Good day, ladies and gentlemen. Welcome to the Natural Grocers Third Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. [Operator Instructions] 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 Third 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 contains 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 will highlight our third quarter financial results, including key drivers of our performance and provide an update on priorities. Then Todd will discuss the results in greater detail and review our updated fiscal year 2024 guidance. We are very pleased with our financial results for the third quarter and year-to-date, including record sales, operating margin expansion and diluted earnings per share growth. We believe that our customers, more than ever, understand and appreciate our compelling value proposition comprised of a carefully vetted offering of high-quality natural and organic products at always affordable prices. Our marketing initiatives consistently emphasize these key characteristics to drive customer engagement. We believe that communicating and establishing our unique position in the marketplace has been instrumental in generating our strong sales performance over the past several quarters. In the third quarter, we realized a 7.2% daily average comparable store sales growth comprised of a 4.7% increase in transaction count and a 2.4% increase in transaction size. This was the second consecutive quarter with items count growth. Furthermore, the third quarter represents our fourth consecutive quarter of comparable store sales growth in excess of 6%. Our focus on operational execution, including effectively managing expenses and productivity initiatives once again enabled us to leverage elevated sales trends, resulting in a 100 basis point improvement in the operating margin and a 29% increase in diluted earnings per share. These strong results, coupled with our confidence in our business trends and execution prompted us to increase our fiscal year 2024 outlook for comparable store sales and diluted earnings per share. Natural Grocers continues to resonate with a loyal and resilient customer base. Our customers are diverse and range from an older demographic with a relatively higher household income and focus on…

Thank you, Kemper, and good afternoon. We are very pleased with the continuation of our strong performance through the third quarter. Net sales increased 9.7% from the prior year period to $309.1 million. Daily average comparable store sales increased 7.2% and increased 11.6% on a 2-year basis. Our daily average transaction count increased 4.7%. This marks our sixth consecutive quarter with positive customer traffic comps. Our daily average transaction size increased 2.4%. About half of the transaction size comp was attributed to an increase in items per basket. This was the second consecutive quarter with an item count increase. 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 our annualized cost inflation for the third quarter was approximately 1%. Sales growth continued to be broad-based across product categories. Our strongest performing departments were meat, dairy and produce. The dietary supplement sales comp was in the low single digits. Gross margin increased 30 basis points to 29.2%, driven by store occupancy leverage, partially offset by lower product margin, primarily attributable to a lower supplement sales mix. Store expenses increased 7.9% in the third quarter, primarily driven by higher compensation expenses. Store expenses, as a percentage of sales, decreased 30 basis points, reflecting expense leverage as elevated sales more than offset higher labor costs. Administrative expenses, as a percentage of sales decreased 20 basis points, reflecting expense leverage. Operating income increased 41.4% to $12.8 million. The effective tax rate was 21.9% and 14.1% for the third quarter of fiscal 2024 and 2023, respectively. The increase in the effective tax rate was primarily attributable to lower food donation deductions during the third quarter of fiscal 2024. Net income was $9.2 million with diluted earnings per…

Thank you very much for joining us to discuss our third quarter results. This month marks our 69th year serving our communities. I encourage you to visit one of our locations between August 15 and August 17 to help us celebrate our anniversary. We look forward to updating you on our next call regarding the fourth quarter and full fiscal year 2024 results. Thank you, and goodbye.

The conference has now concluded. Thank you for attending the Natural Grocers third quarter fiscal year 2024 earnings conference call. You may now disconnect.