Good day, ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter Fiscal Year 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder today’s call is being recorded. At this time, I’d like to turn the conference call over to Ms. Ashley MacLeod, Director of Finance and Investor Relations for Natural Grocers. Ma’am, you may begin.

Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage full-year and fourth quarter fiscal year 2014 earnings conference call. On the call with me today are Kemper Isely, our Co-President and Sandra Buffa, our Chief Financial Officer. As a reminder, all statements made on this conference call other than statements of historical facts 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 due to a variety of factors including the risks detailed in the Company’s most recently filed Form 10-Q and Form 10-K. The Company undertakes no obligation to update forward-looking statements. Our press release is available on our Web site and a recording of this call will be available on our Web site at investors.NaturalGrocers.com. Now I’ll turn the call over to our Co-President, Kemper Isely.

Thank you, Ashley. Good afternoon, everyone. We are excited to reach a significant milestone in fiscal 2015 as we approach our 60th anniversary, while crossing the 100 store mark. We believe celebrating this milestone recognizes our position as early pioneers in visionary in the health and wellness area. This positioning has provided us with a foundation for a growing modern company. We opened a record 15 stores in fiscal 2014, including three new stores during the fourth quarter and expanded our geographic presence in both new and existing markets. Our new stores are performing inline with our expectations and we will remain on track with our new store pipeline. In fiscal 2015, we plan to open 18 new stores and expand our geographic presence by entering new states and markets. We are pleased with our financial performance in fiscal 2014. Our increased sales and disciplined approach toward operating expenses have resulted in solid financial results, which allowed us to continue our investments in to growing our store base during the fiscal year. Net sales increased approximately 21% to $521 million. Our daily average comparable store sales increased 5.6% on top of an 11.1% increase last year. And we experienced positive sales trends across all departments. Gross profits increased to approximately $152 million, as we continue to see leverage in administrative expenses. Net income increased approximately 28% and our diluted earnings per share in fiscal 2014 was $0.60 compared to $0.47 last year. We are seeing encouraging trends in our comparable store sales. During the fourth quarter daily average comp store sales increased to 3.7% compared to 3.1% increase in third quarter and we’re experiencing further improvement this current quarter. We are pleased with these recent improvements given the current competitive environment and are seeing positive results from our sales initiatives.…

Thank you, Kemper. Good afternoon, everyone. We are pleased to report net sales in fiscal 2014 increased 20.9% to $520.6 million. Daily average comparable store sales increased 5.6% driven by 2.3% increase in daily average transaction count and a 3.2% increase in average transaction size. Daily average mature store sales increased 3.4%. Gross profit in fiscal 2014 increased 20.5% to $151.5 million driven by positive comparable store sales and an increase in the number of new stores. Gross margin decreased 10 basis points due to increases in occupancy costs, partially offset by increases in product margin, across almost all departments as well as operating efficiencies bulk food repackaging facility. The increases in product margin were partially offset by a shift in sales mix. Additionally, we experienced minimal inflation during the year. Store expenses as a percentage of sales remained flat in the fiscal year due to a decrease in salary-related expenses offset by an increase in depreciation expense and, to a lesser extent, an increase in utilities. Administrative expenses as a percentage of sales decreased 30 basis points as a result of the Company’s continued ability to support sales growth without proportionate investments in overhead. Both store and administrative expenses were favorably impacted in the fiscal year by lower incentive compensation and other discretionary benefits reflecting our pay-for-performance philosophy. Net income increased 27.7% to $13.5 million with diluted earnings per share of $0.60 in fiscal 2014. EBITDA increased 27.2% to $41.5 million or 8% of sales. Touching briefly on our fourth quarter results, net sales increased 17.8%, including a 3.7% increase in comparable store sales. Net income increased 43.1% to $3.2 million with diluted earnings per share of $0.14 in the fourth quarter. Net income in the fourth quarter of fiscal 2014 included approximately $100,000 pre-tax of share-based compensation expense for the Chief Financial Officer and certain employees who are not named executive officers, compared to approximately $500,000 in the fourth quarter of fiscal 2013. We ended the year with $5.1 million in cash and cash equivalents and no amount outstanding on our credit facility. We do anticipate being in our line of credit at the end of the first quarter of fiscal 2015, due to the timing of new store openings including the Nature’s Pantry transaction and annual income tax payments. Now I’ll turn the call back to Kemper to discuss our new store growth and outlook for fiscal 2015.

Thank you, Sandra. As I mentioned at the beginning of the call, we continue to invest in new store growth opening 15 new stores in fiscal 2014, bringing our total store count to 87 stores in 14 states. Since the end of the fourth quarter, we’ve opened three new stores, one in Golden, Colorado, one in Reno, Nevada and one in Oklahoma City, Oklahoma. As of today, we’ve signed leases for five additional stores which are scheduled to open in fiscal 2015 for locations in Arizona, Arkansas, Colorado, and Kansas. We have good visibility on the remaining fiscal 2015 stores. Additionally, we recently agreed to purchase substantially all the assets of national foods retailer Nature’s Pantry in Independence Missouri. The transaction is expected to close on December 7, 2014 at which time this store will start to operate as a National Grocers store. By the end of fiscal 2015, we expect our geographic presence will cover at least 16 states west of the Mississippi. Our real estate strategy supports a broad range of communities. We continue to focus on opening new stores in both new and existing locations and in both smaller, rural areas and larger metropolitan areas. We continue to target the same financial returns for our new stores of approximately four years to recoup the initial cash investment and approximately 35% cash on cash returns by the end of the fifth year. We anticipate our fiscal 2015 new stores will require an average upfront capital investment of approximately $2.2 million, which includes roughly $1.7 million for capital expenditures, $300,000 in initial inventory, and just over $200,000 in pre-opening expenses. We continue to be pleased with how well our new stores are performing. We believe recent new store performance validates the flexibility in our model, positioning us to successfully…

At this time we will begin the question-and-answer session. [Operator Instructions] And our first question comes from David Magee from SunTrust Robinson Humphrey. Please go ahead with your question.

Yes, hi. Good afternoon, everybody.

Hi, David.

I wanted to ask about, well the competitive openings. You mentioned that you think your past, the peak of the impact of that is the performance of the stores that are not been impacted and those that are being impacted, those classes of stores sort of performing as you would have thought?

The stores that have had no impact have been comping at double-digit comps.

Okay.

So, yes, I’d say that’s the case.

And how far are you able to sort of see in the future with regard to where our future openings might be from the competition?

We are looking all the way into 2015 third quarter right now.

Okay.

We’re seeing that the impact of new competition will diminish significantly by then.

And how much of an impact has it been in recent months by having the store hours to be expanded? Has that been -- that’s meaningful to the comp number?

It’s been somewhat helpful. I wouldn’t say that it’s been the panacea for the comp number, but it’s been somewhat helpful.

Are you open before early mornings and later in the evening too or …?

We moved, we were open one hour earlier in the morning and one hour later in the evening.

Okay. And then, lastly are you seeing potential for inflation over the next couple of quarters? It seems like some of the other players have seen that now.

You know I was thinking about that answer from other players. And my take on it is that they’re selling a lot of conventional meat, and there has been a lot of inflation in conventional meat. And so I think they’re seeing that inflation, because the price of beef has really skyrocketed and so it’s been kind of hard for them to absorb that. So I’m thinking that’s where a lot of their inflation is coming from. There is -- as far as we can see, there has been pretty normal inflation at our stores. We’ve had some things that have gotten expensive like almonds and then some things that have come down price in price like we switched our chicken supplier and we went to a better quality, non-GMO chicken and its less per -- we’re selling it for less per pound than we were selling our other chicken for. So like I said, I’m not sure where -- what I can figure is that it may be conventional products that those people are seeing the high inflation in.

Okay. Thanks, Kemper, and good luck.

Thank you.

Our next question comes from Sean Naughton from Piper Jaffray. Please go ahead with your question.

Hi. Thanks for taking the question. Just on the competitive environment, I know that in Arizona, I think you’ve competed with new frontiers market and some of your smaller towns there for quite some time since those stores been open, but I think they’ve been now rebranded to whole food banners, I think those stores are relatively close to your stores. So just curious, if you could talk about some of those markets and if you’re seeing any impact on those stores and is that kind of -- and how that’s playing out apparently?

We had three stores in Arizona, you’re right, Sedona, Prescott and Flagstaff. And there was three new frontiers in each of those -- there was a frontier -- new frontier store in each of those cities also that was rebranded as a whole foods. And those stores are doing really well for us. So that moved the whole foods has been somewhat helpful to us.

Okay. Fair enough. And then, on the advertising, I think you made some comments about a new person that you’ve hired to step up some of the branding and reinforce some of the messaging. Maybe just talk about your spending in this particular area on the advertising side, maybe just remind us what that is as a percentage of sales and do you expect that to go up a little bit as you look into to drive traffic and reinforce the brand position?

No, actually we’re going to hold spending at the level it was this year as a percentage of sales. So we’re just going to redeploy our spending so that it spend in a better manner than it was last year.

Okay.

And I don’t think we really have ever disclosed our percentage of sales on it, but it’s in the 1% range or a little bit over 1%.

Okay. That’s fair. And then, I guess just on the supplements business, there has been some puts and takes across the industry where it seems like its been a little bit more challenging, maybe its starting to come back a little bit. Just curios on what you seen in your business from a total growth rate in that particular category and are there any signs of life that there maybe some thing is potentially starting to come back in that particular category?

No, we’re really encouraged by the supplement sales. Particularly in October they were really good. Our mature store, our comp stores actually had an up which means that we had up -- the revenues increased and the amount of revenue as a percent they increased market share. So we’re pretty pleased with that and overall the company decreased in supplement sales business has slowed. The market share decreases slowed significantly in the last quarter and in October in particular.

Okay, great.

And another subject, the body care department has actually, which is another high margin department for us has actually increased market share and dollars -- dollar share in our stores over the last year and going and that trend has continued this quarter. So we’re seeing quite positive in our opinion results in both supplements and body care.

That’s great. Best of luck in Q1. Thanks.

Thanks.

Our next question comes from Mark Miller from William Blair. Please go ahead with your question.

Yes, hi. Good afternoon, everyone. There is a little bit of small diversion trend in the overall comp which picked up quarter-on-quarter and the mature store comp was flatter, I guess, slowed just a little bit. What are the differences between those two sets of stores?

Yes, I think it really relates to the amount of new competition months within the mature stores versus the newer guide [ph] comp stores, right, because there is number of newer stores like less than five years old, but older than one store in comp.

Could you look at the group of stores that had no competitor during any of that periods, I mean, would exiting out that factor would the mature stores be doing better as well?

I don’t have that right in front of me, but I believe that’s true. Sorry, I don’t have that number.

Okay. We can follow-up on that. With your guidance for fiscal ’15, the five to eight, could I infer from your comments about the better trend that you’re into that range already? Are you anticipating because of the fewer competitive openings that’s what takes you into that range?

You could infer that we’re at the low end of that range.

Okay. The lift of comps you anticipate from the relocations and remodels, those are happening later in the year, but is that a material impact on the comp for next year?

Since its happening so late in the year next year, its probably not going to have a material impact in this year, but it will probably have a pretty nice impact in 2016.

Great, thanks. And then on …

Last quarter it might have a nice impact.

Right. The gross margin decline was a little bit greater than we expected in the quarter and it sounds like the margin trends might be shifting for you in a positive way the beginning of fiscal ’15, but I mean, you talked about in the press release the higher occupancy. Maybe if you could amplify on that? Or was there also something outside of the occupancy that made it a little bit tougher this quarter?

I believe that was primarily driven by occupancy, otherwise -- yes, I mean, it was our point of sale margin increased significantly during the quarter, and it was definitely driven by higher occupancy cost. Yes, the comp came down and so that increased our occupancy cost above what we expected them to be -- that hopefully.

Right. Go ahead, Kemper.

And yes, I mean, the other comment is, the -- good real estate it has become more expensive lately, and it was always expensive, but now it’s gotten even more expensive, so that’s part of the occupancy cost increase.

Okay. And then a final question for me, looking at the fiscal ’15 outlook. If we backed out the change in incentive comp in ’15 for your plans versus ’14, ballpark what would that represent as a rate of EPS growth for the company that you anticipate?

I don’t have that right off the top of my head for you, Mark. So maybe we could get back to you with that one.

Yes. Okay, great. Thanks.

Thanks.

Our next question comes from Scott Van Winkle from Canaccord Genuity. Please go ahead with your question.

All right. Thank you very much. Can you talk a little bit more about the Nature’s Pantry Store, kind of how it compares to your store base, whether it’s offering mix, productivity, et cetera, et cetera? And should we assume maybe in the future single store acquisitions might be a bigger part of the plan?

While first off speaking of how it looks like one of our stores, it’s very similar. The supplements make up a good percentage of their sales. They had high quality standards in the store like we do. It’s about as close to one of our stores since I’ve seen an independent store be. So we think that the integration with our store should be pretty seamless. Of course there’ll be a couple of hiccups, there always are. And never can anticipate everything, but we think it will be a pretty seamless integration. As far as the productivity goes it is a very productive store and should be a nice acquisition for us. As far as us acquiring other stores, if we find a interesting store out there and they’re interested in selling, we will pursue that opportunity. We don’t have that as our main strategy for opening new stores. Our main strategy for stores are to grow them from the ground up.

Okay and then from the competitive environment, obviously you anniversary a lot of this in the third quarter of next year. The improvements you’ve seen over the last couple of quarters sequentially, if you just look at the last quarter certainly in a two-year stack basis seeing an improvement. Is that a function of a maybe the new stores came in, had a really strong opening, kind of a honeymoon period, and now its back to normal. Or do you credit it more in your response? I know you mentioned that the extended hours weren’t all that significant a contributor, but -- do you think its more, it’s a short-term phenomenon or more your response was very effective?

Yes, it’s a combination of a number of things. As the -- it takes about a full year for us to -- its in the 13th month that we usually notice that our stores sales start bouncing back after new competition comes in. So, the rate of decline that we would have or the loss of sales usually starts going down a little bit after about six months. And in reality quarter four was the peak of new -- of competition months opened for competition. So, it was encouraging to see that our store comps came back stronger in quarter four even though it almost affected 60% of our store base at that point in time.

Great. And then, I have a quick -- one more on non-GMOs. You’ve had all these recent valid efforts in your home state there that having gone through, but where does it certainly risk and is the move to non-GMO chicken I believe it was in other product category. Is that seen as a marketing opportunity? You’re talking about getting lower costs, but are you marketing the non-GMO side a little more aggressively?

Absolutely. I think consumers really appreciate the fact that we are offering items like our chickens has non -- has a non-GMO option, and then this year we also have turkeys that are non-GMO. And I think we’re the only chain that can really say that in the country right at the moment. I mean it’s definitely a good opportunity to distinguish our difference -- our quality difference between us and many of our competitors.

Thanks.

Thanks, Mark. Thanks Scott, sorry. Yes, I’ll let you ask that.

Yes. So Mark, before we take the next question. The EPS growth if we excluded the incentive comp in the higher match for the 401K et cetera, the growth would be at the 20% to 25% range, which is basically where we had seen it before.

Now hopefully that answers your question, Mark?

Our next question comes from Joe Edelstein from Stephens Incorporate. Please go ahead with your question.

Hi, good afternoon. Thanks for taking the questions.

Hi, Joe.

When you’re thinking about the 2015 guidance and specifically just on that incentive pay, was that done in an effort to get out in front of say any declines in employee productivity or satisfaction or frankly ultimately customer satisfaction? Did you start to see some of that, I guess, I’m still a little confused on just the timing as to why you’re choosing to ramp that up in 2015?

Well the reasoning is that in 2014 we essentially had to eliminate our incentive comp in our 401K match, and of course that isn’t very popular with your employees. And your employees are vital -- the happiness of your employees are vital to the performance of your company. And so you need to be able to provide an incentive to them other than just their salary to perform at a higher level. And with the 20% annual growth it puts a lot of stress on an organization. And if you don’t reward your employees somehow for that stress that they’re giving and the efforts they’re putting in, you are going to suffer in the long-term. And so we determine that after a difficult year or last year that we would make this difficult decision to include in our financial numbers, an ability to reward them as long as we achieve our financial goals with those new parameters set.

And the new parameter is specifically reaching the unit growth and the comp expectation ranges that you put out now?

No, its street revenue. There’s a number of aspects that go into our incentive comp program. The first being that you have to hit a revenue number. The second being that you have to achieve a certain labor productivity level, and then there is various other aspects of the program such as having an up-up in your supplement mix, an up-up in your, I mean, hitting a certain target for your cost of goods sold in various categories and an improvement in the bottom line.

Okay. And you would still anticipate returning to your more normalized run rates if you’d look out to 2016, 2018 correct?

Yes.

Okay. If I could just squeeze in one last question just to clarify, was interested what the glide path looks like for that competitive store overlap as you see that into the third quarter? Maybe a percentage of the store base?

Well in the first quarter we’re looking at -- the quarter we’re in, we’re at about 51% impacted. Second quarter we’re looking at about 35% impacted. And then dropping down to our more normal 20% to 25% impacted in the third quarter.

And that’s helpful. Thanks again for taking the questions.

Thank you.

[Operator Instructions] Our next question comes from Mitch Pinheiro from Imperial Capital. Please go ahead with your question.

Yes. Hi, good afternoon. So, relative to your comp range, the 5% to 8%, what is it that will drive the range up to the high end?

[Indiscernible] that will be just the natural attrition of this new competition falling off, and part of it will be that we’re going to -- we’re -- a lot of our initiatives are taking hold and driving sales. And then of course we have a lot of stores coming in that will -- that should comp well over the next term.

Okay. And then, in terms of the initiatives there are …

Later in the year, not this quarter. But later in the year.

Great. The marketing initiatives, are these primarily the store based events or are there other things that you’re talking about as well?

Well one of our big initiatives is our redesign of our website, and then our management of social media after that redesign of the website would be one of our big initiatives which launch in the -- some time in the first quarter -- in our second quarter or the first quarter of next year. So that would be one of them. And then, our Chief Marketing Officer of our operating company Trey Hall [ph], is a expert at branding companies and getting that message out about the branding. He was one of the people responsible for the branding of [indiscernible]. I think that’s been a pretty successful one of the launch, and so we’re pretty happy to have him on board.

But I’m just curious, how does like website redesign affect store traffic or -- I mean how does that, how do they paired or how should we think about that?

Well, what it does is it allows us to more effectively use social media to get excitement about our brand out there.

Okay.

And advertising is really, the effectiveness of newspaper advertising and traditional advertising is diminishing as you know. And the effectiveness of creating excitement through blogs and social media is really becoming very important to the branding of a company and the success of a company any more. And so that’s why we’re transferring a lot of our energies to that sort of initiative.

Okay. Just a couple of more things. Was there any tangible comp hit from your new dairy standards in the quarter?

No, our unit sales in dairy in the yogurt area are down, but our revenue was actually up for the quarter.

Okay. And, what's driving body care? Is it just consumer awareness of, to the same extent that there was slow awareness of natural and organic foods is the same factors driving body care, and what type of growth rate does body care have if you could help us with that?

What was the percent of growth of body care last year?

Last year or …?

For the company, what was our revenue growth? So the body care grew at 24% overall last year and compared with the 21% company growth. So somewhat higher. As far as why the growth? We have refined our steps and in our new stores and in our remodeled we have a really compelling body care section, and I think its really driving growth because of that.

Okay. All right. Well, thank you very much. I appreciate the time.

And ladies and gentlemen, at this time I’m showing no additional questions. I’d like to turn the conference call back over for any closing remarks.

Hello, everybody. Thanks for being on the call today. We appreciate your time. Have a very nice rest of the day. Bye.

Ladies and gentlemen, that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.