Good day, ladies and gentlemen. Welcome to the Natural Grocers Third Quarter Fiscal Year 2015 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. I'd now like to turn the conference over to Ms. Ashley MacLeod, Director of Finance and Investor Relations for Natural Grocers. Ms. MacLeod, you may begin. Ashley MacLeod - Director-Finance & Investor Relations: Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage third quarter and year-to-date fiscal 2015 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 Forms 10-Q and 10-K. The company undertakes no obligation to update forward-looking statements. Our press release is available on our website, and a recording of this call will be available on our website, at investors.naturalgrocers.com. Now, I will turn the call over to our Co-President, Kemper Isely. Kemper Isely - Chairman & Co-President: Thank you, Ashley. Good afternoon, everyone. As we celebrate our 60th anniversary of empowering health, we are pleased to report another quarter of solid results. We continue to surpass previous sales levels which together with our disciplined approach toward operating expenses have resulted in a record year-to-date net income and earnings per share levels. The strength…

Thank you, Kemper. Good afternoon, everyone. As Kemper indicated, we had another strong quarter. Net sales in the third quarter of fiscal 2015 increased 18.4% to $158.7 million. Daily average comparable store sales increased 5.8%, driven by a 3.3% increase in daily average transaction count and a 2.4% increase in average transaction size. Daily average mature store sales increased 2.3% in the third quarter. Gross profit during the third quarter of fiscal 2015 increased 19.5% to $46.1 million, driven by positive comparable store sales and an increase in the comparable store base. Gross margin increased 30 basis points due to increases in product margin, partially offset by increases in occupancy costs. Store expenses increased 18.8% to $33.5 million in the third quarter. As a percent of sales, store expenses increased 10 basis points in the third quarter compared to the comparable prior year period due to increases in other store expenses and discretionary benefits expense partially offset by decreases in salary related expenses. Administrative expenses increased 20.6% to $4.3 million in the third quarter. As a percentage of sales, administrative expenses remained flat in the third quarter compared to the comparable prior year period. Additionally, during the third quarter, we accrued our full 401(k) match and also accrued incentive compensation consistent with our pay for performance philosophy. Pre-opening and relocation expenses increased $300,000 during the third quarter compared to the comparable prior year period due to the number and timing of new store openings. During the third quarter of fiscal 2015, we opened four new stores compared to three new stores in the third quarter of fiscal 2014. Net income increased 29.2% to $4.3 million with diluted earnings per share of $0.19 in the third quarter of fiscal 2015 compared to $0.15 in the third quarter of fiscal 2014. In…

We will now begin the question-and-answer session. The first question comes from David Magee of SunTrust. Please go ahead.

Yes. Hi, everyone, and good afternoon. This is actually Mitch in for David. Kemper Isely - Chairman & Co-President: Hi, Mitch.

Hi. First, just wanted to touch on competition, and by our account looking at competitors' pipelines, it appears the overlap of new competition would tick up going forward. Is that consistent with your thinking? Kemper Isely - Chairman & Co-President: Compared to how it has been over the last couple of years, we are expecting it to normalize and our store base – we have competition about 25% to 30% of our store base.

Okay. And then, at what rate have the stores impacted by competition a year ago period bounce back? Can I assume they are comping above the company average? Kemper Isely - Chairman & Co-President: Let me – they are bouncing back within parameters that we thought they would. They are right around our company average.

Okay. And then lastly, was there any impact on the comp from the rain or flooding in Denver and some of your key markets during the latter stages of the quarter? Kemper Isely - Chairman & Co-President: No.

No. Okay. Thank you, guys. I'll turn it over.

The next question comes from Mark Miller of William Blair. Please go ahead. Mark R. Miller - William Blair & Co. LLC: Hey, good afternoon. I was hoping you could... Kemper Isely - Chairman & Co-President: Hi, Mark. Mark R. Miller - William Blair & Co. LLC: ... yeah, hi, provide a broader update on the marketing initiatives, obviously, the loyalty program an important piece of that, but I know you have a number of other test and initiatives underway as well? Kemper Isely - Chairman & Co-President: Well, our new store décor has rolled out at our stores since our Wheatridge store and so it's in our – five of our new stores so far and one remodeled store, or actually it's four of our new stores and one remodeled store. And that seems to be getting a very good reception. And the productivity of those stores seems to be having a positive impact on the productivity of those stores. The {N}Power, as we mentioned, is rolling out to all of our stores starting this month – I mean starting in August, sorry; August 7 it'll be rolled out to all of our stores. And then we will start to actively solicit customer enrollment in September. So far, our test results from the {N}Power rollout have been really positive up in Oregon and Washington areas. The average ticket is higher to the {N}Power customers than our regular customers, and it seems to be having a positive impact up there. As we'd partnered with Instacart to start the home delivery trend at our stores,1 and the results we've seen from that have been positive. The Instacart did a survey of the customers that had received the – that have been – that have received delivery via Instacart, and 80% of…

The next question is from Scott Van Winkle of Canaccord Genuity. Please go ahead.

Hi, thanks. Congrats on the results. Kemper Isely - Chairman & Co-President: Thanks, Scott.

Kemper, the guidance, can we talk about the guidance for Q4? I mean it looks like the comp range you'd given for the year implies you expect kind of Q4 to replicate what Q3 look like from comps. In Q3, you had some margin growth and gross margin certainly offset little higher expense ratio. I recognize the taxes gave you a $0.01. You're probably not expecting that low tax rate in Q4, but the high end of your guidance range, it's really tough to get down to given what we just saw on the third quarter, from margin, from comp, from sales growth. Can you kind of put it in perspective what we should expect in Q4 relative to Q3? And just to make sure I got it correct, you fully funded all of your incentive comp in Q4, so it's not like it's going to be higher in Q4 as well. Kemper Isely - Chairman & Co-President: Well, we funded incentive comp at half of what we would have expected to have funded – I mean, what we had budgeted for. So it wasn't a full funding. But we expect to be at the higher end of our ranges that we gave you for sure. And as you said, our comp should come in right about where we have been coming in the last couple quarters. We want to make sure that we are giving realistic conservative forecast.

Okay. So there is no kind of explicit, hey, let's be a little cautionary on the gross margin or something of that nature? You're just trying to set expectations you can achieve? Kemper Isely - Chairman & Co-President: Correct.

Great. And then if I can sneak another one in and follow the trend here. Everyone is watching obviously what happened with Whole Foods today and their report last night. Competition picking up from the mass channel, traditional supermarkets. I don't expect you to comment on Whole Foods but more in your business, where do you think we are? Is it just the same it's been for the last year and a half? Has it picked up. A lot of commentary about King Soopers in your market being aggressive and (19:05) organic. Anything you can kind of expand on this? As we're all looking at this, it appears to be maybe an accelerating channel shift? Kemper Isely - Chairman & Co-President: I mean we feel really positive about how well we're competing with the mass merchandisers right now. I mean we feel like we have really differentiated product and we believe that our differentiated product makes us able to – to be able to compete very well with them and we don't necessarily have to compete dime for dime on price with them, because of our differentiations in our product offerings. I mean, a year ago, we changed out – we talked about this quite a bit, we changed out our dairy standard and it changed the look of that department. So it doesn't just follow King Soopers' department anymore. It's its own unique department and much of our store is the same way. Our produce is only organic. Go into King Soopers you have to really hunt to find your organic although they call it out, but you still have to hunt and find it. You don't at our stores. So I think that we are doing pretty well as far as competing with that segment of the market, and we don't seem to be having much of an issue there. And we are aware of them, I'm not going to dismiss them there. They are very good retailers and very good competitors, but like I said, I think we compete well with them.

Great. Thank you very much. Kemper Isely - Chairman & Co-President: Yep.

The next question is from Joe Edelstein of Stephens, Inc. Please go ahead.

Hi. Good afternoon, everyone. Kemper Isely - Chairman & Co-President: Hi, Joe.

Hi, Joe.

Just want to come back to the sales and comp performance for the quarter, it actually was a little bit lower than what we were looking for. I know that you already commented that the competitive environment at least from a store overlap perspective and just the comment you just gave relative to some of the other local competitors and how you are competing against them. But are there some other factors that might have held you back at least from what you might have initially expected just from the prior guidance whether it's lower inflation or just other items? Kemper Isely - Chairman & Co-President: Well, I think the big issue with revenue is really a timing of our opening of new stores. We ended up because of various construction delays, opening our stores later in every quarter so far this year than we had planned on and so that's where we've really been hit on revenue in our new store model. As far as the comp – at our comp stores, we are pretty happy with where we are at right now (22:00) I think we might be gaining some momentum but it's too early in this quarter to tell.

Okay. And also the shift of that remodel would certainly have impacted the total sales growth expectation, just pushing that into next year as well? Kemper Isely - Chairman & Co-President: Yeah, and we have just a lot of construction delays this year. It's been some city issues, some – just a lot of different things. Unfortunately, it's happened and we are getting through it, though.

If I could also ask one more question on the product margin, I was hoping you could maybe comment on private label penetration and how you might be progressing there and whether or not that positively contributed this quarter? Kemper Isely - Chairman & Co-President: Private label is just the same, right, at the moment. We are aggressively pursuing new private label options right now, but we haven't really started rolling them out, yeah, we expect to probably roll some of that out next year.

That's very helpful. Thanks and good luck. Kemper Isely - Chairman & Co-President: Thanks.

The next question is from Mitchell Pinheiro of Imperial Capital. Please go ahead.

Yeah, hi. Good afternoon. I'm curious: did out of stocks in any particular area affect your comps at all? Kemper Isely - Chairman & Co-President: I don't believe that we had a great number. Our out of stocks are lower this quarter than they were in the first quarters, though.

Okay. Kemper Isely - Chairman & Co-President: I don't think we have much issue with that.

Okay. And then looking at the fourth quarter gross margin, I mean do you see a sort of similar trend relative to the third quarter? Are there any puts or takes expectations for Q4? Kemper Isely - Chairman & Co-President: We probably won't have as high of a gain in gross margin in this next quarter as we had in the last quarter comparatively speaking to the year ago quarter. We're expecting a slight amount of margin improvement.

And so when you have your 60th anniversary event, so what does that do? Where will we see the impact of that event besides hopefully the sales line? Kemper Isely - Chairman & Co-President: Well, I mean, hopefully, it will – when you improve sales, it tends to improve all lines. Sales cures most evils in retail.

Okay. Well, that's all I had. Thank you. Kemper Isely - Chairman & Co-President: All right.

The next question is from Rupesh Parikh of Oppenheimer. Please go ahead. Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Good afternoon. Thanks for taking my question. So I had one or two questions just on your 2016 guidance. Would you be able to provide any color on what type of comp assumption you are building in that guidance for next year? Kemper Isely - Chairman & Co-President: As of yet, no. Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Okay. And are there any significant investments planned for next year? Kemper Isely - Chairman & Co-President: Any significant investment (25:14)? Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Yeah, yes. Kemper Isely - Chairman & Co-President: I mean other than in our stores or... Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Yes. Know this year was a big investment year. I just want to get a sense of whether there is anything unusual that you expect next year. Kemper Isely - Chairman & Co-President: Not anything other than new stores and remodels and relocations of our stores, so. I mean, we will give you really good guidance on that coming up here. Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Okay. And then just one more question on the competitive environment. If you look at your Colorado market, I know some of the conventional players have been more aggressive with price cuts out there. Have you been able to maintain your pricing gaps over the past few months? Kemper Isely - Chairman & Co-President: You know, the conventional, King Soopers in particular, Kroger is being very aggressive on pricing, and our pricing differential between them is about the same where it was last year. So there hasn't been a lot of change in that. Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Okay; great. Thank you. Kemper Isely - Chairman & Co-President: I mean they are very aggressive, so... Rupesh D. Parikh - Oppenheimer & Co., Inc. (Broker): Thank you.

The next question comes from Philip Terpolilli of Wedbush. Please go ahead.

Yes. Thanks for sticking in here. Just two questions. One, the cadence of the comp in the quarter -- if you could help us at all, if it was kind of stable or could accelerate in the back half that would be helpful. Kemper Isely - Chairman & Co-President: It was very stable.

Okay. And so you didn't really see any sort of benefit maybe the last four weeks to five weeks here from kind of the Whole Foods negative news headlines around that? Kemper Isely - Chairman & Co-President: I don't really think we did, no.

Okay; great. And then just one more question to -- on incremental cost for fourth quarter, I just want to make sure I understood some of the other answers. So you are saying from an earnings perspective, it does look a little bit conservative to us, but there is no sort of major step-up that you would call out that we should be aware of either on the operating side? Kemper Isely - Chairman & Co-President: No, not really.

Okay; all right. Thanks, guys. Kemper Isely - Chairman & Co-President: Thanks.

The next question comes from Bill Kirk of RBC Capital Markets. Please go ahead.

Thanks for the question. So with store count expected in 2016 to be up 21%, I believe, how do you think about managing talent and workforce to keep up with that kind of growth? Kemper Isely - Chairman & Co-President: Well, I mean it's 21% on a larger base, so we have essentially – after this year, we have 17 extra Assistant Managers. So we have that base to tap into to help us add talent to our -- our goal is always to promote within. And so now, we have 100 stores Assistant Managers to promote 21 Managers to, so it's like 21% of our Manager base to – Assistant Manager base to move up to Manager base.

And is there average tenure at an Assistant Manager before they are able to go to their new store as Manager? Kemper Isely - Chairman & Co-President: No, it really depends on the individual. Some Assistant Managers are ready to go from the moment they come into the store and some of them take six months to a year to get ready to go.

Okay. That's all from me. Kemper Isely - Chairman & Co-President: Okay.

The next question is from Rachel Cernansky of New Hope Natural Media. Please go ahead.

Hi, there. Thanks for taking my question. I wanted to ask you about something that you started to mention in your previous answer about the private label product. Can you talk a little bit more about – I think I remember earlier this year hearing that you were some private label dairy? So is that one of the first that you plan to roll out and what are other categories that you are looking at private label in? Kemper Isely - Chairman & Co-President: We have some private label dairy products in development right now and we should be rolling them out in the next two quarters. We also have some nice grocery items in development that we will be rolling out in the next couple of quarters.

Okay. And then can you talk about the impact of the pasture based dairy policy? Has that been – boosted sales or impacted the dairy category item? Kemper Isely - Chairman & Co-President: Dairy category, where have the biggest impact was in our yogurt category. And we essentially changed out 75% of our yogurts to different yogurts and we had a minimal loss in sales and unit sales and we've been gaining those back, which happens when supplies have become more steady. Overall, our dairy department is performing above our company sales growth growth-wise. I mean it's almost 25% for – or actually the last 12 months almost of 26% compared to a growth of 19% and almost 20% of the company, it's gained some market share in the last 12 months.

Okay. Great. Okay. Thank you. Kemper Isely - Chairman & Co-President: Welcome. I guess that...

There are no further questions at this time. Kemper Isely - Chairman & Co-President: All right. Thanks, everybody, for being on the call today. Have a great rest of your afternoon. Good bye.