Seeking Alpha: Natural Grocers Needs Some Growth Hormones For Store Traffic

Natural Grocers by Vitamin Cottage (NYSE:NGVC) (or "Natural Grocers") may not have the same image issues as Whole Foods (NASDAQ:WFM) (aka "Whole Paycheck") or cause the same consternation with the crunchiest of organic food shoppers - Whole Foods, Sprouts (NASDAQ:SFM), and Fresh Market (NASDAQ:TFM) do all sell some conventional products - but it does have its challenges. In a market where organic/natural food is becoming more and more mainstream, alternative destinations like Trader Joe's, Kroger (NYSE:KR), and Target (NYSE:TGT) continue to represent ongoing threats to Natural Grocers' traffic and growth plans.

These share are down another 20% from where I last left them, which isn't too good next to Sprouts or Whole Foods, but isn't too awful next to Fresh Market or United Natural Foods (NASDAQ:UNFI) (a wholesaler and distributor of organic and natural foods). Unfortunately, weak comps remain a key issue with the company and the stock, as sub-5% comps just don't get the job done in terms of long-term sales per store and margin leverage.

At these levels, I'm getting more interested in the shares. I do believe the disappointing comp traffic growth is a serious threat to the long-term bullish argument, but I also think that Natural Grocers has an attractive and defensible business plan that can still work.

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Natural Grocers Needs Some Growth Hormones For Store Traffic

Seeking Alpha: Natural Grocers' Comps Recovering, But Can It Last?

Natural Grocers By Vitamin Cottage (NYSE:NGVC) ("Natural Grocers") had a rough time of it in 2014 as competition, particularly from Trader Joe's, had a very real impact on same-store growth and investors' previously boundless enthusiasm for natural/organic finally found some boundaries.

The underlying story at Natural Grocers hasn't changed all that much, though, and the company has still penetrated less than 10% of its theoretical footprint. Investors can rightly question whether shoppers will continue to flock to stores like Natural Grocers, Whole Foods (NASDAQ:WFM), and Sprouts (NASDAQ:SFM), particularly as conventional grocery stores/supermarkets increase their organic/natural product selections, but the same can be said for many aspirational/luxury goods (nobody *needs* a Coach bag or Starbucks latte). If Natural Grocers can continue to create a shopping experience that resonates with its core target market, I don't see the shares as unreasonably expensive.

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Natural Grocers' Comps Recovering, But Can It Last?

Seeking Alpha: Competition And Momentum Reversal Hammer Natural Grocers

Owning a popular momentum stock can be a thrill ride, but if and when the company stumbles (and most growth companies do stumble at least once), the thrills turn to chills as investors stampede to the exit. Such is the case lately for Natural Grocers by Vitamin Cottage (NGVC) ("Natural Grocers"), where the shares have lost more than half of their value in less than three months.

While the drop at Natural Grocers has certainly been accelerated by a disappointing same-store sales figure for the fiscal second quarter, this has been a lousy stretch lately for comps and peers within the natural/organic food space like Whole Foods (WFM), Sprouts (SFM), and The Fresh Market (TFM). I think it's much too early to say that Natural Grocers is done as a growth concept, but it may take a while for institutions to come back to the segment.

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Competition And Momentum Reversal Hammer Natural Grocers

Investopedia: Will Less Scarcity Value Harm Whole Foods?

Whole Foods (NYSE:WFM) is still most commonly identified as the supermarket for organic, natural, and healthier foods. While plenty of shoppers know about chains like Sprout's (NYSE:SFM), Natural Grocers (Nasdaq:NGVC), and The Fresh Market (NYSE:TFM), just about everybody has been to a Whole Foods once. With more organic/healthy food options in the stock market, not to mention a significant expansion at conventional retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), just how special is Whole Foods anymore? While the numbers continue to support the notion that Whole Foods is an uncommonly well-run retailer with considerable growth potential, it's increasingly challenging to justify the price on the shares.

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Seeking Alpha: Natural Grocers Boldly Going Where Others Have Gone Before

If imitation is the sincerest form of flattery, Natural Grocers (NGVC) (also known by its full name of Natural Grocers by Vitamin Cottage) is paying some big compliments to Whole Foods (WFM), The Fresh Market (TFM), Trader Joe's and Sprouts. The company is pursuing a growth strategy in the organic/natural food retailing sector that seems to be taking some of the best ideas of these larger chains and coupling them with an even tighter focus on the hard-core healthy eating community. While these shares have had a big run in 2013 and sport pretty robust valuation multiples, it may be hasty to assume that the stock is overpriced today on a long-term basis.

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Natural Grocers Boldly Going Where Others Have Gone Before

Investopedia: Whole Foods Still Not Cheap, But It's A Reliable Grower

Investors can look across the various sectors and industries in the stock market and find many examples of stocks that enjoy seemingly outsized valuation premiums, largely because of the consistent growth that the companies offer. Whole Foods Market (Nasdaq:WFM) belongs on that list, as this high-end food retailer continues to deliver excellent growth but also sports a pretty hefty valuation. Although I wouldn't be in any great rush to sell these shares today, investors will almost certainly have to face an eventual valuation adjustment, and that will likely be a painful process.

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Investopedia: SuperValu May Be Too Far Gone To Save

Food retailing has never been an easy business, particularly since large discounters like Walmart (NYSE:WMT) and Target (NYSE:TGT) got into the game in a big way. While there has been room for companies with differentiated models (often built around premium products or intense merchandising skill), SuperValu (NYSE:SVU) has been struggling to differentiate itself and compete effectively in the mainline supermarket space. With this major earnings disappointment in hand, it's worth asking if even deep-value turnaround investors ought to bother with this name.

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