Good day, ladies and gentlemen. Welcome to the Natural Grocers' Fourth Quarter and Fiscal Year 2020 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 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 fourth quarter fiscal year 2020 earnings conference call. On the call with me today are Kemper Isely, Co-President; and Todd Dissinger, Chief Financial Officer.

Thank you, David and good afternoon everyone. Thank you for joining us today. We faced many challenges and opportunities in fiscal 2020 and our response resulted in a record performance, including achieving over $1 billion in net sales and $0.89 in diluted earnings per share. Fiscal 2020 was also our 17th consecutive year of positive daily average comparable store sales growth. Our fourth quarter comp was up 13.2% and the full fiscal year comp was 12%. Our strong comp trends have continued through October. During fiscal year 2020, we also continued to enhance store performance with our margin expansion efforts. Supported by the strong sales momentum, we realized significant improvement to adjusted EBITDA during the year with 28.1% growth in the fourth quarter and 29.1% growth for the full fiscal year. We are pleased to announce that we are declaring a special cash dividend of $2 per common share in addition to our quarterly cash dividend of $0.07 per common share. The special dividend reflects our strong business performance, financial position, cash flow, and our commitment to return value to our shareholders. Fiscal 2020 was an unprecedented year, presenting numerous challenges amid the global pandemic and related government mandates. We are very proud of our strong response and performance. Our entire Natural Grocers family adapted quickly and successfully to these challenges, while staying true to our founding principles. We navigated through the toughest of operating environments, while delivering the highest quality, natural and organic foods to our valued customers. Our strong results in both the fourth quarter and full year reflect our ability to leverage our core competencies and values. Our long-standing focus on health is an important differentiator and on-trend given the current environment where customers are focused on making informed health and nutrition choices, including an emphasis on strengthening their immune system.

Thank you, Kemper, and good afternoon, everyone. As Kemper mentioned, we had an outstanding fourth quarter and fiscal year amid a challenging operating environment. Our financial results reflect the commitment of our good4u crew to our customers and the communities we serve. Net sales during the fourth quarter increased 16.3% to $264.2 million, with daily average comparable store sales increasing 13.2%. The fourth quarter comp increase was driven by a 23.7% increase in average transaction size. This strong transaction size was partially offset by an 8.5% decrease in daily average transaction count, reflecting a continuation of the trend of less frequent shopping trips as customers practice social distancing.

Thank you. We will now begin the question-and-answer session. Our first question comes from Greg Badishkanian with Wolfe Research. Please go ahead.

Good afternoon. This is Spencer Hanus on for Greg. Congrats on a nice quarter, guys.

Thank you.

So, I guess my question was just on the comp trends that you're seeing quarter to date. Can you quantify what those are running currently? And then, are you seeing any signs of consumer's stocking up again as the virus rises in parts of the country? And has the supply chain shown any signs of weakness given the rising cases?

Well, currently, comp trends are running similar to how they ran in quarter four. As far as supply chain, we haven't seen – we've actually seen improvement in supply chain in the stock over every month, essentially since about May. As far as people stocking up, they are stocking up slightly, but not significantly compared to how they did when the – when – in March of this year.

That's really helpful. And then can you talk about the components of the gross margin expansion that you saw during 4Q? And as we look to 2021, how much of the gross margin benefits that you saw in 2020 should we expect to stick next year?

Thank you, Spencer. So, the drivers have been less promotional activity. Most of the promotional activity has been supported by vendors. We see that continuing into the first half of 2021. We would expect to see elevated margins similar to where we were in Q4 through the first half. And then margins should -- when we hit March level off. And March would probably be down on a year-over-year basis because of how strong March of 2020 was. And then the second half of the year, we would expect to be about flat on a year-over-year basis.

Okay. And I think you mentioned that e-commerce sales slowed a little bit on Instacart. Can you talk about what the percent of sales e-commerce represents today? And how sticky do you think those sales will be next year in that channel?

Sure, Spencer. So, we don't give the exact data out on our Instacart sales. It represents a couple percent of our total company sales and that would compare to a little bit less than 1% in the prior year, like I said, fourth quarter. And we've seen that moderate in Q4 versus Q3. So, it's hard to say long-term how sticky that will be. Certainly, while the COVID environment is challenging, there will be some customers opting for delivery.

And then the final one is just on unit growth. I think your guidance calls for five to six new stores next year, which is less than less than 5% growth that you've growth that you've run in some years in the past. When do you think there'll be an acceleration in new units? And how are you thinking about the unit growth here?

Right at this moment, we don't anticipate accelerating our growth beyond the five to six units that we're planning on growing next year. We think that moderated growth is prudent and is helpful to us so that we can make sure that we pick premium sites and that we can keep on giving operational excellence in our new stores.

Great. Thank you guys.

Thank you.

Thanks.

I'm showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks.

Thank you very much for joining us to discuss our fourth quarter results. We remain confident in our business based upon our 65-year history. We look forward to speaking with you on our next call to review our first quarter 2021 results. Please stay healthy and safe and have a great day. Thanks. Good bye.

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