Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage third quarter fiscal year 2026 earnings conference call. On the call with me today are Kemper Isely, Co-President, and Richard Hallé, Chief Financial Officer.

As a reminder, certain information provided during this conference call, including the company's outlook for fiscal 2026, contains forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed Forms 10-Q and 10-K.

The company undertakes no obligation to update forward-looking statements. Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure.

Please see our earnings release for a reconciliation of adjusted EBITDA to net income. Today's earnings release will be available on the company's website, and recording of this call will be available on the website at investors.naturalgrocers.com.

Now, I'll turn the call over to Kemper.

Thank you, Jessica, and good afternoon, everyone. During today's call, I will provide an overview of our financial results and highlight key initiatives supporting long-term growth.

Rich will then review our third quarter results in greater detail and discuss our fiscal year guidance. We delivered positive daily average comparable store sales growth in the third quarter despite a challenging consumer environment, with comp growth accelerating to 1.2% from .5% in the second quarter.

We believe third quarter sales trends reflected continued economic uncertainty and sustained focus on value among consumers, consistent with trends observed across the grocery retail sector. In the third quarter, we continued to see strong membership gains in our {N}power rewards program.

Net sales penetration increased 2 percentage points from the prior year period to 84%, highlighting our customers' appreciation for the program's value and benefits. Sales engagement with {N}power members also outperformed in key metrics, generating growth in sales, traffic, and basket size during the quarter.

{N}power remains an effective tool for optimizing promotions, strengthening customer engagement, and building loyalty. As the value leader in natural and organic grocery retail, we continue to emphasize our always affordable pricing through initiatives such as our Even More Affordable campaign, which features rotating everyday staples including our Natural Grocers brand products.

We believe growing consumer prioritization of health and wellness remains a durable trend and creates a meaningful long-term growth opportunity. By pairing rigorous product standards with our always affordable pricing strategy, we deliver exceptional value, strengthen customer loyalty, and reinforce our competitive differentiation.

Our unit growth strategy continues to gain momentum, with 6 stores opened fiscal year-to-date. During the third quarter, we opened 3 new stores, including our first store in Wisconsin, and relocated 1 store.

In July, we opened 2 new stores and expect to open 1 additional new store later in the fourth quarter. All 6 new store openings this year and the 2 from last year, for that matter, rank among our strongest opening day sales performances, a testament to the effectiveness of our marketing efforts.

We see significant opportunities to expand our store footprint and remain focused on delivering annual unit growth of 4% to 5% for the foreseeable future. A new initiative we are very excited about is our expanding e-commerce capabilities.

In mid-July, we launched a new partnership with DoorDash, extending delivery access across our entire store base with in-store pricing on delivery orders made through DoorDash. Later this month, we will integrate our {N}power rewards program into DoorDash and further enhance online shopping through the Natural Grocers website, creating additional opportunities to serve customers however they choose to shop.

In the coming months, we will phase in curbside pickup across all stores. We continue to partner with Instacart to offer delivery service and pickup at select stores.

We believe these enhancements to our e-commerce offering will expand customer access to Natural Grocers, driving incremental transactions from existing customers and attracting new shoppers. While we're still in the initial phase of this new partnership, we view these initiatives as an important step in supporting long-term sales growth and enhancing operating leverage while remaining committed to delivering the differentiated in-store experience that defines our brand.

Finally, I want to thank our good4u Crew for their continued dedication to serving our customers. Their commitment to delivering exceptional service is a cornerstone of our differentiated model and one of the key reasons customers choose Natural Grocers.

Now, I will turn our call over to Rich to discuss our financial results in greater detail and fiscal 2026 guidance.

Thank you, Kemper, and good afternoon. Third quarter net sales increased 1.8% from the prior year period to $334.7 million.

Daily average comparable store sales increased 1.2%, comprised of a 3.1% increase in basket size and a 1.8% decrease in transaction count. We saw a sequential improvement in comp through the quarter.

Our most differentiated categories, produce, dairy, and meat, continued to lead sales growth. Furthermore, Natural Grocers brand penetration increased 110 basis points year-over-year to 9.7% of total sales.

Gross margin decreased 60 basis points to 29.3%, driven by lower product margin, primarily due to an unfavorable change in sales mix, as well as higher merchandise inventory shrink and freight costs. Our primary distributor's cybersecurity incident in the third quarter of fiscal 2025 affected the year-over-year comparability of product margin mix and shrink for the current period.

Higher shrink was also partially attributable to temporary operational impacts related to our ERP system upgrade completed in the previous quarter. Store expenses as a percentage of net sales decreased 20 basis points from the prior year, driven by expense management.

Administrative expenses were $9.5 million, compared to $10.9 million in the third quarter of fiscal 2025. Administrative expenses during the third quarter of fiscal 2026 included a business interruption insurance recovery gain of $2 million related to the cybersecurity incident for the company's primary distributor in June and July of 2025.

Pre-opening expenses increased $1.3 million, or 40 basis points as a percentage of net sales year-over-year, driven by the acceleration of new store openings. Our investment in pre-opening expenses impacted diluted earnings per share by approximately 4 cents.

Net income was $11.1 million, or 48 cents diluted earnings per share, compared to net income of $11.6 million, or 50 cents diluted earnings per share for the third quarter of fiscal 2025. Adjusted EBITDA decreased $1.8 million, or 7.6% to $22.5 million, including a reduction for the $2 million business interruption recovery gain.

Turning to the balance sheet and cash flow. We ended the third quarter in a strong liquidity position, including $17.5 million in cash and cash equivalents, no outstanding credit facility borrowings, and $67.3 million available for borrowing on our revolving credit facility.

During the first 9 months of fiscal 2026, we generated cash from operations of $55.1 million and invested $40.3 million in net capital expenditures, primarily for new and relocated stores and real property acquisitions, resulting in free cash flow of $14.8 million. Today, we are refining the company's fiscal year outlook to reflect our third quarter results while remaining thoughtful about the evolving consumer environment.

Our outlook includes the following: open 6 to 7 new stores, compared to our prior outlook of between 6 and 8; relocate or remodel 2 existing stores, compared to our prior outlook of between 2 and 3 stores; achieve daily average comparable store sales growth between 1.5% and 2%, compared to our prior outlook of between 1.5% and 2.5%; diluted earnings per share between $2.07 and $2.11, including incremental investment related to new stores of 8 cents, compared to our prior outlook of between $2.07 and $2.15; and capital expenditures of $45 to $50 million, unchanged from our prior outlook. One additional note regarding our fourth quarter.

We have elected to close stores on Labor Day this year, resulting in 1 fewer selling day in the fourth quarter compared to last year. We expect the majority of sales that otherwise would have occurred on Labor Day to shift to adjacent days.

In closing, based on our year-to-date performance and full year outlook, we are pleased with the comparable store sales growth achieved in a challenging consumer environment, and the earnings growth delivered through disciplined expense management while continuing to invest in accelerated new store expansion. We believe our differentiated customer value proposition, accelerating unit growth, and exposure to favorable health and wellness trends position Natural Grocers to generate sustainable long-term growth and stockholder value.

Now, we'd like to open the line for questions. Thank you.

Hi, good evening, and thank you very much for the questions. A first question for me, just want to ask broader impacts you might be seeing from down-trade in the category and how we should think about the gross margin.

It sounded like some of the impacts on the quarter might have been more one-time in nature. How should we think about that evolution of the gross margin, given some down-trade we might be seeing in the category and some price action you might be seeing from your competitors?

Thank you.

As far as down-trading, we haven't really seen a lot of down-trading at our stores. Our products are pretty consistently of high quality at affordable prices, and it really isn't a lot of trading for lower quality or lower-priced items at our stores.

As far as promotional activity by our competitors, we've always been the price leader compared to our closest competitors in our industry, and we still are. We haven't really seen a whole lot of dramatic price changes.

We've always been focused on keeping prices on high-profile items like eggs and avocados at very competitive and best price in the industry. As far as the margin issue, yeah, we think that it will be isolated to this quarter.

We had some unusual circumstances that caused the comparisons to last year to be a little bit unfavorable.

Appreciate that color. Second one for me, just on some of the new store initial sales that you talked about being company records, can you maybe provide some of the color you talked about in terms of attributing it to marketing and maybe bigger picture if you would attribute that to some of the broader brand awareness that you are seeing for Natural Grocers not just in existing markets, but maybe even in new markets such as Wisconsin that you called out?

Thank you.

Yeah. Our marketing department does excellent, and they do a very good job of getting us well known in the communities before we open.

Our brand resonates in new communities such as Wisconsin. That store that opened there was our second best opening day ever, and then it was our best opening day ever, and then the opening in Rapid City eclipsed it a couple weeks later.

That would be a new community in South Dakota. We have one on the east end of South Dakota, and now we have a store on the west end of South Dakota.

We've been well received in both communities, and then very well received in the Lake Geneva community in Wisconsin. It just goes to show how our differentiated selling of products resonates with those communities.

Great. Thank you very much for the color.

I'll jump back in the queue. Thanks.

Hey, guys. Thanks for taking my question.

Best to all of you. I wanted to dig into {N}power a little bit more.

I actually got a question from a investor, and I was actually a little bit embarrassed because I couldn't actually answer it as well as I wanted to. The question was: what do you think are the top things that differentiate {N}power from other programs that are out there?

Why is it so effective, I guess is the crux of the question.

It's so effective because we have learned what our customers want in a loyalty program. Instead of just giving them a discount on gas like most of the supermarket programs do, we give them special discounts on certain commodities that, like eggs and avocados, that is very valuable to them.

Then we give them special offers that are tailored toward their shopping patterns that they very much value. Then we offer games that they like to play.

People enjoy playing games, and so it encourages shopping the games that we offer to them.

That's helpful. Then my second question, it actually goes to just the environment in the industry.

The economy is fairly complicated. Obviously, there's some pressures there with the gas prices, but on the flip side is you have a massive wealth effect going on.

Then, of course, the industry dynamics are fairly complicated too, right? We got the GLP-1 craze, the population issues as far as growth in population.

It seems to me that you could make a case if the economy's actually better than a lot of people are or the news is in the news flow. How much do you attribute to straight-up the economy, and how much is it some of the challenges related to what's going on in the industry with different trends as far as the eating habits and other things?

I just want to hear you guys to dive into that a little bit. I know, Kemper, you've been in the business forever, I'd love to hear your insights.

Our most loyal customers have stayed extremely loyal, and everybody that we've added to {N}power is becoming loyal. As you've heard in the call, our penetration is increasing.

With those customers, we're doing really well, and there doesn't seem to be any issues. The people that we've lost a little bit on are the marginal customers.

They're probably have some economic distress going on because of the price of gasoline, the price of heating, and this summer air conditioning, because it's been really hot. Those customers have pulled back a little bit.

We're very optimistic that our differentiated brand will continue to attract people that are coming to the MAHA, the Make America Healthy Again sort of conclusion that they need to become healthy. As more and more people become aware of eating properly and taking nutritional supplements, they will naturally migrate towards our stores because we're really the only authentic national chain that has the offerings of those type of people crave and want.

I keep waiting for you guys to open up a store in Florida, but I don't know, I might have to wait a bit. Thanks, Kemper.

At least we got up into Wisconsin, so.

Exactly. Thanks.

You never know. We might even go a little bit farther east, you never know.

Good evening, everyone. Just a quick question because I didn't catch a data point.

How many cents per share did you say there would be of pre-opening costs in the year or the quarter or the fourth

quarter? It was 4 cents in the quarter, and it was 8 for the full year.

Okay. We've seen half of it already.

Yep.

All right. Got it.

Thank you.

We've seen more than half.

4

was the quarter. 8's the total year.

Then

there'll be a couple more in the next quarter.

Yep.

Okay, 4 cents in the third quarter. Got it.

Yep. Then recently there was a federal court ruling that's going to force a variety of mainstream products to disclose more GMO ingredients.

Do you see that playing a role in interest in Natural Grocers products, especially in concert with the increased support of healthy eating?

Yeah. We were the plaintiff in that case, we definitely think that it was an important ruling that people will actually have to disclose that they have GMOs in their products because it's a concern to people that want to eat a clean diet.

It really plays into our strengths, the ruling does.

Great. Thank you.

Thank you.

Thank you. We are honored to be named the 2026 Sustainability Retailer of the Year by Produce Business, a leading trade publication serving the fresh produce industry.

This recognition reflects our longstanding commitment to sustainability, including our 100% certified organic produce offering, support for regenerative agriculture, and environmental stewardship initiatives. This month marks our company's 71st year serving our communities.

I encourage you to visit one of our locations between August 13th and 15th to celebrate our anniversary with us. Thank you for joining us.

We look forward to updating you on our next call regarding the fourth quarter and full fiscal year 2026 results. Thank you, and have a great day.

Goodbye.