Natural Grocers Earnings Miss Presents An Opportunity Amid Sell-Off

| About: Natural Grocers (NGVC)

One of the infamous mantra's of investing is to buy low and sell high. After Natural Grocers (NGVC) announced earnings this week, a sharp sell-off presents an opportunity to employ this strategy and could be fruitful for the patient investor.

Natural Grocers by Vitamin Cottage is a retailer of natural, organic groceries, supplements and vitamins, with approximately 65 stores across 13 states in the U.S. Feria has recently discussed NGVC's growth story, and the recent earnings call is chock full of data, guidance, and clues as to how it is delivering on several metrics of growth.

NGVC announced earnings of $0.13 per share, missing analyst expectations of $0.14 by a penny. Revenue beat expectations however, rising a substantial 30.55% to $113.2 million from the year-ago quarter, beating estimates of $107.32 million handily. The stock has sold off since however, off nearly 7% in the wake of the earnings report, at the time of this writing. Let's take a look at the call and try to understand how management is executing the growth strategy at NGVC.

First, a look at same-store sales growth will help materialize the picture of how existing stores are continuing to attract new customers and/or higher sales per store. This metric grew by 11.6% from the year-ago quarter, in line with the 11.6% growth from the first half of this year. CFO Sandra Buffa also broke down the growth in "mature stores" or stores open during or before fiscal year 2008, noting an increase of 5.7% in these stores, with year-to-date daily average same-store sales growth of 11.2%. Buffa intoned that this growth has "made us more optimistic about our top line growth for the year."

As for new stores, NGVC will open two more stores in fiscal 2013, with 15 new stores planned for next year, intended to "strengthen [NGVC's] position in current stage while also growing our presence in new markets." Guiding for the full fiscal 2013 outlook, NGVC expects diluted EPS between $0.46-$0.49. Looking at fiscal 2014, NGVC guided for sales growth of 25% and net income growth of approximately 30%. Indeed, NGVC expects price pressure from inflation to let up a bit in the near future, which could ultimately help the bottom line.

What is interesting for NGVC is its ability to attract customers despite competition; Kemper Isely, Co-President of NGVC, explained that "almost every place that we've opened a store in the last year had some sort of competition in it, whether it's a national chain or a local chain." Indeed, with competition from national grocers like Kroger (NYSE:KR) and Whole Foods (NASDAQ:WFM), NGVC will have to be able to compete in markets saturated with established grocers, which it appears to be doing quite well. The product mix at each store is also a judgment call by management, as it alluded to some cities being better "grocery" cities while others tend to be better "supplement" cities. This somewhat intangible judgment call reflects well on management as it continues to deliver and execute successfully.

Given the success of "mature stores" as well as the average same-store sales growth, NGVC continues to deliver an upward trajectory for its business. If NGVC can deliver even higher same-store sales growth than 11% finishing off the year, Feria believes the stock price can continue trending higher. Attracting revenue at the new stores slated to open, and recently opened, will also be a finger on the pulse of management's growth strategy as it enters new markets, especially in light of the fact that there will be solid competition around. New stores slated for next year and beyond should also help NGVC meet revenue targets and reward shareholders. We believe the post-earnings sell-off presents an opportunity to lower cost basis or begin a long position that could be lucrative for investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NGVC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.