Natural Grocers' Q4 2025: Contradictions Emerge on Economic Uncertainty, Marketing Strategy, Free Cash Flow, and Brand Penetration

Date of Call: November 20, 2025

Financials Results

• Revenue: $336.1M, up 4.2% YOY
• EPS: $0.51 per diluted share, net income up 31% YOY to $11.8M
• Gross Margin: 29.5%, down 10 basis points YOY (Q4)
• Operating Margin: Improved 90 basis points in Q4 vs prior year

Guidance:

• Open 6 to 8 new stores in fiscal 2026
• Relocate or remodel 2 to 3 stores
• Daily average comparable store sales growth guidance: 1.5% to 4%
• Diluted EPS guidance: $2.00 to $2.15
• Capital expenditures: $50M to $55M
• Expect year-over-year gross margin relatively flat; store expenses % of sales flat to slightly lower
• Pace of openings weighted to back half of year; ~$0.12 of EPS invested in new-store preopening and expenses

Business Commentary:

* Sales and Earnings Performance: - Natural Grocers reported sales in line with guidance for the fourth quarter, with daily average comparable store sales increasing 4.2%, and on a 2-year basis, increasing 11.3%. - Earnings per share were above guidance, with diluted earnings per share reaching $2 for fiscal 2025, driven by operational execution and expense leverage.

• Impact of Macroeconomic Factors:
• The company experienced moderation in fourth quarter sales due to a 7% comp cycle in previous quarters, a UNFI's cybersecurity incident affecting orders, and uncertainty in the economic environment leading to cautious retail spending.

• Consumers prioritized health and wellness, with natural and organic products remaining differentiated offerings, especially in the face of economic uncertainty.

• Strategic Initiatives and Brand Growth:

• The Natural Grocers branded products accounted for 8.8% of total sales, compared to 8.4% a year ago, with continuous expansion through 119 new items launched in fiscal 2025.

• The {N}power Rewards program maintained high net sales penetration at 82%, enabling efficient customer engagement and personalization.

• New Store Growth and Financial Outlook:

• For fiscal 2026, the company plans to open 6 to 8 new stores and relocate or remodel 2 to 3 existing stores, targeting 1.5% to 4% daily average comparable store sales growth and diluted earnings per share between $2 and $2.15.

• The outlook includes investments of $50 million to $55 million in capital expenditures to support growth, with a strategic focus on affordable pricing and differentiated product offerings.

• Dividend Increase and Stockholder Value:

• Natural Grocers announced a 25% increase in the quarterly cash dividend to $0.15 per common share, reflecting strong fiscal 2025 operating performance and confidence in long-term stockholder value creation.
• This demonstrates the company's commitment to enhancing value for its shareholders, supported by a balanced approach to capital allocation.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted record fiscal 2025 sales and earnings ("record sales and earnings"), EPS above guidance, operating-margin improvement of 90 bps in Q4, reiteration of 6–8 new stores and a 25% dividend increase — while noting macro caution from constrained supply and cautious consumer spending.

Q&A:

• Question from Charles Cerankosky (Northcoast Research Partners, LLC): Given the increased price sensitivity right now in the consumer environment and the company's 8.8% owned brands penetration, is this a good time to get that number higher and to make customers more aware of the value in the Natural Grocers brands?
  Response: Yes — we are actively marketing our house brand and promoting competitively priced bulk items that we don't need to discount, to raise penetration.

• Question from Charles Cerankosky (Northcoast Research Partners, LLC): Do you have any particular goals for the penetration over the next couple of years, like maybe 10%?
  Response: Target is to increase house-brand penetration by ~1 percentage point per year (from 8.8% to roughly 10.8–11% in two years).

• Question from Scott Mushkin (R5 Capital LLC): One of the things we hear from investors about the natural/organic space is that conventional supermarkets and others have caught up by offering similar products at lower prices. What do you think about that thought process?
  Response: We believe our authentic standards, product story and customer experience differentiate us and sustain loyalty versus competitors who sell products primarily because they sell.

• Question from Scott Mushkin (R5 Capital LLC): What specifically in the business would make you gravitate towards saying things have become much more challenging in the economy, and is that the root of your cautious comments?
  Response: We see a pullback from peripheral (less-loyal) shoppers, low consumer sentiment, layoffs and tariff-driven price pressure — creating caution — while core customers remain resilient.

• Question from Scott Mushkin (R5 Capital LLC): Are you guys thinking free cash flow next year will be positive, flat? What's your thought process around '26 free cash flow?
  Response: Free cash flow is expected to be positive in fiscal 2026; CapEx guidance is $50–$55M to fund increased store openings, relocations/remodels and some building purchases.

Contradiction Point 1

Economic Uncertainty and Consumer Spending

It involves differing perspectives on the impact of economic uncertainty and consumer spending on the company's performance, which are crucial for investor expectations.

What specific factors in the business are leading you to view the economy as more challenging and prompting the cautious comments? - Scott Mushkin (R5 Capital LLC)

2025Q4: Periphery customers have pulled back, affecting our growth, but new marketing initiatives should boost growth in the future. - Kemper Isely(Co-President)

What is the introduction and overview of the earnings call? - Jessica Thiessen (Natural Grocers)

2025Q2: Economic uncertainty, consumer sentiment, layoffs, and tariffs all impact consumer spending. We're 'leaning in' to our differentiation in value, brand, and quality to maintain customer loyalty. - Richard Hallé(CFO)

Contradiction Point 2

Marketing Strategy and Consumer Outreach

It involves the company's approach to marketing and consumer engagement, which are critical for maintaining customer loyalty and growth.

Given rising consumer price sensitivity, is now a good time to increase the company's 8.8% brand penetration and raise customer awareness of Natural Grocers' value? - Charles Cerankosky (Northcoast Research Partners, LLC)

2025Q4: Yes, we are marketing our own brand extensively right now, especially our bulk items that are already competitively priced. We can promote these without additional discounts. - Kemper Isely(Chairman & Co-President)

What perks and promotions are you offering consumers? - Unidentified Analyst (R5 Capital)

2025Q2: We send out individualized offers to our members tailored towards their shopping habits, offering discounts on supplements and specific deals. Members earn a 1% rebate for points, and offers for eggs and avocados are exclusive to {N}power members. In-store specials are {N}power-driven. - Kemper Isely(Co-President)

Contradiction Point 3

Free Cash Flow Expectations

It involves changes in financial forecasts regarding free cash flow expectations, which are critical indicators for investors.

Will next year's free cash flow be positive or flat? What is your outlook for 2026 free cash flow? - Scott Mushkin (R5 Capital LLC)

2025Q4: Free cash flow will be positive next year. We're increasing store openings and strategically acquiring buildings, which will positively impact our growth. - Richard Hallé(CFO)

What is the introduction and overview of the earnings call? - Jessica Thiessen (Natural Grocers)

2025Q2: We continue to expect that for fiscal 2025, we would generate positive free cash flow. - Richard Hallé(CFO)

Contradiction Point 4

Economic Impact and Consumer Behavior

It involves the company's assessment of the economic situation and its impact on consumer behavior, which influences business strategy and growth expectations.

What specific factors in your business have led you to adopt a more cautious stance due to the increasingly challenging economy? - Scott Mushkin (R5 Capital LLC)

2025Q4: Economic uncertainty, consumer sentiment, layoffs, and tariffs all impact consumer spending. We're 'leaning in' to our differentiation in value, brand, and quality to maintain customer loyalty. - Richard Hallé(CFO)

Have you seen a decline in consumer basket size due to the economy? - Unidentified Analyst (R5 Capital)

2025Q2: No, our basket size has stayed very steady and been steady for the last several quarters. - Kemper Isely(Co-President)

Contradiction Point 5

Natural Grocers Brands Penetration and Marketing Strategy

It involves the company's strategy for increasing penetration of its private label products and the timing of marketing initiatives, which could impact customer loyalty and sales.

Do you have specific goals for market penetration over the next few years, such as 10%? - Charles Cerankosky (Northcoast Research Partners, LLC)

2025Q4: Our goal is to increase the penetration by 1 full percentage point per year. So we're at 8.8%, so in two years from now, we should be at 10.8% or even 11%. - Kemper Isely(CFO)

What specific factors in the business are leading to more cautious comments due to the challenging economic environment? - Scott Mushkin (R5 Capital)

2025Q1: Periphery customers have pulled back, affecting our growth, but new marketing initiatives should boost growth in the future. - Kemper Isely(CEO)