Good day ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter Fiscal Year 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct the 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.

Good afternoon everyone and thank you for joining us for the Natural Grocers by Vitamin Cottage, full year and fourth quarter 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’ll turn the call over to our Co-President, Kemper Isely.

Thank you, Ashley. Good afternoon everyone. We are pleased to report another fiscal year of solid results. Our five founding principles and focus on operational excellence continue to drive our sales growth as we remain focused on our disciplined approach to cost controls. We delivered strong financial results this year and anticipate that we will carry this positive momentum into fiscal 2016. Our 60th Anniversary event in August was a huge success, our largest sales day every. In addition to strong customer turnout we had great vendor participation and our employees did an exceptional job organizing and promoting the biggest event in our 60 year history. Based on the positive energy, we look forward to turning this into an annual celebration. During fiscal 2015 net sales increased 20% to $624.7 million and comparable store sales increased 5.9%. Net income increased 20.3% to $16.2 million and our diluted earnings per share in fiscal 2015 was $0.72 compared to $0.60 last year. We saw encouraging trends in our comparable store sales in the fourth quarter. With comparable store sales increasing 6.2% compared to 5.8% in the third quarter, this marks at least 53 quarters of positive comparable store sales growth. We continue to focus on our directed sales initiatives, our free science-based nutrition education, outstanding customer services and operational excellence. We believe our dedication to strict quality standards, nutrition education and our commitment to 100% organic produce drives initial traffic at new stores and strengthens custom royalty at existing stores. Now, I’d like to share an update on our various sales and marketing efforts. First, we completed the rollout of {N}Power, our customer appreciation program. In the fourth quarter we are very pleased with the initial results. So far we have seen strong customer engagement levels that have exceeded our expectations. We…

Thank you, Kemper. Good afternoon, everyone. As Kemper indicated, we had another strong year. Net sales in fiscal 2015 increased 20% to $624.7 million. Daily average comparable store sales increased 5.9%, driven by a 3.6% increase in daily average transaction count and a 2.2% increase in average transaction size. Daily average mature store sales increased to 2.6% in fiscal 2015. Gross profit in fiscal 2015 increased 20.2% to $182.1 million, driven by positive comparable store sales and an increase in the comparable store base. Gross margin improved 10 basis points due to increases in product margin, partially offset by higher occupancy costs. Store expenses increased 21.6% to $132.1 million in fiscal 2015. As a percentage of sales, store expenses increased 30 basis points in fiscal 2015 compared to 2014 due to increases in other store expenses and depreciation, partially offset by decreases in salary related expenses. As discussed in our fiscal 2015 guidance, store expenses in fiscal 2015 compared to fiscal 2014 were also impacted by higher incentive compensation and other discretionary benefits expense, reflecting the company’s pay-for-performance philosophy. Administrative expenses increased 18.2% to $17.5 million in fiscal 2015. As a percent of sales, administrative expenses remained flat in fiscal 2015 compared to fiscal 2014. Pre-opening and relocation expenses were $3.8 million in each of fiscal 2015 and ‘14. In fiscal 2015 we opened 16 new stores compared to 15 new stores in fiscal 2014. Net income increased 20.3% to $16.2 million with diluted earnings per share of $0.72 in fiscal 2015 compared to $0.60 in fiscal 2014. In fiscal 2015, EBITDA increased 20.5% to $50 million or 8% of sales. Touching briefly on our fourth quart results, net sales increased 19.7% and daily average comparable store sales increased 6.2%. Net income was $2.9 million or 1.8% of sales with diluted earnings per share of $0.13 in the fourth quarter. We ended the fourth quarter with $2.9 million in cash and cash equivalents and no amounts outstanding on our credit facility. Subsequent to year end we exercised the $10 million accordion feature under our credit facility, increasing our commitment to $25 million. Now I will turn the call back to Kemper to discuss our new store growth and outlook for fiscal 2016.

Thank you, Sandra. We opened a record 16 stores in fiscal 2015, bringing our total account to 103 stores in 18 states. During the fourth quarter we opened four new stores and expanded our geographic presence in both new and existing markets. Since the end of the fourth quarter we have opened three new stores, one in Colorado and two in Utah. Since July we have relocated two of our mature Colorado stores and have seen positive sales impacts. Our new stores are performing in line with expectations and we remain on track with our new store pipeline. In fiscal 2016 we plan to open a record 23 new stores and expand our geographic presence by entering a new state and new markets. We have a robust new store pipeline to support our 20% annual unit growth with 17 signed leases for new stores planned to open in fiscal 2016 and 2017 in Arizona, Arkansas, Colorado, Iowa, Oregon, Texas, Utah and Washington. We have good visibility on the remaining fiscal 2016 store opportunities. Our real-estate strategies 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 have had successful new store openings whether in smaller or larger markets. We believe the enter U.S. market can support at least 1,100 Natural Grocers stores, including over 230 addition stores in the 19 states in which we currency operate or have signed leases. The strength of our results positions us well to continue our investments into future growth. We anticipate our fiscal 2016 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…

[Operator Instructions] Our first question comes from David Magee of SunTrust Robinson Humphrey. Please go ahead.

Yes hi. Good afternoon everybody. Good quarter.

Hi David.

I had just a couple of questions. One is, I guess your now lapping the extended hours from last year, did I hear that correctly?

That’s correct. In October we started lapping.

Yes, is that something that you would see, do you think in the numbers; but you see that in the comps?

For this quarter you mean?

Yes, I’m just curious if there was any sort of deceleration just from that and I guess maybe a broader question around that, it seems like a lot of retailers have seen some weakness overall in October, but your numbers seem to be pretty solid. So I guess that’s a two part questions. Did you have any sort of deceleration because of the comparison and then number two, are you seeing any sort of macro volatility?

Well, this quarter is probably going to come in on our lower than what we are predicting for our year-over-year comp, so on the low end we are at 5%, will probably come in somewhat lower than that on this quarter. Probably some of that has to do with lapping on the hours. Some of it has to do with just a number of other issues that are going on in the macro economics in our current regions. Does that answer your question sufficiently?

It does. Thanks Kemper.

Yes. Any other questions today David?

No, I’ll get back in the queue and let somebody else ask. Thanks.

All right, thanks.

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

Yes, just following up on that a little bit Kemper, you had talked I think in maybe it was Q2, your fiscal Q2 about some macro economic pressures in some of the areas that you’re competing in. Would you say that those had persist a little bit into Q4 and then here in to Q1. Just trying to understand a little bit more on the potentially little bit lower comps.

I think in this current quarter they have persisted. I think in Q4 we did really well. We’re at 6.2% comp, which meet our yearly average and was our best quarter for the year. So there seems to be just a little slowing down. The average ticket hasn’t gone up as much as we would expect this quarter and its trailing in the past quarters in our customer accounts. Almost the same increase, but not quite.

Okay, and then just another question on that. Can you just elaborate maybe a little bit on the NP [ph] inflation in the quarter? Obviously there’s a lot of discussion about deflation in food. I know that you haven’t seen it as much in your store. Was just curious how that played out in the quarter and then what you’re expecting as we move it here into fiscal ’16?

So far we really haven’t seen any deflation in what we’re selling. It’s been pretty normal inflation rates of around 2% to 2.5% for the entire year and it really, and that was at pretty much what it was last year also. We have fortunately seen a little bit of softening in the prices on nuts, those may come down, I would guess maybe staring in January of this year, which is nice.

Okay, good to hear and just a last question for me and I apologize, but any updates on the private label program that you guys have been rolling out a little bit more. I know that you’ve been doing some stuff in dairy, but just any additional comments there would be great.

We plan on partnering with a company here in this starting next year, well in our second fiscal quarter to aggressively address rolling out more private label items.

Okay, great. Best of luck in the first quarter.

Thanks.

Our next question comes from Joe Edelstein of Stephens. Please go ahead.

Hi, good afternoon everyone.

Good afternoon Joe.

Maybe just to tag on to Sean’s question there, I was curious, a little bit more on the private label side as you look to roll that out. I was hoping you could maybe just kind of take us back and talk to how long it took to kind of get to where you are today with the new offerings just from the original conception and kind of now getting it out on the shelf, and then are you also adding some staff to go a little faster there and then I do have a second unrelated question there.

Well, they took way too long from inception to getting them out on the shelf and so we decided to change directions in regards to how we would rollout private label. We’re going to partner with a company that has expertise in helping grocery stores rollout private label products at their stores and we should have a much quicker timeframe of rolling out private label skews once we start that partnership.

Okay, that’s helpful, thank you. And then Sandra, I was hoping you could just talk to the incentive comp plans and just what’s embedded in the new guidance. I think in the past you kind of fully loaded the incentive comp, although it ends up being tied to a variety of different metrics that would then require that full payout, but might actually help you get to a higher top line growth. Am I thinking about that correctly with the new guidance?

So the new guidance outlook number includes a slightly lower incentive comp number, but pretty close to where we landed this year. Hopefully we’ll beat those numbers and reach our sales goals and then we’ll be paying more.

Okay, thanks and good luck.

Thanks.

Our next question comes from Rupesh Parikh of Oppenheimer. Please go ahead.

Thanks for taking my question and congrats on a nice quarter.

Thanks Rupesh.

So I also wanted to follow-up on a prior question, just on what you’re seeing in October. So last year in your Q1 you had a pretty – a more difficult comparison, 6% plus comp. Just want to get a sense, if you look at the three year stock trend, has that stayed about consistent with what you saw in Q4 or have you seen a deceleration?

Did you say on the two year stock trend?

Yes, the two year stock, yes.

We were – go ahead.

So in Q4 Rupesh, is that what you’re asking?

Yes, you’re Q4 and then I guess October you guys went through the deceleration.

Yes, in Q4 we added a 10% two year stock number, so its back into the double digits, which we hadn’t been in for the prior quarter and then we really aren’t giving more guidance or output date on where we are in Q1, other than what Kemper said about we think we’ll come in at the lower end or even below the comp guidance.

Slightly below the lower end of our comp guidance.

Okay, great. And then if you look at your outlook for I guess competitive – if you look at I guess the competitive environment for this upcoming year, how would you characterize the number of openings in your markets versus what you saw maybe in fiscal year ’15?

We think that it’s stabilizing at about the normal where we’ll have about 25% of our store base effective by competitive openings in the coming year.

Thank you for all the color.

Thanks.

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

Hi. I think you said there would be four relocations next year…

This year Bill.

Yes and then two this quarter, and I don’t think you’ve relocated many stores. So can you walk us through the decision making process on why those stores and why now?

Well, a lot of our stores right now are coming up on being 15 year or 20 years old and it’s at that point in time, it’s a good time to give them a facelift and bring them up to the format of our current stores and when we do one of these remodels in one of our mature stores. We tend to have a really nice lift in sales from that move and so we’ve tipped stores that are near the ends of their leases and are that it’s opportunistic for us to move them and enhance their viability in the marketplace.

And is there any change to store size when you do a move? Do you go bigger, do you go smaller, is there any…

They tend to be all larger stores. I mean one of the stores that’s slated for move this year is our boulder store and it’s an 8,000 square foot footprint and it will be going to almost a 16,000 square foot footprint.

And then another kind of on real estate, I think the new market you referenced for 2016 I think is Iowa. How big do you see the opportunity there?

In Iowa, we see there’s several. I mean we consider market cities, but in Iowa we see – we’re looking at several cities right now. I think we already, we have about five of them in planning stages for Iowa.

Okay, I think that’s all for me. Thank you.

Sure.

Our next question comes from Mark Wiltamuth of Jefferies. Please go ahead.

Hi, good afternoon. Kemper, I wanted to get your thoughts on the gross margin outlook given that Whole Foods is talking about taking down their gross margin, they are getting a little more aggressive on price. Just how do your stores react when they are changing pricing and also just give us an update on what your conventional grocers are doing in your markets right now?

Well, one of our founding principles has always been to have everyday affordable pricing and so we have always been kind of a price leader in our industry and so as people come down in price, they get closer to where we have been in pricing. Our competitors come down in pricing to get closer to where we have been in pricing. As we grow and we get volume, we lower our prices and maintain our margins. And then secondly, a lot of Whole Foods has been cutting pricing has been in their conventional produce, and we don’t sell conventional produce and so we are not getting into that particular dive to the bottom. Also hopefully, if you listen – I mean I’m sure you did listen to their call, but they said that they weren’t planning on becoming the price leader. They weren’t going go to the bottom; they weren’t going to become a bottom dweller on price. They think that they have a better offering and they don’t have to go to the bottom of price. We also think that we have a lot of very good differentiating factors about our company and so on some things we don’t have to necessarily have the best price, but we have to have a competitive price. As far as the supermarkets, they’ve always been very price competitive and they still are. I haven’t seen them become any more price competitive than they used to be.

Okay, great. And then on the Instacart offering, how many stores are you servicing, with that now and if you have any rollout plans you could share with us.

Well, currently we are servicing the Portland market, the Denver market and the Boulder market. Our plan is to add it to other markets as they become available to us. So probably some down in Texas, hopefully may be Kansas, but that would be our plans.

Okay, thank you very much.

Thank you.

Our next question comes from Scott Mushkin of Wolfe Research. Please go ahead.

Hey, good afternoon everyone. This is actually Mike Otway in for Scott. Thanks for taking the questions. Just on the comp guidance for the year, I think Kemper you mentioned you guys are running a little bit below that. As you cycle some of the added store hours and some of the macro softness I guess that you talked about, what gives you confidence in getting back into that range for the full year.

One of the things that’s going to help us is the four store moves in making this. We really don’t have a very positive impact on that comparable store sales growth, so that would be one thing. The other thing is that as we go through the year, we see – have just modeled – as our newer stores come into comp, they will have some positive impacts on our comp later in the year. And then the stronger rollout of our {N}Power in the second quarter we think will be the benefit, the expansion of our private label offerings and our focus on community events and the Nutrition Health Coach we think will also have a positive impact.

Okay, I appreciate that. And then I guess quickly, it looked like you guys took down your cash on cash return in your store level economics, just to smidge to 30% from 35%, but kept the upfront capital about the same. Can you just talk about some of the drivers behind the lower return there, slightly lower return?

Primarily it’s been that we’ve had to spend more on our leases for the rent. The lease rate has been the primary driven of that. As the economy has improved, the land has become more expense and construction costs for new building has become higher and so the rental rates have gone up a little bit.

Got it, but on the expense side rather than the sales side.

Correct.

Okay, thank you very much.

Thanks.

Our next question comes from Ron Revel [ph] a Private Investor. Please go ahead.

Thank you. Congratulation on the numbers.

Thanks.

What’s the timeframe on that older store relocation?

It will probably be in the fourth quarter, our fourth quarter which would be July through, September of this year.

Okay, it’s badly needed.

Yes it is, you’re right about that. You can go out and ask the doorman. It’s just talking a long time to get through the Building Department out of Boulder to get that.

I know that, I live there. Okay good, thank you.

Sure. Thanks for calling in.

Our next question comes from Mark Sigal of Canaccord. Please go ahead.

Hi, good evening. It’s Mark on for Scott Van Winkle. You talked about kind of resuming the 20% growth algorithm in net income and EBITDA in the out years. Can you talk about what gives you confidence about getting back there. Is it more normalized occupancy and incentive comp in the out years? What pieces of kind of the algorithm do you see falling back into historical place?

I’m going to let Sandra take that question Mark.

So Mark, part of what we are seeing in our outlook for 2016 is that we are increasing our growth rate over 20%. So we are go a 23% growth rate versus last year when we were at closer to an 18%, just slightly over 18% growth rate. So that decision to be bullish on new store openings and continue to drive that number in this year in our outlook, we are really looking for that to put some pressure on flow-through to the bottom line. So I would say that’s a good piece of it there. There’s also some amount that says, yes, we are looking to get more training and are people really focus on what our accounting principles are and how to move forward. We have our new VP of Ops in place and I think that’s also going to help us just really drive there and we have the new VP of Information Systems and Treasury. So we just have a lot of strength this year, but it’s our first year of having what we hope will be soon for a VP positions. We are looking to also fill the VP of Marketing.

And this concludes our question-and-answer session. I would like to now turn the conference back over to Kemper Isely for any closing remarks.

Thank you everyone for being on the call today. We appreciate it and we look forward to talking to you on our next call. Have a good afternoon. Bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.