Good day, ladies and gentlemen. Welcome to the Natural Grocers First Quarter Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I'd now like to turn the conference over to Mr. Jon Bourne, General Counsel for Natural Grocers. Mr. Bourne, you may begin.

Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage First Quarter Fiscal 2013 Earnings Conference Call. On the call today are Kemper Isely, our Co-President; and Sandra Buffa, our Chief Financial Officer. Before we start, let me remind you that all statements made in this conference call, other than statements of historical fact, are forward-looking statements. All forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors such as industry, business strategy, goals and expectations concerning our market position, the economy, future operations, margins, profitability, capital expenditures, liquidity and capital resources, other financial and operating information, and other risks detailed in the company's Form 10-K for the year ended September 30, 2012. The information we present is accurate as of the date of this call. The company undertakes no obligation to update forward-looking statements. The company's earnings release was issued and made available this afternoon. The discussion that follows assumes that you've had the opportunity to read this release. The release, along with a transcript of a recording of this call, and a reconciliation of non-GAAP measures used by us, will be available at our website at investors.naturalgrocers.com for a minimum of 30 days. We recommend that you read our release in conjunction with or after this call. Now I will turn the call over to our Co-President, Kemper Isely.

Thank you, John. Good afternoon, everyone. We are pleased to announce a positive start to fiscal 2013. Continuing the momentum from year end, we have produced another quarter of strong sales and earnings growth. We are excited to announce our first Oregon stores opening this spring and summer in Medford and Salem. For the quarter, we delivered 28.1% net sales growth, 12.9% comparable store sales growth, strong net income and EBITDA growth, which Sandra will discuss in more detail later. And we opened 2 stores during the first quarter in Missoula and Helena in Montana, bringing our total store count at the end of this quarter to 61 stores in 12 states. Now I will turn the call over to Sandra to discuss our financial results in more detail.

Thank you, Kemper, and thank you all for your interest in our company and for joining us this afternoon. Before moving forward, I would like to remind you that in addition to discussing our financial results in conformity with U.S. Generally Accepted Accounting Principles, we are providing non-GAAP financial information to allow for what we believe is enhanced comparability. These non-GAAP financial measures, on a pro forma basis, illustrate our results as if we had owned 100% of the 5 Boulder Vitamin Cottage Group, LLC stores during the comparable quarter last year. You can find our reconciliation schedules at the end of our earnings release and posted on our website at investors.naturalgrocers.com, which John referred to previously. Turning to our financial results. We are pleased to report net sales in the quarter increased 28.1% to $95.8 million, with new store sales increasing $11.3 million over the same period in fiscal 2012. Comparable store sales grew 12.9% for the first quarter of fiscal 2013. This increase is driven for the most part by an 8.3% increase in the number of transactions, and is also supported by a 4.2% increase in average ticket. Mature store sales increased 8.1% for the quarter. For fiscal 2013, mature stores include stores opened during or before fiscal 2008. Gross margin improved 10 basis points for the quarter. As you will recall, our gross profit reflects earnings after both product cost and occupancy cost. Our product margin increased across all departments, but was offset by a shift in mix and an increase in bulk production costs. As a result of sales and new store growth, our bulk food repackaging and distribution center was relocated to a larger facility in September of 2012 to support increased future production. The larger facility resulted in increased operating cost during the…

Thank you, Sandra. During the quarter, we opened 2 new stores in Missoula and Helena, Montana. On January 22, 2013, we opened our first new store of the second quarter in Denton, Texas. This is the first of 4 stores planned to open during the second quarter of fiscal 2013. We have leases signed for 5 additional locations slated to open in fiscal 2013 in Omaha, Nebraska; Lubbock, Texas; Medford and Salem, Oregon; and Kalispell, Montana. We continue to be pleased with how well our new stores are performing. We continue to target the same new store returns we outlined in last quarter's earnings call. I will now give you some additional color on our updated outlook for fiscal 2013. We expect to open 12 new stores, a 20% unit increase over fiscal 2012. Relocate 1 store and remodel 2 existing stores. Achieve comparable store sales growth of 8% to 9%, which reflects our 12.9% comparable store sales growth in the first quarter, and reflects that the second quarter of fiscal 2013 will be 2 days shorter than the prior year's quarter due to leap year providing an extra day last year and the shift in Easter from April to March this year. Deliver EBITDA margins of 7.2% to 7.4%, which reflects the overall shift from occupancy cost, interest expense that Sandra discussed. Achieved net income margins of 2.5% to 2.7%. Achieved diluted earnings per share between $0.46 and $0.49 and incur capital expenditures of between $25 million to $30 million. We remain focused on our 5 founding principles, which are to provide nutrition education, high-quality standards, everyday affordable pricing and supporting our community and our associates. [Operator Instructions]

[Operator Instructions] And our first question is from Sean Naughton of Piper Jaffray.

Quick question for you guys just on the guidance. You beat the consensus by a couple cents, were able to raise the full year same-store sales outlook, but didn't flow that $0.02 increase through to the full-year estimates on the earnings per share line. So just curious, was there something internally that had changed in your modeling for the full year or is this just a little bit of conservatism on your part? Just curious, any comments on that front.

Sandra, you want to answer that?

Thanks, Sean. Our overall model wasn't flat for every quarter, so really what we have done when we provided the update in our outlook is say, given where we are with the first quarter and holding our projections and outlook for the remaining 3 quarters, where we'll be for the full year. So it just wasn't an automatic flow through. The 2 items that we did change, obviously, were the EBITDA, because of the shift in how we're treating some of our leases, and comp sales increases, because we came out with a higher comp sales than we had for the quarter.

Okay. Understood. That make sense. And then just in terms of the growth, still targeting the 20% unit growth, obviously, and sounds like you're getting a few new stores in the ground and in new markets, you mentioned that you've got 5 leases. I think you need a few more to get up to that 12 number. Can you talk about your visibility into getting some of those stores under some lease agreements here before the end of the year to get those stores open?

Currently, we have 12 properties under negotiation and they will fill out our roster for the rest of the year. The 5 stores plus the -- we need 4 more leases signed. And out of those 12, we'll get 4 more signed that will be opened by the end of September of this year.

Okay. So you feel pretty confident about that you're pretty close on some of those then?

Yes. We're really close on some of those.

Okay. Great. One last question. Go ahead, I'm sorry.

They're imminent signings, as a matter-of-fact on some of these.

Okay. That's great to hear. And then just one last quick question. Inflation in the channel, are you guys seeing anything from your suppliers or vendor at this point? And then how is that factored into your plan for the full year?

We haven't seen any unusual inflation. I mean, the one item that kind of sticks out in our minds is the price of whey protein. But other than that, the inflation has been pretty much normal comparatively speaking. As our suppliers pass on price increases to us, we work on a fixed margin, so the product goes up by whatever the margin is to the consumer. And we don't seem to have -- be having any issues with that particular issue.

And our next question is from David Magee of SunTrust Robinson Humphrey.

Just a couple of questions. One is, it looked like, to me, that the business sort of picked up a little bit during the quarter, maybe it was stronger towards the end. I'm curious if that's true and which part of the store seemed to be more robust? I guess that's my first question.

I would say that, overall, all of our departments did very well during the quarter. There wasn't any particular department that -- I mean maybe produce kind of was the strongest of the departments for the quarter. But that would be expected because it's kind -- with November and the food sort of thing and December was Christmas, you get a little bit stronger produce sort of thing going on. Go ahead, David.

I'm just -- does a strong flu season, does that help your business, in people being more proactive about trying to combat that?

That's always seems to be good for business, when there's a lot of people that aren't well out there.

Take your Vitamin D.

They take their Vitamin D and Oscillococcinum, we have a good supply of both of those. So it's definitely helpful. I can't say that it's not.

And are you seeing anything of note in terms of geographical differences in performance with the stores, particularly the newer ones?

Our new stores have opened in new geographies that are very pleasant, right, and we're very happy with those openings in the new geographies.

And then just lastly, I guess, the small strike impact at [indiscernible] so small, barely worth mentioning, I guess. Is that sort of behind us now, do you think?

You mean with [indiscernible]?

Exactly, yes.

They seemed to have all their operational issues ironed out from that strike.

And our next question comes from Mark Miller of William Blair.

I wanted to know a little bit more about the gross margin impacts. And specifically, you highlighted the shift in department sales mix. So I'm gathering that is the faster growth of natural food relative to supplements. But did that trend meaningfully change one way or the other or were there other mix shifts to call out as well?

The biggest mix shift would be from grocery -- I mean, from supplements to the food end of the business. Although we're very pleased with how well the food supplement end of the business did during the quarter, it was up significantly. And at our mature stores, it almost equaled the -- I mean at our comp stores, it almost equaled comp store comp. So it almost didn't lose any market share at the comp stores for the quarter. So that was very pleasing. Where we had watched it was -- we're opening so many new stores, they opened at a lower rate and then they ramp-up. And so it just takes a while for them to get up to the rate of our mature stores. Otherwise, I wouldn't say that we have a lot of shift in the departments. Like I said, produce was particularly strong, so it gained some market share.

But if I recall, the supplements growth hadn't been all the way up to the comp in the past at the mature stores. So was there -- am I recalling correctly, was there a little bit of acceleration in the supplements comp?

Yes, there was. It was a very good quarter for supplements.

Okay. Great. On the store operating expenses, the rate of growth in this quarter was 24%, and last quarter it was 27%, yet you had the same rate of total sales in the 2 periods. So I'm wondering, what was it that allowed you to get somewhat better leverage on the store operating expenses in the December quarter than the September quarter?

We really manage our costs and we're always trying to keep them at a lower pace than our sales growth because that's -- I mean, you have to do that to be a competitive retailer. And we just had more focus on it during the quarter.

So was that, Kemper, was that store managers doing something different or was that something implemented from headquarters?

It's -- our incentive program at our company really emphasizes cost control and we really focused on our incentive plan in the quarter. And it showed up in how the stores incented out, so there was a higher percentage of stores hitting all of their incentive comp buttons as compared to the previous December quarter, the September ending quarter.

And then just a final question on occupancy costs. So the -- on a like or comparable lease basis, the occupancy would've been up I guess 20 basis points as a percent of sales. And I mean, just given the strong comp growth, I'm a little bit surprised that you'd be deleveraging on occupancy. Is that wholly attributable to these new stores which have demonstration kitchens and better real estate or is there any other factor to consider on that?

That would be the case of the -- that the new store leases are a little bit more expensive than our older mature store leases have been in the past. And it takes a while for the sales at the new stores to get up, high enough to drop that percentage down. As the mature store base grows, that will help that particular issue.

And the next question is from Scott Van Winkle of Canaccord Genuity.

In the second quarter, the commentary about the comparison to leap year last year, when you do a Comp for Q2, would you normalize for that extra day last year?

We'll normalize on a daily basis. But overall, for the quarter, there will be fewer days in the quarter. And we'll talk about our daily basis sales, how much it's up -- overall, in the quarter it will be -- you have that day -- you have 2 days less.

And if I -- if we think about the second quarter, we're going to look back at last year, and last year had that really exceptional gross margin, nice acceleration in the comp. Was there anything last year in the second quarter other than the extra day that we should think about when we look at this year versus last?

Yes. There were a couple of things going on. I think maybe the main thing that we believe occurred, and I'm not sure that we could put our finger on it specifically with data, but last year we seemed to receive a number of our price increases from vendors early in the quarter. And so we were able to -- we passed those prices on and then, of course, we had inventory on hand, so our moving average cost was lower and we did have the opportunity to have a lift in margin, if that make sense. And this year we're not seeing the same level of price increases early in the quarter, so we're not anticipating that same lift.

Great. And then forgetting about the strike impact and maybe a late delivery here or there early in the quarter, was there any challenges with -- there's some data that came out recently, talking about the natural food industry being up 13% last year I think from spins. With that type of growth, has there been any trouble procuring product, any supply chain challenges?

No more than normal. There's always an item here or there that's tough to get. But there really hasn't been any supply-chain issues. For a while there, there was some produce supply-chain issues, but that was weather related and those are gone now.

And the next question comes from Shane Higgins of Deutsche Bank.

Just looking at the comp trends, I mean, you guys have been pretty consistent. You guys have been running 13s now for the last 3 quarters. Was that a pretty -- was the 13% pretty consistent throughout the first quarter?

I think October was a little bit less than December, and January we're right in there.

And I don't know if you guys would speak to quarter-to-date trends and obviously, you're going to be impacted by fewer days later in the quarter. But is there anything you can talk about there if trends changed too much?

We'll really not going to discuss that today.

Okay. Fair enough. And looking at the 8.1% comp for the mature stores, can you guys break that down between grocery and supplements? Are those 2 categories about in line with that number?

The -- excuse me, the supplements was slightly below that number and grocery was slightly higher than that number. I mean, there wasn't a great -- there was like about a 1 point difference between the 2.

Okay. Okay, that's helpful. And how did that compare to the mature comp in the fourth quarter?

It was about the same.

And the next question comes from Ron Rowell [ph].

What was the dollar cost of the buyout of the 5 store older operation?

What was the dollar cost? I believe we have that spelled out in our...

We did cash plus stock.

We did a cash, yes.

So it was a little over $10 million for the cash piece.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

We appreciate everybody being here on the phone today with us and we look forward to your continued support. Thank you. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.