same time, the FDA stated that the NOP standard is not a food safety standard and that it would study and set a science based minimum standard at a later date and may promulgate a standard for the application of biological soil amendments that limits the ability of organic growers to use these inputs.
But at the same time, the FDA stated that the NOP standard is not a food safety standard and that it would study and set a science based minimum standard at a later date and may promulgate a standard for the application of biological soil amendments that changes the manner in which organic growers apply these inputs.
Application of alternative assumptions could produce significantly different results. During fiscal year 2023, we recognized long-lived asset impairment charges of $1.3 million.
Application of alternative assumptions could produce significantly different results. During fiscal year 2024, we recognized long-lived asset impairment charges of $2.2 million.
In addition, the FDA has aggressively enforced its regulations with respect to structure/function claims ( e.g., “calcium builds strong bones”), health claims ( e.g., "adequate calcium throughout life may reduce the risk of osteoporosis"), nutrient content claims ( e.g., “high in antioxidants”) and other claims that impermissibly suggest therapeutic benefits for certain foods or food components.
In addition, the FDA has aggressively enforced its regulations with respect to structure/function claims ( e.g., “calcium builds strong bones”), nutrient content claims ( e.g., “high in antioxidants”) and other claims that impermissibly suggest therapeutic benefits for certain foods or food components.
If one or more analysts cease to cover our Company or fail to publish reports on us regularly, we may lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
If the analyst ceases to cover our Company or fails to publish reports on us regularly, we may lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us under our Credit Facility or otherwise in amounts sufficient to enable us to fund our liquidity needs, our business, financial condition and results of operations may be adversely affected.
If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us under our Credit Facility or otherwise in amounts sufficient to enable us to fund our liquidity needs, our business, financial condition and results of operations may be adversely affected. 35 Table of Contents Our liquidity needs may require us to raise additional capital through debt or equity financings.
Voluminous regulations and rules issued under the FSMA are in varying degrees of implementation. In addition, the FSMA required the FDA to establish science-based minimum standards for the safe production and harvesting of produce and increase inspection of foreign and domestic facilities.
Voluminous regulations and rules issued under the FSMA have been promulgated. In addition, the FSMA requires the FDA to establish science-based minimum standards for the safe production and harvesting of produce and increase inspection of foreign and domestic facilities.
In the absence of sufficient cash flow from operations, available cash and available borrowing capacity under our Credit Facility, we may be unable to meet our liquidity needs.
We depend upon cash flow from our operations and borrowings from our Credit Facility to fund our business and execute on our growth strategy. In the absence of sufficient cash flow from operations, available cash and available borrowing capacity under our Credit Facility, we may be unable to meet our liquidity needs.
The unionization of all or a portion of our workforce could result in work slowdowns, could increase our overall costs and reduce the efficiency of our operations at the affected locations, could adversely affect our flexibility to run our business competitively, and could otherwise have a material adverse effect on our business, financial condition and results of operations.
While the number of our Crew members represented by unions is not significant, the unionization of a significant portion of our workforce could result in work slowdowns, increase our labor costs and reduce the efficiency of our operations at affected locations, adversely affect our flexibility to run our business competitively, and otherwise have a material adverse effect on our business, financial condition and results of operations.
Many of the products we sell are vitamins, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. The products we sell could contain contaminated substances, and some of the products we sell contain ingredients that do not have long histories of human consumption.
Many of the products we sell are vitamins, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States.
General risks related to our common stock • Our current principal stockholders have significant influence over us, and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which our stockholders might not agree; • We may not be able to continue paying dividends on our common stock; • If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock or if our operating results do not meet their expectations, our common stock price could decline; • 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; and • 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.
General risks related to our common stock ● Our current principal stockholders have significant influence over us, and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which our stockholders might not agree; anti-takeover provisions in our organizational documents and Delaware law may prevent a change of control; and our “controlled company” status exempts us from certain governance provisions otherwise required by the NYSE; ● We may not be able to continue paying dividends on our common stock; and ● If analysts do not publish research or reports about us, if they adversely change their recommendations about our stock or if our operating results do not meet their expectations, our common stock price could decline.
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.
In particular, recent global events, including ongoing conflicts in Ukraine and the Middle East, have disrupted commodity markets and have contributed to global supply chain disruption and inflation. We may experience continued volatility with respect to these trends.
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.
We have been able to mitigate this impact to date through our pricing strategies. While levels of inflation moderated during fiscal year 2024, we are unable to predict the long-term impact of inflationary or deflationary trends on consumer behavior and our sales and profitability in the future.
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, 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. 36 Table of Contents We may not be able to continue paying dividends on our common stock.
We believe our ability to profitably operate our business depends, in part, upon our access to natural and organic products and dietary supplements.
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.
Such side effects, illnesses, injuries and death could also expose us to product liability or negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources.
Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources.
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; • 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.
Risks related to government regulations and policies ● Regulatory requirements imposed on us or our suppliers could change, increasing our costs and a failure to comply could 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; ● 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. 18 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, which could adversely impact our business and we may need to raise additional capital through debt or equity financing; and ● Our share repurchase program may adversely affect our liquidity and cause fluctuations in our stock price.
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.
In recent years, we experienced levels of inflation that were higher than we have historically experienced, resulting in part from various supply disruptions, geopolitical instability, including the conflicts in Ukraine and the Middle East, 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.
During fiscal year 2023, we repurchased 17,998 shares of common stock at a cost of $0.2 million. 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.
During fiscal year 2024, we did not repurchase any shares of common stock. 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.
In addition, a data security breach could require that we expend significant amounts to remediate the breach, including changes in our information security systems. In recent years, we have implemented numerous additional security protocols in order to further enhance security, including the installation of EMV, or chip and PIN, and point-to-point encryption on our point-of-sale terminals at all our stores.
In recent years, we have implemented numerous additional security protocols in order to further enhance security, including the installation of EMV (Europay, Mastercard and Visa), or chip and PIN, and point-to-point encryption on our point-of-sale terminals at all our stores.
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.
On November 20, 2024, our Board approved the payment of a quarterly cash dividend of $0.12 per share of common stock to be paid on December 18, 2024 to stockholders of record as of the close of business on December 2, 2024.
In recent years, the United Food and Commercial Workers Union has sought unsuccessfully to organize workers at certain of our stores. We could face union organizing activities at other locations.
The UFCW has sought unsuccessfully to organize at certain other of our stores from time to time, and we could face organizing activities at other of our locations in the future.
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.
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, 2024, we had no outstanding indebtedness under our Credit Facility. We may incur additional indebtedness in the future, including borrowings under our Credit Facility.
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.
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.
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.
Moreover, if the analyst who covers our Company downgrades our common stock, or if our operating results do not meet its expectations, our common stock price could decline.
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.
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. 31 Table of Contents PFAS Statutes and Lawsuits.
Our Credit Facility is secured by a lien on substantially all of our assets and contains usual and customary restrictive covenants relating to our management and the operation of our business.
We are party to a $72.5 million revolving loan facility and, prior to its repayment in September 2024, a $35.0 million term loan (our Credit Facility). Our Credit Facility is secured by a lien on substantially all of our assets and contains usual and customary restrictive covenants relating to our management and the operation of our business.
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.
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.
Previously unknown adverse reactions resulting from human use or consumption of these ingredients could occur. Unexpected side effects, illness, injury or death caused by the products we sell could result in the discontinuance of sales of the products we sell or prevent us from achieving market acceptance of the affected products.
Unexpected side effects, illness, injury or death caused by the products we sell could result in the discontinuance of sales of the products we sell or prevent us from achieving market acceptance of the affected products. Such side effects, illnesses, injuries and death could also expose us to product liability or negligence lawsuits.
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.
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. 29 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.
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.
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 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.
We paid a quarterly cash dividend of $0.10 per share of common stock during each quarter of fiscal years 2024 and 2023, and a special cash dividend of $1.00 per share of common stock in the first quarter of fiscal year 2024.
Members of the Isely family have the ability to prevent change-in-control transactions as long as they maintain voting control of the Company.
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.
Disruptions in the delivery of merchandise or work stoppages by employees of these third parties could delay the timely receipt of merchandise, which could result in reduced sales, a loss of loyalty to our stores and excess inventory. While all of our Crew members are currently non-union, our Crew members may attempt to organize and join a union.
Some of these third parties employ personnel represented by labor unions. Disruptions in the delivery of merchandise or work stoppages by employees of these third parties could delay the timely receipt of merchandise, which could result in reduced inventory levels and sales and a loss of customer loyalty, and adversely impact our profitability, financial condition, and results of operations.
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.
The FDA requires the submission of a premarket notification (NDIN) to the FDA at least 75 days before a product containing an NDI is sold. The FDA’s enforcement of the pre-market notification requirements for NDIs could result in the removal of certain dietary supplement products that we sell.
Removed
Independent third-party transportation companies deliver the majority of our merchandise to our stores and to our customers. Some of these third parties employ personnel represented by labor unions.
Added
In particular, deflation or disinflation impacting the products we sell could cause our competitors to aggressively lower retail pricing or adopt promotions, adversely affecting the competitiveness of our pricing and our profitability.

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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, 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.
Biggest changeOf the current leases for our stores, nine expire in fiscal year 2025, eleven expire in fiscal year 2026, ten expire in fiscal year 2027, twelve expire in fiscal year 2028, nineteen expire in fiscal year 2029 and the remainder expire between fiscal years 2030 and 2062.
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, 2024, we had 169 stores located in 21 states, as shown in the following chart: State Number of Stores Arizona 12 Arkansas 3 Colorado 46 Idaho 6 Iowa 6 Kansas 8 Louisiana 1 Minnesota 1 Missouri 7 Montana 4 Nebraska 3 Nevada 4 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, 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.
As of September 30, 2024, we owned buildings in which sixteen of our stores are located. Eleven 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.
We expect that we will be able to renegotiate these leases or relocate these stores as necessary.
We expect that we will be able to renegotiate these leases or relocate these stores as necessary. 39 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. We periodically are involved in legal proceedings, including discrimination and other employment-related claims, customer personal injury claims, investigations and other proceedings arising in the ordinary course of business. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss.
Biggest changeItem 3. Legal Proceedings. We periodically are involved in legal proceedings, including labor and employment-related claims, customer personal injury claims, investigations and other proceedings arising in the ordinary course of business. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company did not repurchase any shares of its common stock during the fourth quarter ended September 30, 2023.
Biggest changeThe 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. The Company did not repurchase any shares of its common stock during the fourth quarter ended September 30, 2024.
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.
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 2024 – and the current program will terminate on May 31, 2026.
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.
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 9, 2024, there were 151 holders of record of our common stock, and the closing price of our common stock was $42.20.
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.
Dividend Policy We paid a quarterly cash dividend of $0.10 per share of common stock during each quarter of fiscal years 2024 and 2023. We paid a special cash dividend of $1.00 per share of common stock in the first quarter of fiscal year 2024.
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On 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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeOur 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.
Biggest changeThe following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands: Year ended September 30, 2024 2023 Net cash provided by operating activities $ 73,760 64,606 Net cash used in investing activities (38,600 ) (37,950 ) Net cash used in financing activities (44,631 ) (20,353 ) Net (decrease) increase in cash and cash equivalents (9,471 ) 6,303 Cash and cash equivalents, beginning of year 18,342 12,039 Cash and cash equivalents, end of year $ 8,871 18,342 Year ended September 30, 2024 compared to Year ended September 30, 2023 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 closures, share-based compensation, and changes in deferred taxes, and the effect of changes in operating assets and liabilities.
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.
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 lease assets related to the finance leases of the stores are also considered store expenses.
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).
Interest expense, net Interest expense consists of the interest associated with finance lease obligations and our Credit Facility, net of capitalized interest. 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”.
On November 16, 2023, we amended the Credit Facility to (i) increase our aggregate revolving commitments from $50.0 million to $75.0 million; (ii) extend the maturity date of the Revolving Facility to November 16, 2028; (iii) permit payment of a one-time cash dividend of up to $25.0 million no later than December 31, 2023; and (iv) increase the Company’s restricted payment capacity by $2.5 million, allowing the Company to repurchase shares of common stock and pay dividends on its common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
On November 16, 2023, we amended the Credit Facility to: (i) increase our aggregate revolving commitments from $50.0 million to $75.0 million; (ii) extend the maturity date of the revolving commitments under the Credit Facility to November 16, 2028; (iii) permit payment of a one-time cash dividend of up to $25.0 million no later than December 31, 2023; and (iv) increase the Company’s restricted payment capacity by $2.5 million, allowing the Company to repurchase shares of common stock and pay dividends on its common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
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. ● Competition. The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry.
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, equipment and labor. ● Competition. The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry.
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.
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, equipment and labor. We believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales.
Application of alternative assumptions could produce materially different results. If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment write-down.
Application of alternative assumptions could produce materially different results. If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life, its estimated cash flows and remaining useful life are revised accordingly, and the Company may be required to record an asset impairment write-down.
Performance Highlights Key highlights of our recent performance are discussed briefly below and in further detail throughout this MD&A. Key financial metrics, including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A. ● Net sales.
Performance Highlights Key highlights of our performance are discussed briefly below and in further detail throughout this MD&A. Key financial metrics, including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A. ● Net sales.
Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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.
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. 43 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.
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.
Occupancy costs as a percentage of net sales typically decrease as new stores mature and sales increase. Lease payments for leases classified as finance lease obligations are not recorded in cost of goods sold and occupancy costs.
Fair market value is used as a factor in determining whether the lease is accounted for as an operating or finance lease, and is used for recording the leased asset when we are determined to be the owner for accounting purposes; ● minimum lease term that includes contractual lease periods and may also include the exercise of renewal options if the exercise of the option is determined to be reasonably assured or where failure to exercise such options would result in an economic penalty.
Fair market value is used as a factor in determining whether the lease is accounted for as an operating or finance lease, and is used for recording the leased asset when we are determined to be the owner for accounting purposes; ● minimum lease term that includes contractual lease periods and may also include the exercise of renewal options if the exercise of the option is determined to be reasonably certain or where failure to exercise such options would result in an economic penalty.
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.
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. 48 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.
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.
Year ended September 30, 2023 compared to Year ended September 30, 2022 A comparative discussion of EBITDA and Adjusted EBITDA for the years ended September 30, 2023 and September 30, 2022 is set out in our Annual Report on Form 10-K for the year ended September 30, 2023 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.
The Company has the right to borrow, prepay and re-borrow amounts under the Revolving Facility at any time prior to the maturity date without premium or penalty.
The Company has the right to borrow, prepay and re-borrow revolving amounts under the Credit Facility at any time prior to the maturity date without premium or penalty.
These factors include a loyal customer base, increasing basket size, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education, a convenient, clean and shopper-friendly retail environment, and our focus on high quality, affordable natural and organic groceries, dietary supplements and body care products.
These factors include a loyal customer base, increasing transaction size, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education, a convenient, clean and shopper-friendly retail environment, and our focus on high quality, affordable natural and organic groceries, dietary supplements and body care products.
We believe that cash and cash equivalents, together with the cash generated from operations and the borrowing availability under our Revolving Facility, will be sufficient to meet our working capital needs and planned capital expenditures, including capital expenditures related to new store needs, repayment of debt, stock repurchases and dividends for the next 12 months and the foreseeable future.
We believe that cash and cash equivalents, together with the cash generated from operations and the borrowing availability under our Credit Facility, will be sufficient to meet our working capital needs and planned capital expenditures, including capital expenditures related to new store needs, repayment of debt, stock repurchases and dividends for the next 12 months and the foreseeable future.
Share Repurchases Certain information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 13, Stockholders ’ Equity , of the Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
Share Repurchases Certain information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 14, Stockholders ’ Equity , of the Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.
Transaction count represents the number of transactions reported at our stores during the period and includes transactions that are voided, returned, and exchanged. ● Average transaction size. Average transaction size, or basket size, is calculated by dividing net sales by transaction count for a given time period.
Transaction count represents the number of transactions reported at our stores during the period and includes transactions that are voided, returned, and exchanged. ● Average transaction size. Average transaction size is calculated by dividing net sales by transaction count for a given time period.
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.
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, revenues, expenses and related disclosures of contingent assets and liabilities.
The estimated incremental borrowing rate is based on the borrowing rate for a secured loan with a term similar to the expected term of the lease. Significant accounting judgment and assumptions are required in determining the accounting for leases, including: ● fair market value of the leased asset, which is generally estimated based on project costs or comparable market data.
The estimated incremental borrowing rate is based on the borrowing rate for a secured loan with a term similar to the expected term of the lease. 53 Table of Contents Significant accounting judgment and assumptions are required in determining the accounting for leases, including: ● fair market value of the leased asset, which is generally estimated based on project costs or comparable market data.
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
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.
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.
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%, subject to the applicable interest rate floor, less the lender spread based upon the Company’s consolidated leverage ratio.
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.
Income tax expense also includes excess tax benefits and deficiencies related to the vesting of restricted stock units. 45 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, 2024 2023 2022 Statements of Income Data:* Net sales 100.0 % 100.0 100.0 Cost of goods sold and occupancy costs 70.6 71.3 72.0 Gross profit 29.4 28.7 28.0 Store expenses 22.3 22.6 22.2 Administrative expenses 3.1 3.2 2.9 Pre-opening expenses 0.1 0.2 0.1 Operating income 3.8 2.8 2.8 Interest expense, net (0.3 ) (0.3 ) (0.2 ) Income before income taxes 3.4 2.5 2.5 Provision for income taxes (0.7 ) (0.4 ) (0.6 ) Net income 2.7 % 2.0 2.0 *Figures may not sum due to rounding.
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.
We also face internally generated competition when we open new stores in markets we already serve. We believe our commitment to carrying 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 and can provide a competitive advantage. ● Consumer preferences.
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 September 30, 2024, we operated 169 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.
Adjusted EBITDA as a percentage of net sales was 5.6% and 5.7% for the years ended September 30, 2023 and 2022, respectively.
Adjusted EBITDA as a percentage of net sales was 6.7% and 5.6% for the years ended September 30, 2024 and 2023, respectively.
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%.
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 years ended September 30, 2024, we increased our store count at a compound annual growth rate of 2.0%.
Store occupancy costs include rent, common area maintenance and real estate taxes. Depreciation expense included in cost of goods sold relates to depreciation of assets directly used at our bulk food repackaging facility.
Store occupancy costs include operating lease expense, common area maintenance and real estate taxes. Depreciation expense included in cost of goods sold relates to depreciation of assets directly used at our bulk food repackaging facility.
Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets, primarily related to store relocations, as well as store closing costs. Store expenses also include long-lived asset impairment charges. The majority of store expenses consist of labor-related expenses, which we closely manage and which trend closely with sales.
Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets and lease terminations, primarily related to store relocations, as well as store closing costs. Store expenses also include long-lived asset impairment charges. The majority of store expenses consists of labor-related expenses, which we closely manage and which trend closely with sales.
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.
Year ended September 30, 2023 compared to Year ended September 30, 2022 A comparative discussion of operating, investing and financing activities for the years ended September 30, 2023 and September 30, 2022 is set out in our Annual Report on Form 10-K for the year ended September 30, 2023 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” 50 Table of Contents Credit Facility The revolving commitment amount under the Credit Facility is $72.5 million, including a $5.0 million sub-limit for standby letters of credit.
As of September 30, 2023 and September 30, 2022, the Company was in compliance with all covenants under the Credit Facility.
As of September 30, 2024 and 2023, the Company was in compliance with all covenants under the Credit Facility.
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.
Rather, these lease payments are recognized as a reduction of the related obligations and as interest expense. 44 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.
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 increased 7.0% for the year ended September 30, 2024 compared to an increase of 3.6% for the year ended September 30, 2023. The daily average comparable store sales increase in fiscal year 2024 resulted from a 3.8% increase in daily average transaction count and a 3.1% increase in daily average transaction size.
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.
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 $44.6 million for the year ended September 30, 2024 compared to $20.4 million for the year ended September 30, 2023.
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.
Net income Net income was $33.9 million, or $1.47 diluted earnings per share, for the year ended September 30, 2024 compared to $23.2 million, or $1.02 diluted earnings per share, for the year ended September 30, 2023. 47 Table of Contents Year ended September 30, 2023 compared to Year ended September 30, 2022 A comparative discussion of our results of operations and other operating data for the years ended September 30, 2023 and September 30, 2022 is set out in our Annual Report on Form 10-K for the year ended September 30, 2023 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Year ended September 30, 2023 compared to Year ended September 30, 2022.” Non-GAAP financial measures EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP.
These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, ease of ordering and delivery or any combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of natural and organic foods.
These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, ease of ordering and delivery or any combination of these or other factors. They also compete with us for products and locations. In addition, many of our competitors increasingly offer a broad range of natural and organic foods.
Rent expense is generally incurred from one to four months prior to a store’s opening date for store leases classified as operating. For store leases classified as finance leases, we recognize pre-opening interest and depreciation expense. Other pre-opening expenses are generally incurred in the 60 days prior to the store opening.
Rent expense is generally incurred from three to six months prior to a store’s opening date for store leases classified as operating. For store leases classified as finance leases, we recognize pre-opening interest and depreciation expense. Other pre-opening expenses are generally incurred in the four to seven months prior to the store opening.
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.
Acquisition of property and equipment not yet paid decreased $2.3 million to $3.7 million in fiscal year 2024 compared to $6.0 million in fiscal year 2023 primarily due to the timing of payments related to new store openings and relocations/remodels.
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.
The increase in cash provided by operating activities was due to an increase in cash provided by net income as adjusted for non-cash items, partially offset by a decrease in cash provided by operating assets and liabilities.
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.
Other Operating Data (Unaudited): Number of stores at end of period 169 165 164 Store unit count increase period over period 2.4 % 0.6 1.2 Change in daily average comparable store sales 7.0 % 3.6 2.6 Number of new stores opened during the period 4 3 3 Number of stores relocated/remodeled during the period 4 3 2 Number of stores closed during the period — 2 1 Gross square footage at end of period (1) 2,728,203 2,676,607 2,688,589 Selling square footage at end of period (1) 1,780,083 1,745,701 1,742,623 (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.
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.
This increase was primarily the result of an increase in property and equipment of $1.0 million, partially offset by a decrease in other intangibles of $0.4 million during the year ended September 30, 2024 compared to the year ended September 30, 2023, and was attributed to the timing of new store openings, relocations/remodels, and software projects under development.
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.
Over the past several years, a number of macroeconomic and global trends have impacted our business. The labor market has impacted our ability to retain and attract store Crew members and in certain markets we continue to be challenged by labor shortages broadly impacting the retail industry.
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.
We plan to spend approximately $36.0 million to $44.0 million on capital expenditures during fiscal year 2025 primarily in connection with expected new store openings and store relocations/remodels.
As most of the Company’s lease agreements do not provide an implicit discount rate, the Company uses an estimated incremental borrowing rate, which is derived from third-party lenders, to determine the present value of lease payments. We use other observable market data to evaluate the appropriateness of the rate derived from the lenders.
Since the rate implicit in the Company’s lease agreements is typically not determinable, the Company uses an estimated incremental borrowing rate, which is derived from third-party lenders, to determine the present value of lease payments. We use other observable market data to evaluate the appropriateness of the rate derived from the lenders.
The aggregate revolving commitment amount will be automatically and permanently reduced by $2,500,000 annually until the Revolving Facility matures on November 16, 2028, unless we have previously exercised our option to reduce the aggregate revolving commitments to a lower amount.
The aggregate revolving commitment amount will be automatically and permanently reduced by $2.5 million on each anniversary date until the Credit Facility matures on November 16, 2028, unless we have previously exercised our option to reduce the aggregate revolving commitments to a lower amount.
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.
As of September 30, 2024, cash and cash equivalents was $8.9 million, and there was $72.8 million available for borrowing under our Credit Facility, net of undrawn, issued and outstanding letters of credit of $2.2 million. 42 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.
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.
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.
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).
Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $77.9 million for the year ended September 30, 2024, an increase of $17.3 million, or 28.6%, compared to EBITDA of $60.6 million for the year ended September 30, 2023. EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America (GAAP).
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.
Investing Activities Net cash used in investing activities increased $0.7 million, or 1.7%, to $38.6 million for the year ended September 30, 2024 compared to $38.0 million for the year ended September 30, 2023.
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.
The Company’s effective income tax rate was 20.7% and 18.1% for the years ended September 30, 2024 and 2023, respectively. The increase in the effective income tax rate was primarily attributable to lower food donation deductions recorded during fiscal year 2024.
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.
As of September 30, 2024 and 2023, we had undrawn, issued and outstanding letters of credit of $2.2 million and $1.5 million, respectively, which were reserved against the amount available for borrowing under the Credit Facility. We had $72.8 million and $48.5 million available for borrowing under the Credit Facility as of September 30, 2024 and 2023, respectively.
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.
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 $83.3 million for the year ended September 30, 2024, an increase of $19.9 million, or 31.4%, compared to Adjusted EBITDA of $63.4 million for the year ended September 30, 2023.
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.
Interest expense, net Interest expense, net of capitalized interest, was $4.2 million for the year ended September 30, 2024 compared to $3.3 million for the year ended September 30, 2023. Income taxes Income tax expense increased $3.7 million to $8.9 million for the year ended September 30, 2024 compared to $5.1 million for the year ended September 30, 2023.
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.
In recent years, the costs of certain goods we sell were impacted by levels of inflation higher than we have historically experienced, resulting in part from supply disruptions, geopolitical instability, including the conflicts in Ukraine and the Middle East, 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.
We borrowed $35.0 million under the Term Loan Facility in December 2020. The operating company is the borrower under the Credit Facility, and its obligations under the Credit Facility are guaranteed by the holding company and Vitamin Cottage Two Ltd. Liability Company (VC2). The Credit Facility is secured by a lien on substantially all of the Company’s assets.
(the operating company), is the borrower under the Credit Facility, and its obligations under the Credit Facility are guaranteed by us (the holding company) and Vitamin Cottage Two Ltd. Liability Company (VC2). The Credit Facility is secured by a lien on substantially all of the Company’s assets.
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.
EBITDA as a percentage of net sales was 6.3% and 5.3% for the years ended September 30, 2024 and 2023, respectively. Adjusted EBITDA increased 31.4% to $83.3 million for the year ended September 30, 2024 compared to $63.4 million for the year ended September 30, 2023.
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.
The increase in administrative expenses was driven by higher compensation expenses. Administrative expenses as a percentage of net sales were 3.1% and 3.2% for the years ended September 30, 2024 and 2023, respectively. Pre-opening expenses Pre-opening expenses were $1.7 million for the year ended September 30, 2024 compared to $2.0 million for the year ended September 30, 2023.
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.
Net sales were $1,241.6 million for the year ended September 30, 2024, an increase of $101.0 million, or 8.9%, compared to net sales of $1,140.6 million for the year ended September 30, 2023. ● Daily average comparable store sales.
The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations.
The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations.
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.
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. The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated leverage ratio.
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.
Cash provided by operating activities increased $9.2 million, or 14.2%, to $73.8 million for the year ended September 30, 2024 compared to $64.6 million for the year ended September 30, 2023.
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.
The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands: Year ended September 30, 2024 2023 Net income $ 33,935 23,243 Interest expense, net 4,176 3,299 Provision for income taxes 8,866 5,127 Depreciation and amortization 30,930 28,906 EBITDA 77,907 60,575 Impairment of long-lived assets and store closing costs 2,547 1,464 Share-based compensation 2,829 1,360 Adjusted EBITDA $ 83,283 63,399 Year ended September 30, 2024 compared to Year ended September 30, 2023 EBITDA increased 28.6% to $77.9 million for the year ended September 30, 2024 compared to $60.6 million for the year ended September 30, 2023.
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.
Daily average comparable store sales for the year ended September 30, 2024 increased 7.0% from the year ended September 30, 2023. ● Net income. Net income was $33.9 million for the year ended September 30, 2024, an increase of $10.7 million, or 46.0%, compared to net income of $23.2 million for the year ended September 30, 2023. ● EBITDA.
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.
In fiscal year 2024, we opened four new stores and relocated/remodeled four existing stores. We plan to open four to six new stores and relocate/remodel two to four stores in fiscal year 2025. Between October 1, 2024 and the date of this Form 10-K, we relocated/remodeled two existing stores and closed two stores.
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.
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. The Company has determined that its business, for purposes of impairment evaluation for goodwill and indefinite-lived intangible assets, consists of a single reporting unit.
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.
Gross profit reflects earnings after product and store occupancy costs. Gross margin increased to 29.4% for the year ended September 30, 2024 compared to 28.7% for the year ended September 30, 2023.
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.
As of September 30, 2024, the Company has recorded no impairment charges related to goodwill and indefinite-lived intangible assets. 52 Table of Contents Impairment of Long-Lived Assets and Store Closing Costs We assess our long-lived assets, principally property and equipment, lease assets, and intangible and other assets subject to amortization, primarily internal-use software and implementation costs for software hosting arrangements, respectively, for possible impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Year 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.
Year ended September 30, 2024 compared to Year ended September 30, 2023 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 2024 2023 Dollars Percent Statements of Income Data: Net sales $ 1,241,585 1,140,568 101,017 8.9 % Cost of goods sold and occupancy costs 876,775 813,637 63,138 7.8 Gross profit 364,810 326,931 37,879 11.6 Store expenses 277,396 257,282 20,114 7.8 Administrative expenses 38,715 35,973 2,742 7.6 Pre-opening expenses 1,722 2,007 (285 ) (14.2 ) Operating income 46,977 31,669 15,308 48.3 Interest expense, net (4,176 ) (3,299 ) (877 ) 26.6 Income before income taxes 42,801 28,370 14,431 50.9 Provision for income taxes (8,866 ) (5,127 ) (3,739 ) 72.9 Net income $ 33,935 23,243 10,692 46.0 % 46 Table of Contents Net sales Net sales increased $101.0 million, or 8.9%, to $1,241.6 million for the year ended September 30, 2024 compared to $1,140.6 million for the year ended September 30, 2023, due to a $83.0 million increase in comparable store sales and a $22.6 million increase in new store sales, partially offset by a $4.6 million decrease in net sales related to closed stores.
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.
We had no revolving loan amounts outstanding under the Credit Facility as of September 30, 2024 and 2023. We had no amounts and $7.7 million outstanding under the Term Loan as of September 30, 2024 and 2023, respectively.
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.
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 Credit 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.
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. ● Opportunities in the growing natural and organic grocery and dietary supplements industry.
While levels of inflation moderated during fiscal year 2024, we are unable to predict the impact of inflationary or deflationary trends on consumer behavior and our sales and profitability in the future. ● Opportunities in the growing natural and organic grocery and dietary supplements industry.
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.
Our judgment regarding events or changes in circumstances that indicate the asset’s 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.
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.
As of September 30, 2024, we had $8.9 million in cash and cash equivalents and $72.8 million available for borrowing under our Credit Facility. 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.
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.
The increase in store expenses was primarily driven by higher compensation expenses, depreciation expenses and long-lived asset impairment charges. Store expenses as a percentage of net sales were 22.3% and 22.6% for the years ended September 30, 2024 and 2023, respectively. The decrease in store expenses as a percentage of net sales primarily reflects expense leverage.
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.
In the aggregate, management estimates that the Company experienced annualized cost inflation of approximately 2% in fiscal year 2024 and approximately 1% in the fourth quarter of fiscal year 2024.
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.
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. 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.
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.
The increase in gross margin during the year ended September 30, 2024 was primarily driven by store occupancy cost leverage and higher product margin attributed to effective pricing and promotions. Store expenses Store expenses increased $20.1 million, or 7.8%, to $277.4 million for the year ended September 30, 2024 compared to $257.3 million for the year ended September 30, 2023.
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.
Store expenses included long-lived asset impairment charges of $2.2 million and $1.3 million for fiscal years 2024 and 2023, respectively. Administrative expenses Administrative expenses increased $2.7 million, or 7.6%, to $38.7 million for the year ended September 30, 2024 compared to $36.0 million for the year ended September 30, 2023.
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.
On November 20, 2024, our Board approved the payment of a quarterly cash dividend of $0.12 per share of common stock, which will be paid on December 18, 2024 to stockholders of record as of the close of business on December 2, 2024. 49 Table of Contents We plan to continue to open new stores and relocate/remodel existing stores in the future, which may require us to borrow additional amounts under the Credit Facility from time to time.

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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 changeAs 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.
Biggest changeAs of September 30, 2024, no amounts were outstanding under our Credit Facility. Our Credit Facility carries floating interest rates that are tied to the Term SOFR rate, and therefore, our statements of income and our cash flows are exposed to changes in interest rates.
Based 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
Based upon a sensitivity analysis at September 30, 2024, a hypothetical 100 basis point change in interest rates would change our annual interest expense by $0.3 million for the year ended September 30, 2024. 54 Table of Contents

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