Good day, ladies and gentlemen. Welcome to the Natural Grocers by Vitamin Cottage Fourth Quarter Fiscal Year 2021 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. Jessica Teason [ph], Assistant Treasurer for Natural Grocers. Ms. Teason, you may begin.

Good afternoon, everyone. And thank you for joining us for the Natural Grocers by Vitamin Cottage fourth quarter and fiscal year 2021 earnings conference call. On the line with me today are Kemper Isely, Co-President; and Todd Dissinger, Chief Financial Officer. As a reminder, certain information provided during this conference call are forward-looking statements based on current expectations and assumptions, and 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 and uncertainties 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, Jessica, and good afternoon, everyone. Thank you for joining us today. We had record performance in fiscal 2021 with net sales of $1.1 billion and diluted earnings per share of $0.91. Fiscal 2021 marked our 18th consecutive year of positive daily average comparable store sales growth. I take great pride in all of the company’s accomplishments this year. We finished the year with a strong fourth quarter, accelerating sales comps, higher margins and lower store expenses drove 100% earnings per share growth exceeding our expectations. Our commitment to our founding principles continues to drive our success, as evidenced by our strong results. We have seen an increase in customer engagement and loyalty. We believe our carefully vetted offerings of natural and organic products, at always affordable prices continue to resonate with consumers as they have developed a strong appreciation for the value of healthy nutrition and dietary supplements as a result of the pandemic. Today we announced that we are increasing our quarterly cash dividend to $0.10 per share from $0.07 per common share, a 43% increase. The dividend increase reflects our strong operating performance and financial position, our confidence in our business model and our commitment of returning value to our shareholders. During the quarter, we opened one new store in Springfield, Missouri, relocated our store in Columbia, Missouri, and remodeled one of our stores in Wichita, Kansas. For the fiscal year 2021, we opened a total of three stores and relocated or remodel five stores. We’re pleased with the performance of our new stores and relocations over the past several years. Our unique approach to marketing and promotional activity, including our {N}power Loyalty program continued to drive customer engagement, as well as sales growth during the fourth quarter. Our 66th anniversary event in August was very…

Thank you, Kemper, and good afternoon, everyone. We had an outstanding fourth quarter on top of a strong performance in the fourth quarter of last year. The most recent quarter posted positive sales growth, primarily attributed to increased customer engagement and loyalty, and our customer’s response to COVID 19 pandemic trends. Net sales during the fourth quarter increased 3.2% from the prior year period to $272.6 million. Daily average comparable store sales increased 2.5% on top of a 13.2% increase in the fourth quarter of 2020. The increased transaction counts continue to drive comps as shopping trips normalized towards pre-pandemic levels. In the fourth quarter, our average daily transaction count increased 3.4%. The count increase was partially offset by a 0.8% decrease in average daily transaction size. However, the basket size remained elevated as compared to the pre-pandemic level up over 20%, compared to the fourth quarter of 2019. Supplements remained a top performing category, with a comp of over 10% in the fourth quarter and over 20% on a two-year stacked basis. We believe the success we are seeing in this category is largely attributable to consumers continuing interest in supplementing their nutritional intake associated with the pandemic, coupled with the strong response to our branded supplements. Inflation remained in the 2% to 3% range during the fourth quarter and we continue to pass along the impact via pricing. Note that our rate of inflation tends to be more stable than the industry in general due to our high product standards, which necessitates a specialized supply chain. Out of stock levels in the fourth quarter remained relatively consistent with prior quarters of this year. Out of stocks are lower than at the beginning of the pandemic, although still above pre-pandemic levels. We also had a solid performance from a…

[Operator Instructions] Our first question comes from Greg Badishkanian with Wolfe Research. Please go ahead.

Good afternoon. This is Spencer Hanus on for Greg. Can you just talk a little bit about sequential acceleration in comps in 4Q and what drove that? And then who do you think you guys took share from during the quarter as well?

So the --thank you, Spencer. This is Todd. So the first part of your question, I believe was the trend in comps during the fourth quarter?

Yeah. Yeah. Can you just unpack that a little bit for us, because I think it’s the highest to your stack, you guys have seen since 3Q 2020. So any additional color there on really what drove the acceleration sequentially would…

Sure.

…be helpful?

So if you recall, the comp in Q3 was negative. It was trending favorably through Q3. In July, the comp was slightly negative and then we saw positive comps in August and September, with August being higher, I’m sorry, with September being higher than August.

Okay. Got it. That’s helpful. And then just on the margin front, incrementals were pretty strong this quarter and I think gross margins are up about 180 basis points from 4Q 2019. So how should we think about the sustainability of just the higher level of profitability that you guys have seen over the last few quarters and this quarter in particular?

Well, one of the key drivers in the fourth quarter was the supplements. The supplement comp was over -- was a double-digit figure. So we’re seeing that continue into Q1. We think that that trend was likely to support or help margin in the first half of the year and so we’re expecting margins for the full year to be flat to slightly positive and we’ll probably see some pressure on margin on the back half of the year, in particular, as we cycle Q4, where we saw this great improvement in supplements.

Okay. That’s helpful. And then, I think in the script, you mentioned that you’re seeing 2% to 3% inflation. But could you talk about the cadence of inflation sort of throughout the quarter? And then how are you guys thinking about next year when some of your contracts reset and what inflation could look like? And then, I guess, along the same lines, have you seen any pushback from customers on pushing through sort of this higher level of inflation than what you’ve done historically?

Okay. So the trend in inflation has been pretty steady, maybe a slight improvement in --during Q -- or a slight increase during Q4, but not significant, it’s been pretty steady. And then as we build out our guidance and did some sensitivities with inflation, we’re anticipating that inflation is going to run similar to what we experienced in fiscal 2021, which would be that 2% approximate range.

And then, as far as, this is Kemper, as far as our customers absorbing the costs of the higher prices, everybody is having to pass along the same or similar or even higher costs and so there isn’t much choice, I don’t think and our customers don’t seem to be blinking in regards to that issue.

Okay. Got it. And then I think you mentioned also you raised hourly pay again this quarter, have the recent pay rises improved the turnover you guys are seeing from employees? And do you think there’s any more investment that’s needed on the labor front to retain employees?

I would say that the turnover has been -- our core staff isn’t turning over significantly. It’s the periphery the staff that just comes on and then goes off. So that’s our biggest, the biggest issue is just was, when there was the extra unemployment payments out there was just attracting people to apply for jobs. It wasn’t really that we had a lot of turnover. I mean, there’s always a little bit of turnover, but it was hard to get people to want to come off the couch, because they were getting paid more to stay on the couch. Now that that’s gone away, we seem to be able to hire people much more easily right now than pre -- the extra instead of not work payments that were coming from the government.

Great. Thank you guys.

Thanks.

Thanks, Spencer.

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 and fiscal 2021 results. We are proud of our performance and our history of providing high quality products at always affordable prices and our service to our communities. 18 years we’ve now had positive comparable store sales growth, which is quite an achievement in my opinion. We look forward to speaking with you on our next call to review our first quarter 2022 results. Please stay healthy and stay safe and have a great day. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.