Good day, ladies and gentlemen. Welcome to the Natural Grocers' Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in 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 like now to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for the Natural Grocers. Ms. Thiessen, you may begin.

Good afternoon and thank you for joining us for the Natural Grocers by Vitamin Cottage fourth quarter and fiscal year 2023 earnings conference call. On the call 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 for our fourth quarter call. Today, I would like to highlight our financial results, outline several key drivers and accomplishments, and review our priorities and initiatives. Then Todd will discuss the fourth quarter results in greater detail and introduce our fiscal year 2024 guidance. Our fiscal year 2023 daily average comparable store sales growth of 3.6% marked our 20th consecutive year of positive comparable store sales. We are proud of this extraordinary accomplishment. For the fiscal year, we achieved record diluted earnings per share of $1.02 and an 8.5% increase compared to last year. Our fourth quarter sales trends were particularly strong. Daily average comparable store sales increased 6.9%, including a 3.6% increase in daily average transaction count. Moreover, the strength was broad-based across our product categories. We attribute the strong fourth quarter and fiscal year sales to our differentiated business model and our responsiveness to the industry dynamics. We continue to be positively impacted by consumers prioritizing health and wellness. Our customers appreciate our carefully vetted natural and organic product offering. We believe that our value proposition of high quality products at always affordable prices resonates with consumers in the current economic environment. During fiscal 2023, our targeted marketing and promotions effectively drove customer engagement. Our percentage of sales on promotion has been relatively stable over recent quarters. Further, our emphasis on the in-store shopping experience has been an important contributor to driving our strong traffic trends. I would like to recognize our operations, purchasing, and marketing teams for how they have nimbly transitioned from pandemic conditions to focus on core execution and navigating the current macro environment. Our company's commitment to operational excellence and continuous improvement were instrumental in driving our strong fourth quarter and fiscal…

Thank you, Kemper, and good afternoon. For the fourth quarter, net sales increased 7.6% from the prior year period to $295.1 million. Our daily average comparable store sales increase of 6.9% was comprised of a 3.6% increase in daily average transaction count and a 3.3% increase in daily average transaction size. We are very encouraged by the strong customer traffic trends we have experienced over the past several quarters. We estimate that product cost inflation was approximately 5% on an annualized basis for the fourth quarter, down 200 basis points from the third quarter, and was approximately 7% for the fiscal year 2023. Our product cost inflation and disinflation have been less volatile than conventional grocery as a result of our specialized supply chain. The item count per basket was down less than one-half of an item compared to the same period in the prior year, reflecting an improving trend over the past several quarters. Our item count remains above pre-pandemic levels. Sales growth was broad-based across categories. Our strongest performing departments were dairy, body care, meat, and dietary supplements. The growth in supplements continues to be encouraging and reflects our differentiation in this important category, which is margin accretive. The {N}power rewards program represented 77% of net sales, reflecting the strength of our relationships with so many of our customers. For the fourth quarter, gross margin increased 100 basis points to 28.6% and was driven by higher product margin attributed to effective pricing and promotions, partially offset by higher shrink expense. Store expenses as a percentage of net sales decreased 70 basis points and was primarily driven by lower long-lived asset impairment charges as compared to the prior year period. Administrative expenses as a percentage of net sales increased 10 basis points and was primarily driven by higher compensation…

We will now begin the question and answer session. [Operator Instructions] Our first question comes from Scott Mushkin of R5 Capital. Please go ahead.

Hey, guys. Wow. An unbelievable comp [ph], incredible, kind of along the lines where we talked about last quarter about maybe the specialty Europe format resonating a bit more as we come out of the pandemic. So, it does, though, if I look at it, you obviously had a real easy compare. I go back and forth on stacks. But how much do you think that played into the big acceleration of the comp in the fourth quarter versus the third?

It definitely played a little bit into that acceleration, because as you said, we had pretty sad comps last year. But I don't think - I think we had really strong customer count growth. And so, I think that's the real positive out of what we got for the quarter.

And remind me what the count growth was in the third quarter. Did it accelerate year-over-year - quarter-to-quarter sequentially?

Yes. There was - do you have that there any thought, Jessica?

1.9 to 3.6.

Yes, from 1.9 to 3.6 in the quarter. It was a substantial acceleration of customer count growth in our stores.

Yes. So, if you had to frame it as, okay, this is what we're doing, that's driving really good performance on sales, and this is what we think is macro-related, our formats resonating more. How would you break that down? And then, when you look at your own drivers, what do you think the top ones are?

Well, I mean, our primary drivers that we're communicating with our 78% of our customer base four or five times a week via our {N}power promotions and emails to those customers. And so, that's really helping to get those customers more engaged. And then, the word of mouth is getting out there, and then we're doing an effective job with out-of-home promotion with our billboards and targeted social advertising to get new customers into the stores. And then the third thing is, our pricing strategy is one of affordability. So customers like that quite a bit. And then fourth, we just have - our standards resonate in this world we live in now. And people appreciate the fact that we're well over 50% organic in all the products we sell. Our produce is 100% organic. And we're using - we're promoting pasture-based animal products, which are actually beneficial to climate change rather than a negative, which is what most other retailers have with their animal products, because they're raising them in confined quarters that actually has a negative connotation for climate change. And so, our customers, I think it really resonates with our customers because we're able to communicate with them effectively through our {N}power program.

Scott, I think I'd add to that too that we've got a pretty diverse customer base, but we may be less dependent on the lower income customer. One data point that we have is the SNAP EBT, which is really only about 2% of our total business. And we saw a significant drop in transactions with those customers in this past quarter.

That's actually a good segue. I'm usually one of the only people on this call, so if you guys just tell me to shut up, I have a couple more questions. Hopefully that's okay. But it's a good segue into demographics. Have you seen a notable shift, maybe younger in the last couple of years to your demographics that are coming into the store?

We definitely have a good group of millennials coming into the store and families coming into the store. Although, as Todd said, we do skew a little bit on a higher income basis, and the baby boomers who have less financial strain are definitely the backbone of our business.

Have there been any big changes as you look through your frequent drop in data, or has it been steady?

It's been pretty steady.

All right. Last but not least is my special dividend question, which it seems like you guys are – I wouldn't consider you underleveraged. It seems like your adjusted leverage is about three times. I don't know if you agree with that. Using up all the cash and putting out a little bit more debt to pay a special div, I just wanted to understand kind of - it seem to – I'm going to call it aggressive, but it seems a little bit more that way, and kind of just walk me through what the thought process is? And walk me through if you think I'm right or wrong about what I said?

Well, the way we look at it is that we had two ways of going. We could have increased the size of our quarterly dividend or issued a special dividend. And then we also look at stock buybacks. So we don't – we're not going to – you'd have to spend a significant amount, significantly more money on stock buybacks to get the impact of a special dividend to our shareholders. But if you look at it on a cash flow basis, the special dividend will be paid off fairly rapidly and it won't cause any difference in our cash flow over the next three years, whereas if we had done the increase, and it gives a really good value back to our shareholders. And then, whereas if we'd done the increase in the quarterly dividend, that's just a constant outflow of the cash. I don't know if that makes sense to you, but that's the way we looked at it. We looked at it from our cash – how fast are we going to be able to regenerate that cash from the special dividend into the company. And it really has no effect whatsoever on our cash outlays compared to where we would have been before. So we thought it was well worth doing.

Sounds good, guys. You've got another just great quarter. So, thanks.

All right, thanks.

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 for joining us to discuss our fourth quarter results. We take great pride in all of the company's accomplishments in fiscal 2023. We are committed to maximizing value for our stockholders. Today's declaration of our second special cash dividend yields a cumulative payout of $4.46 since the dividend program's inception four years ago. We look forward to many opportunities in fiscal year 2024. Thank you and have a great day. Bye.

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