Good day, ladies and gentlemen. Welcome to the Natural Grocers Second Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Ms. Thiessen, you may begin.

Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Second Quarter Fiscal Year 2024 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. Today, I would like to highlight our second quarter financial results and speak to the key drivers of our performance. Then Todd will discuss the results in greater detail and review our updated fiscal year 2024 guidance. The second quarter results were outstanding as we delivered record quarterly sales margin expansion and significant earnings growth. Our performance reflects a continuation of the positive trends we experienced in recent quarters. Daily average comparable store sales accelerated to 7.5%, driven by a 3.9% increase in basket size, including item count growth, and the 3.5% increase in customer traffic. The sales comp on a 2-year basis was 10.2% and was the fifth consecutive quarter of strong 2-year comp. New stores also contributed to the sales growth. During the second quarter, we opened 1 new store, and we are pleased with the performance of all 4 new stores opened in the last 12 months. Strong sales growth, combined with effective expense management, generated operating leverage and drove a 34.6% increase in diluted earnings per share to $0.35. We believe that our strong sales growth over the last year is primarily attributable to 3 key drivers: our differentiated business model; effective customer engagement; and productivity initiatives. I will elaborate on each driver. The first driver of accelerated sales is our differentiated business model, which sets us apart from our competitors in terms of our high product standards, affordable pricing and free science-based nutrition education. These disciplines have been core to Natural Grocers since our founding in 1955, and are increasingly relevant to today's consumers. We carefully vet our natural and organic product offerings based upon rigorous product standards designed to support human health, animal welfare and a more regenerative environment. A few examples of our strict standards, include…

Thank you, Kemper, and good afternoon. We are very pleased with our strong second quarter performance. Net sales increased 8.8% from the prior year period to $308.1 million. Daily average comparable store sales increased 7.5% and increased 10.2% on a 2-year basis. Our daily average transaction size increased 3.9%. About half of the transaction size comp was attributed to an increase in items per basket. The item count increase reflected a continuation of the improving trend we experienced over the past several quarters. Every major product category had an increase in item count. The other half of the transaction size comp was attributed to product cost inflation. We estimate that annualized cost inflation for the second quarter was approximately 2%, which was down 1 percentage point from the previous quarter. Our daily average transaction count increased 3.5%. This marks our fifth consecutive quarter with positive customer traffic comps. Sales growth was broad-based across product categories. Our strongest performing departments were meat, dairy and body care. The dietary supplement sales comp was in the low single digits. Our branded products continue to gain share of basket and accounted for 8.5% of total sales, up from 8.1% a year ago. Gross margin increased 20 basis points to 29.3%, driven by store occupancy cost leverage, partially offset by lower product margin attributable to a lower supplement sales mix. In the second quarter of fiscal 2023, we implemented several pricing and promotional strategies, which benefited the year-over-year margin improvement we experienced over the past several quarters. In the second quarter of 2024, we started to anniversary those benefits, resulting in more moderate margin improvement. Store expenses increased 6.2% in the second quarter, primarily driven by higher compensation expenses. Store expenses as a percentage of sales decreased 50 basis points, reflecting expense leverage as elevated…

[Operator Instructions] The first question comes from Scott Mushkin with R5 Capital.

This is Ryan on for Scott. Congrats on the performance. So I guess I had a few questions. What do you attribute your success to with your strong comp. In other words, like in the market, what do you think your initiatives are the most successful?

Well, we're very good at communicating with our customers on a weekly basis because of our loyalty program, and we are giving 78% of our sales from those people that are on our loyalty program and we communicate with them approximately 4 times a week. . And we have various promotions that resonate well with them, and it drives -- for shopping and increases their basket size. The other thing is that we have a model -- a business model founded -- based on our 5 founding principles of nutrition education, quality products, everyday affordable pricing, being engaged in our communities and taking care of our crew. And that also resonates with our customers, and it is causing a lot of -- it makes us have a very loyal customer base and is expanding our customer base.

All right. Great. That makes sense. And then just the topic of Ozempic, do you feel as though it's impacting your business in any way? There was actually an article in the Journal this morning that said that those Ozempic are trying to continue their health and kind of maintain their weight after being on Ozempic. Do you feel as though those customers or those consumers will come to you?

I think it will increase our customer base because people are looking for -- but if you're losing weight, you're looking for a way to lose weight and then you're looking for a way to keep it off and you, of course, want to be educated on nutrition and how to take care of your body, and that's what we do very well at our stores. .

And then finally, with your new stores, you opened one this quarter. What do you think is doing the best within that store?

You mean as far as which category is doing invest in as far or...

Yes, which categories and just -- yes, which categories?

Well, our grocery category is always our strongest category, but every category is doing well at that store. It's been successful overall in every category. So there isn't one particular shine starts pretty much matching to our normal new store category -- sorry, new category growth for each category. And then, of course, we've done a really good job reaching out to the community and getting good support in the community before the store opened and after the store opened, just giving out the word about our store being there, what we're about and so on and so forth.

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

Thank you for joining us. We continue to be encouraged by our recent operating trends, and we are confident in our ability to drive growth and enhance value for all our stakeholders. Thank you, and have a great day. Goodbye. .

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