Natural Grocers by Vitamin College (NGVC)
(or “Natural Grocers”) is doing a very good job of answering criticisms
that its improved comp sales performance is only a byproduct of
margin-compromising price cuts. With more effective promotional
activity, restrained store expansion, and appealing operating expense
leverage, Natural Grocers has seen not only an improvement in comps but
also in margins, driving the shares up 20% since late June.
There are still some operating challenges at Natural Grocers, including ongoing competitive footprint expansions from Amazon’s (AMZN) Whole Foods, Sprouts (SFM),
and similar retailers, and I wouldn’t completely ignore the risk of
lower oil prices undermining key operating areas like Colorado and
Texas. Still, Natural Grocers is managing this strategy shift more
adroitly than I’d expected, and an upgraded outlook for EBITDA growth
supports a higher fair value.
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Strong Comps And Surprisingly Good Operating Leverage Driving Natural Grocers
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