Good day, ladies and gentlemen. Welcome to the Natural Grocers' Third Quarter Fiscal Year 2019 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. David Colson, Vice President and Treasurer for Natural Grocers. Mr. Colson, you may begin.

Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage Third Quarter Fiscal Year 2019 Earnings Conference Call. On the call with me today are Kemper Isely, Co-President; and Todd Dissinger, Chief Financial Officer. As a reminder, all statements made on 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 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. Today's press release is available on the company's website, and a recording of this call will be available on the website at investors.naturalgrocers.com. Now I will turn the call over to Kemper.

Thank you, David, and good afternoon, everyone. We are pleased with our third quarter results as we continue to execute our marketing and operational excellence strategies while maintaining focus on our founding principles. These principles drive every aspect of our business, differentiate us from the competition and are the driver of our sustained comp momentum. We remain focused on delivering the highest quality standards, always affordable prices, nutrition education and commitment to our communities and our good4u crew. Third quarter results were highlighted by a 2.4% comp increase and 5.3% net sales growth of $224.4 million. As a result of our year-to-date performance and our expectations for the fourth quarter, we are increasing the midpoint of our expected diluted earnings per share guidance range, as Todd will discuss. We have now posted 9 consecutive quarters of comparable store sales growth, which is a reflection of our favorable positioning in the market and the continued growth of natural and organic foods, and nutritional supplements. It also reflects the initiatives we have implemented over the last several years to drive sales, effectively communicate Natural Grocers' differentiation, build customer loyalty, deliver both unrivaled quality and value to our customers and improve operational efficiencies. On the marketing front, we are working to increase brand reach and presence by tracking and analyzing total impressions across our advertising channels, allowing us to gain insight into what's most important and relevant to our customers, and to optimize the effectiveness and efficiency of our marketing efforts. Even in our mature markets, we believe there is an opportunity to reach new consumers as well as further penetrate our share of voice with existing customers. In May, we announced a strategic partnership with Alterra Mountain Company, becoming the official grocer for both the Steamboat Springs and Winter Park resorts, expanding…

Thank you, Kemper, and good afternoon, everyone. During the third quarter of fiscal 2019, net sales increased by 5.3% to $224.4 million, with daily average comp store sales growth of 2.4% and a mature store comp increase of 1.7%. The comp increase was driven by a 3.0% increase in average transaction size, slightly offset by a 0.6% decrease in daily average transaction count. While transaction count was lower year-over-year, we compared to a 4% growth rate of transactions in the third quarter of 2018, leading to a 3.4% transaction growth rate on a two-year stacked basis. The environment remains competitive, but relatively stable, both in terms of new competitor openings and relative pricing. As you know, we regularly perform price studies across product lines to ensure we maintain our competitive, always affordable prices. Further, on the supply front, we continue to see fairly stable prices, experiencing modest inflation of about 1% and ample supply of our key product categories. High-quality and premium products, such as organic, are generally less commoditized, and thus, less volatile in terms of inflation. During the third quarter, we relocated 2 stores and did not have any new store openings. So far, in the fourth quarter, we have relocated 1 store, and we anticipate 2 new store openings during the remainder of the fourth quarter. In total, we currently have signed leases for 6 additional new stores and have acquired the land and building for 2 more new stores, which we plan to open in 2019 and beyond. We continue to monitor new store performance and remain comfortable with our targeted store openings. There are plenty of growth opportunities in our targeted regions for the next several years, and our smaller store footprint provides the flexibility to succeed in both large and small markets. Recall that…

[Operator Instructions] Our first question will come from Scott Mushkin of Wolfe Research.

So I guess, I wanted a couple of them. First, I wanted to talk about the labor and what's going on there. Obviously, with a 2.4% comp and levering that line, given what's going on with wage inflation. Just curious how sustainable that is? What are you doing to make that happen? And where do you think your leverage point is? Usually, most companies have been talking about the 3% comp is what they really need to do to start to leverage that line. I was wondering what you guys think your comp needed there is?

Well, I think that, as our stores mature, we're able -- we still have a lot of young stores, and so we're able to get a lot more labor efficiency out of the moment -- out of the stores as they mature. And so for the next couple of years, we probably should be able to either see leverage or at least stability in the percentage of sales that we pay in labor costs if we can maintain at least 2% to 2.5% comp.

All right. Then my second question -- no, I guess a little follow-up to that one is, and then I'll ask my other question is, what you're doing with labor to leverage it? It sounds like you got some active programs there besides just the maturation or maybe it's just a maturation. So that's a follow-up and then my other question is just -- we're into the fourth quarter. What are you thinking about next year? It sounded like maybe you'll accelerate store growth a little bit. How do we start framing 2020? Can you grow EBITDA? Like, if you can give us some thoughts -- initial thoughts on 2020, it would be great.

I think that we'll probably maintain a similar pace of store growth to what we have done this year. And also, we consider moving the stores similar to a new store that -- hopefully in the 10 stores of new and move stores next year. As far as EBITDA growth. If we're able to continue to have -- it is going to be kind of difficult to measure EBITDA growth next year because of the new accounting rules. So it's hard to say how exactly that's going to happen because of the new lease accounting rules. So that is a difficult one to measure. At this point in time, we're not able to exactly have a clear picture on how the new lease rules are going to affect our EBITDA. And then going back to your labor question. As I said, it's primarily being able to become more efficient because of our younger stores.

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Kemper Isely for closing remarks.

Thank you very much for joining us to discuss our third quarter results. We look forward to speaking with you on our next call to review our fourth quarter and full fiscal 2019 results. I hope you have the opportunity to visit one of our stores on August 15 to celebrate our 64th Anniversary. Have a great day. Thanks.

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