10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014;

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-35608

Natural Grocers by Vitamin Cottage, Inc.

(Exact name of registrant as specified in its charter)

Delaware	45-5034161
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

12612 West Alameda Parkway
Lakewood, Colorado	80228
(Address of principal executive offices)	(Zip code)

(303) 986-4600

(Registrant’s telephone number, including area code)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o	Accelerated filer x
Non —accelerated filer o	Smaller Reporting Company o
(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of April 29, 2014 was 22,476,986.

Natural Grocers by Vitamin Cottage, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2014

Table of Contents

		Page Number
	PART I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2014 and September 30, 2013 (unaudited)	3
	Consolidated Statements of Income for the three and six months ended March 31, 2014 and 2013 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2014 and 2013 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended March 31, 2014 and 2013 (unaudited)	6
	Notes to Unaudited Interim Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
	PART II. Other Information
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 6.	Exhibits	26
SIGNATURES		27
EXHIBIT INDEX		28

1

Except where the context otherwise requires or where otherwise indicated, all references herein to ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ ‘‘Natural Grocers,’’ and ‘‘the Company’’ refer collectively to Natural Grocers by Vitamin Cottage, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

This report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in addition to historical information. These forward-looking statements are included throughout this report on Form 10-Q, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements that are not statements of historical fact, including those that relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information are forward-looking statements. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future” and similar terms and phrases to identify forward-looking statements in this report on Form 10-Q.

The forward-looking statements contained in this report on Form 10-Q are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those referenced in “Risk Factors” in our report on Form 10-K for the year ended September 30, 2013 (our “Form 10-K”), as amended by Part II, Item 1A of this report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this report on Form 10-Q speaks only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. You are advised, however, to consult any further disclosures we may make in our future reports to the Securities and Exchange Commission, on our website or otherwise.

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PART I. Financial Information

Item 1.  Financial Statements

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)

	March 31, 2014		September 30, 2013
Assets
Current assets:
Cash and cash equivalents	$	7,814	8,132
Restricted cash	—		500
Short term investments — available-for-sale securities	95		1,149
Accounts receivable, net	1,801		2,401
Merchandise inventory	53,090		45,472
Prepaid expenses and other current assets	1,183		1,097
Deferred income tax assets	1,279		1,114
Total current assets	65,262		59,865
Property and equipment, net	108,518		98,910
Other assets:
Deposits and other assets	740		203
Goodwill and other intangible assets, net of accumulated amortization of $654 and $654, respectively	900		900
Deferred financing costs, net	44		25
Total other assets	1,684		1,128
Total assets	$	175,464	159,903
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	34,096	28,918
Accrued expenses	10,713		9,306
Capital and financing lease obligations, current portion	195		174
Total current liabilities	45,004		38,398
Long-term liabilities:
Capital and financing lease obligations, net of current portion	19,560		19,648
Deferred income tax liabilities	6,606		6,877
Deferred rent	5,373		4,731
Leasehold incentives	6,743		5,716
Total long-term liabilities	38,282		36,972
Total liabilities	83,286		75,370
Commitments (Note 12)
Stockholders’ equity:
Common stock, $0.001 par value. Authorized 50,000,000 shares, 22,476,986 and 22,441,253 issued and outstanding, respectively	22		22
Additional paid in capital	54,428		53,704
Retained earnings	37,728		30,807
Total stockholders’ equity	92,178		84,533
Total liabilities and stockholders’ equity	$	175,464	159,903

See accompanying notes to unaudited interim consolidated financial statements.

3

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share data)

	Three months ended March 31,					Six months ended March 31,
	2014			2013		2014		2013
Net sales	$	130,343		106,485		250,923		202,316
Cost of goods sold and occupancy costs	91,590			74,668		176,789		142,662
Gross profit	38,753			31,817		74,134		59,654
Store expenses	26,877			22,163		52,050		42,366
Administrative expenses	3,548			3,342		7,437		6,668
Pre-opening and relocation expenses	1,211			796		2,100		1,315
Operating income	7,117			5,516		12,547		9,305
Other (expense) income:
Interest expense	(704		)	(401	)	(1,411	)	(656	)
Other income, net	1			2		2		4
Total other expense	(703		)	(399	)	(1,409	)	(652	)
Income before income taxes	6,414			5,117		11,138		8,653
Provision for income taxes	(2,415		)	(1,900	)	(4,217	)	(3,215	)
Net income	$	3,999		3,217		6,921		5,438
Net income per common share:
Basic	$	0.18		0.14		0.31		0.24
Diluted	$	0.18		0.14		0.31		0.24
Weighted average common shares outstanding:
Basic	22,464,941			22,393,993		22,453,441		22,382,969
Diluted	22,483,753			22,441,445		22,477,201		22,437,183

See accompanying notes to unaudited interim consolidated financial statements.

4

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Net income	$	3,999	3,217	6,921	5,438
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities, net of tax	—		1	—	2
Other comprehensive income	—		1	—	2
Comprehensive income	$	3,999	3,218	6,921	5,440

See accompanying notes to unaudited interim consolidated financial statements.

5

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Six months ended March 31,
	2014			2013
Operating activities:
Net income	$	6,921		5,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,054			6,225
Gain on disposal of property and equipment	—			(2	)
Share-based compensation	263			43
Excess tax benefit from share-based compensation	(460		)	(211	)
Deferred income tax (benefit) expense	(437		)	652
Non-cash interest expense	11			31
Interest accrued on investments and amortization of premium	9			12
Other amortization	—			26
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable, net	600			272
Income tax receivable	359			—
Merchandise inventory	(7,618		)	(4,993	)
Prepaid expenses and other assets	(981		)	(193	)
Increase (decrease) in:
Accounts payable	5,382			1,339
Accrued expenses	1,876			2,072
Deferred rent and leasehold incentives	1,669			(18	)
Net cash provided by operating activities	15,648			10,693
Investing activities:
Acquisition of property and equipment	(17,853		)	(17,667	)
Proceeds from sale of property and equipment	—			2
Purchase of available-for-sale securities	—			(426	)
Proceeds from maturity of available-for-sale securities	1,045			340
Decrease (increase) in restricted cash	500			(500	)
Net cash used in investing activities	(16,308		)	(18,251	)
Financing activities:
Borrowings under credit facility	530			—
Repayments under credit facility	(530		)	—
Repayments under notes payable, related party	—			(128	)
Capital and financing lease obligations payments	(88		)	(33	)
Excess tax benefit from share-based compensation	460			211
Equity issuance costs	—			(268	)
Credit facility fees paid	(30		)	(18	)
Net cash provided by (used in) financing activities	342			(236	)
Net decrease in cash and cash equivalents	(318		)	(7,794	)
Cash and cash equivalents, beginning of period	8,132			17,291
Cash and cash equivalents, end of period	$	7,814		9,497
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		6
Cash paid for interest on capital and financing lease obligations	1,392			619
Income taxes paid	3,656			1,948
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid	$	3,341		4,087
Property acquired through capital and financing lease obligations	14			10,523

See accompanying notes to unaudited interim consolidated financial statements.

6

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2014 and 2013

1. Organization

Nature of Business

Natural Grocers by Vitamin Cottage, Inc. (Natural Grocers or the holding company) and its consolidated subsidiaries (collectively, the Company) operate retail stores that specialize in natural and organic groceries and dietary supplements. The Company typically operates its retail stores under its trademark Natural Grocers by Vitamin Cottage® with 81 stores as of March 31, 2014, including 32 stores in Colorado, 13 in Texas, six in Oregon, five each in Kansas and New Mexico, four in Montana, three each in Arizona, Idaho, Nebraska and Oklahoma, two in Wyoming, and one each in Missouri and Utah, as well as a bulk food repackaging facility and distribution center in Colorado. The Company had 72 stores as of September 30, 2013.

2. Basis of Presentation and Summary of Significant Accounting Policies

Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended September 30, 2013.  In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation.  Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending September 30.

The holding company was incorporated in Delaware on April 9, 2012. The accompanying consolidated financial statements include all the accounts of the Company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company), Vitamin Cottage Two Ltd. Liability Company and Natural Systems, LLC. The operating company formed the holding company in order to facilitate the purchase of the remaining noncontrolling interest in Boulder Vitamin Cottage Group, LLC and consummation of the Company’s initial public offering (IPO) during fiscal year 2012.  All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has one reporting segment, natural and organic retail stores.  Sales from the Company’s natural and organic retail stores are derived from sales of the following products, which are presented as a percentage of sales for the three and six months ended March 31, 2014 and 2013 as follows:

	Three months endedMarch 31,			Six months endedMarch 31,
	2014		2013	2014	2013
Grocery	66.1	%	64.4	66.3	64.2
Dietary supplements	24.0		25.7	23.7	25.6
Other	9.9		9.9	10.0	10.2
	100.0	%	100.0	100.0	100.0

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU No. 2013-02 supersedes

7

the presentation requirements for reclassifications out of accumulated other comprehensive income in both ASU No. 2011-12 and 2011-05.  ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This update was effective for the Company beginning in the quarter ended December 31, 2013. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.

3. Earnings Per Share

Basic earnings per share (EPS) excludes dilution and is computed by dividing net income by the weighted average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units were to vest, resulting in the issuance of common stock that would then share in the earnings of the Company. Presented below are basic and diluted EPS for the three and six months ended March 31, 2014 and 2013, dollars in thousands, except per share data:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Net income	$	3,999	3,217	6,921	5,438
Weighted average common shares outstanding	22,464,941		22,393,993	22,453,441	22,382,969
Effect of dilutive securities	18,812		47,452	23,760	54,214
Weighted average common shares outstanding including effect of dilutive securities	22,483,753		22,441,445	22,477,201	22,437,183
Basic earnings per share	$	0.18	0.14	0.31	0.24
Diluted earnings per share	$	0.18	0.14	0.31	0.24

There were 3,558 non-vested restricted stock units (RSUs) for the three and six months ended March 31, 2014 excluded from the calculation as they are antidilutive.  There were 4,856 antidilutive non-vested RSUs for the three and six months ended March 31, 2013.

The Company did not declare any dividends in the three and six months ended March 31, 2014 or 2013.

4. Long-Term Debt

Credit Facility

The Company has a revolving credit facility.  The operating company is the borrower under the credit facility and its obligations under the credit facility are guaranteed by the holding company.

On December 12, 2013, the Company entered into an amended and restated $15.0 million credit agreement that, among other things, (i) extended the maturity date of the Company’s revolving credit facility by three years to January 31, 2017, (ii) provides the Company with the right to request the issuance of letters of credit under the credit facility up to $3.0 million, (iii) allows the Company to increase the amount available under the revolving credit facility, up to an additional amount that may not exceed $10.0 million by obtaining an additional commitment or commitments, (iv) eliminated a requirement for a consolidated earnings before interest, taxes, depreciation and amortization to revenue ratio and (v) amended the unused commitment fee from 0.20% to amounts ranging from 0.15% to 0.35% based on certain conditions.

The Company had no amounts outstanding on the revolving credit facility as of March 31, 2014 and September 30, 2013.  During the six months ended March 31, 2014, the Company made and repaid draws on the revolving credit facility.  As of March 31, 2014, the Company had an undrawn, issued and outstanding letter of credit of $0.7 million which was reserved against the amount available for borrowing under the terms of the revolving credit facility.  There was an available balance of $14.3 million and $15.0 million as of March 31, 2014 and September 30, 2013, respectively, under the revolving credit facility.

As of March 31, 2014 and September 30, 2013, the Company was in compliance with the debt covenants under the credit facility.

8

Capital and Financing Lease Obligations

From time to time, the Company enters into various leases that are included in capital and financing lease obligations.  The Company does not record rent expense for these capitalized real estate leases, but rather rental payments under the capital leases are recognized as a reduction of the capital and financing lease obligation and as interest expense (see Note 5).

Interest

The Company incurred gross interest expense of approximately $0.7 million and approximately $0.4 million in the three months ended March 31, 2014 and 2013, respectively, and approximately $1.4 million and approximately $0.7 million in the six months ended March 31, 2014 and 2013, respectively, related primarily to interest on capital and financing lease obligations.  The Company did not capitalize any interest for the three or six months ended March 31, 2014 and 2013, and had insignificant amounts of amortization of deferred financing costs for the three and six months ended March 31, 2014 and 2013.

5.  Lease Commitments

Capital and financing lease obligations as of March 31, 2014 and September 30, 2013, are as follows, dollars in thousands:

	As of
	March 31, 2014			September 30, 2013
Capital lease finance obligations, due in monthly installments through fiscal year 2028	$	15,022		13,746
Capital lease obligations, due in monthly installments through fiscal year 2028	4,733			4,792
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2028	—			1,284
Total capital and financing lease obligations	19,755			19,822
Less current portion	(195		)	(174	)
Total capital and financing lease obligations, net of current portion	$	19,560		19,648

6. Property and Equipment

The Company had the following property and equipment balances as of March 31, 2014 and September 30, 2013, dollars in thousands:

		As of
	Useful lives(in years)	March 31,2014			September 30,2013
Construction in process	n/a	$	3,835		5,421
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively	40	17,107			15,774
Capitalized real estate leases	15	4,866			4,866
Land improvements	5 - 15	1,000			1,000
Leasehold and building improvements	2 - 20	68,179			59,058
Fixtures and equipment	5 - 7	64,037			56,459
Computer hardware and software	3 - 5	9,468			8,252
		168,492			150,830
Less accumulated depreciation and amortization		(59,974		)	(51,920	)
Property and equipment, net		$	108,518		98,910

As of March 31, 2014 and September 30, 2013, respectively, capitalized real estate leases for build-to-suit stores includes the assets for the Company’s buildings for build-to-suit stores under capital lease finance obligations, and capitalized real estate leases includes assets for the Company’s buildings under capital leases (see Note 5).

9

Construction in process includes zero and approximately $1.3 million as of March 31, 2014 and September 30, 2013, respectively, related to construction costs for build-to-suit leases in process for which the Company was deemed the owner during the construction period.

Depreciation and amortization expense for the three and six months ended March 31, 2014 and 2013 is summarized as follows, dollars in thousands:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	190	183	376	356
Depreciation and amortization expense included in store expenses	3,799		2,949	7,442	5,650
Depreciation and amortization expense included in administrative expenses	127		101	236	219
Total depreciation and amortization expense	$	4,116	3,233	8,054	6,225

7. Supplementary Balance Sheet Information

Restricted Cash

As of September 30, 2013, the Company held $0.5 million in restricted cash which represented cash that was pledged as collateral for a standby letter of credit related to the Company’s workers’ compensation insurance. As of March 31, 2014, the Company had released the restricted cash balance which existed as of September 30, 2013, and had no restricted cash balance outstanding.

Accrued Expenses

The composition of accrued expenses is summarized as follows as of March 31, 2014 and September 30, 2013, dollars in thousands:

	As of
	March 31,		September 30,
	2014		2013
Payroll and employee-related expenses	$	5,709	5,247
Accrued income, property, sales and use tax payable	3,018		2,686
Deferred revenue related to gift card sales	728		625
Other	1,258		748
Total accrued expenses	$	10,713	9,306

8.  Investments

The Company had available-for-sale securities consisting of certificates of deposit totaling approximately $0.1 million as of March 31, 2014, which were classified as short-term.  The Company had available-for-sale securities generally consisting of certificates of deposit, corporate bonds and municipal bonds of approximately $1.1 million as of September 30, 2013, which were classified as short-term.  At March 31, 2014 and September 30, 2013, the average maturities of the Company’s short-term investments were approximately one month and approximately five months, respectively.  There was no other-than-temporary impairment on available-for-sale securities as of March 31, 2014 or September 30, 2013.

During the three and six months ended March 31, 2014 and 2013, the Company recorded insignificant amounts of interest income and expense relating to amortized premiums paid.

9. Fair Value Measurements

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).  The three levels are defined as follows:

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Level 1—	Inputs are unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2—	Inputs include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
Level 3—	Inputs are unobservable and are considered significant to the fair value measurement.

Non-financial assets, such as goodwill and long-lived assets, are accounted for at fair value, if determined to be impaired, on a non-recurring basis.  These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, at least on an annual basis.

The carrying amounts of financial instruments not included in the table below, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of those instruments.

As of March 31, 2014 and September 30, 2013, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the fair value hierarchy, dollars in thousands:

		As of
		March 31, 2014			September 30, 2013
	Fair Value Hierarchy Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Cash and cash equivalents:
Money market fund	1	$	—	—	501	501
Investments — available-for-sale securities:
Certificates of deposit	2	95		95	585	585
Corporate bonds	2	—		—	376	376
Municipal bonds	2	—		—	188	188

The money market fund and available-for-sale securities are carried at fair value. For debt securities for which quoted market prices are not available, the fair value is determined using an income approach valuation technique that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk. During the three and six months ended March 31, 2014, the Company made no purchases of available-for-sale securities.  During the three and six months ended March 31, 2013, the Company made purchases of $0.2 million and $0.4 million, respectively, of available-for-sale securities.  During the three and six months ended March 31, 2014, the Company had $1.0 million and $1.0 million of maturities of available-for-sale securities, respectively.  During the three and six months ended March 31, 2013, the Company had $0.3 million and $0.3 million of maturities of available-for-sale securities, respectively.  During the three and six months ended March 31, 2014 and 2013, and for the fiscal year ended September 30, 2013, there were no transfers between levels and the Company had no Level 3 assets.  See Note 8 for additional disclosures.

10. Share-based Compensation

The Company adopted an Omnibus Incentive Plan (the Plan) on July 17, 2012.  RSUs granted pursuant to the Plan, if they vest, will be settled in shares of the Company’s common stock.  Changes in non-vested RSUs outstanding under the Plan as of March 31, 2014 were as follows:

	RSUs		Weighted average grant date fair value
Non-vested as of September 30, 2013	86,053		$	21.80
Granted	3,558		42.16
Forfeited	(556	)	34.07
Vested	(35,733	)	4.60
Non-vested as of March 31, 2014	53,322		34.56

Each independent member of the Company’s Board of Directors is granted a number of RSUs under the Plan each year equal to the number of shares of common stock having a value of $50,000 based on the closing price of common stock on the New York Stock Exchange (NYSE) on the date of grant. All of these RSUs are granted on the date of the Company’s annual meeting of stockholders or, in the case of a mid-year appointment, a pro rata portion is granted at the time of appointment. In either case, the RSUs vest over a twelve month period and are expensed straight-line over that period.  The Company held its annual meeting of stockholders on March 5, 2014, and each independent member of the Company’s Board of Directors received awards based on the

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closing price of common stock on the NYSE on that date.  The RSU’s granted to the independent members of the Board of Directors at the Company’s annual meeting on March 6, 2013 vested on March 6, 2014.

The RSU grant to the Chief Financial Officer (CFO Award) under the Plan was in accordance with the terms of her employment agreement that was signed in June 2008, which stated she was entitled to receive a grant of RSUs equal to 1.2% of the fully diluted shares of the Company in connection with an IPO.  Two-thirds of the CFO Award vested immediately upon completion of the IPO and was settled in a combination of common stock and cash.  The remaining one-third was settled 100% in shares of common stock and vested, in three equal parts over a six, 12 and 18 month period following the IPO.  In January 2014, which was 18 months after the IPO, the final portion vested.

The Company recorded total share-based compensation expense before income taxes of approximately $0.2 million and $0.3 million in the three and six months ended March 31, 2014, respectively, and recorded less than $0.1 million in each of the three and six months ended March 31, 2013, respectively.  The share-based compensation expense is included in cost of goods sold and occupancy expenses, store expenses or administrative expenses in the consolidated statements of income consistent with the manner in which the applicable officer, board member or key employee’s compensation expense is recorded.  As of March 31, 2014, there was approximately $1.5 million of unrecognized share-based compensation expense related to non-vested RSUs net of estimated forfeitures, which the Company anticipates will be recognized over a weighted average period of approximately three years.

11. Related Party Transactions

The Company has ongoing relationships with related entities as noted below:

Isely Family Land Trust LLC:  The Company has one operating lease for a store location with the Isely Family Land Trust LLC (Land Trust). The Land Trust is owned by the Isely Children’s Trust and by the Margaret A. Isely Family Trust. Rent paid to the Land Trust was approximately $0.1 million for each of the three months ended March 31, 2014 and 2013.  Rent paid to the Land Trust was approximately $0.2 million for each of the six months ended March 31, 2014 and 2013.

Chalet Properties, LLC:  The Company has seven operating leases with Chalet Properties, LLC (Chalet). Chalet is owned by the Company’s four non-independent board members: Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, and other related family members. Rent paid to Chalet was approximately $0.3 million for each of the three months ended March 31, 2014 and 2013.  Rent paid to Chalet was approximately $0.6 million for each of the six months ended March 31, 2014 and 2013.

12. Commitments and Contingencies

Legal

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to employment discrimination claims, customer injury claims and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, prospects, financial condition, cash flows or results of operations.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with our unaudited consolidated financial statements and notes thereto included elsewhere in this report on Form 10-Q and with our Form 10-K. This discussion and analysis contains forward-looking statements. Refer to Forward-Looking Statements at the beginning of this report for an explanation of these types of statements. All references to a “fiscal year” refer to a year beginning on October 1 of the previous year, and ending on September 30 of such year (for example “fiscal year 2014” refers to the year from October 1, 2013 to September 30, 2014).  Summarized numbers included in this section, and corresponding percentage or basis point changes may not sum due to the effects of rounding.

Company Overview

We operate natural and organic grocery and dietary supplement stores that are focused on providing high quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We believe we have been at the forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado, and as of March 31, 2014, we operated 81 stores in 13 states, including Colorado, Arizona, Idaho, Kansas, Missouri, Montana, Nebraska, New Mexico, Oklahoma, Oregon, Texas, Utah and Wyoming, as well as a bulk food repackaging facility and distribution center in Colorado.

We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality standards. We regularly review and update these standards.  During the three months ended March 31, 2014, for example, we updated our dairy standards and, as a result, plan by April 2015 to sell only pasture-raised, non-confinement dairy products.

The size of our stores varies from 5,000 to 16,000 selling square feet.  During the twelve months ended March 31, 2014, our new stores averaged approximately 11,500 selling square feet.

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition has enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2013, we grew at a compound annual growth rate of 21.7%.  In fiscal year 2013, we opened 13 new stores, and we currently plan to open 15 new stores in fiscal year 2014, nine of which we opened during the six months ended March 31, 2014.  Since March 31, 2014 and as of the date of this report, we have opened two additional new store locations, signed leases for the remaining four new store locations expected to open in the remainder of fiscal year 2014 in Kansas, Oklahoma, Oregon and Washington, and have signed leases for four new store locations expected to open in fiscal year 2015 in Colorado, Kansas, Nevada and Oklahoma.  Additionally, we completed the remodel of one existing store location in the six months ended March 31, 2014 and plan to remodel one additional existing store in fiscal year 2014.

Performance Highlights

Key highlights of our recent performance are discussed briefly below and are discussed in further detail throughout this MD&A.  Key financial metrics, including, but not limited to, comparable store sales, daily average comparable store sales, mature store sales and daily average mature store sales are defined under the caption “Key Financial Metrics in Our Business,” presented later in this MD&A.

·Net sales.  Net sales were $130.3 million for the three months ended March 31, 2014, which is an increase of $23.9 million, or 22.4%, compared to net sales of $106.5 million for the three months ended March 31, 2013.  We reported net sales of $250.9 million for the six months ended March 31, 2014, which is an increase of $48.6 million, or 24.0%, compared to net sales of $202.3 million for the six months ended March 31, 2013.

·Comparable store sales.  Comparable store sales for the three and six months ended March 31, 2014 increased 6.9% and 8.7%, respectively, over the three and six months ended March 31, 2013.

·Daily average comparable store sales.  Daily average comparable store sales, which removes the effect of the additional one selling day for the occurrence of Easter in March of 2013, increased 5.7% and 8.1%, respectively in the three and six months ended March 31, 2014 over the three and six months ended March 31, 2013.

·Mature store sales.  Mature store sales for the three and six months ended March 31, 2014 increased 4.9% and 5.9%, respectively, over the three and six months ended March 31, 2013.

·Daily average mature store sales.  Daily average mature store sales, which removes the effect of the additional one selling day for the occurrence of Easter in March of 2013, increased 3.7% and 5.3%, respectively, in the three and six months ended

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March 31, 2014 over the three and six months ended March 31, 2013.

·Net income.  Net income was $4.0 million for the three months ended March 31, 2014, which increased $0.8 million, or 24.3%, when compared to net income of $3.2 million for the three months ended March 31, 2013.  We reported net income of $6.9 million for the six months ended March 31, 2014, which increased $1.5 million, or 27.3%, when compared to net income of $5.4 million for the six months ended March 31, 2013.

·EBITDA.  Earnings before interest, taxes, depreciation and amortization (EBITDA) was $11.2 million in the three months ended March 31, 2014, which increased $2.5 million, or 28.4%, from $8.8 million in the three months ended March 31, 2013.  We generated EBITDA of $20.6 million in the six months ended March 31, 2014, which increased $5.1 million, or 32.6%, from $15.5 million in the six months ended March 31, 2013.  EBITDA is not a measure of financial performance under GAAP. Refer to the end of this MD&A for a definition of EBITDA and a reconciliation of net income to EBITDA.

·Liquidity.  As of March 31, 2014, cash and cash equivalents was $7.8 million, available-for-sale securities, consisting of certificates of deposit, was $0.1 million, and there was $14.3 million available under our $15.0 million amended and restated revolving credit facility.  As of March 31, 2014, the Company had an outstanding letter of credit of $0.7 million which was reserved against the amount available for borrowing under the terms of our revolving credit facility.  The Company had no amounts outstanding on the revolving credit facility as of March 31, 2014.

·New store growth.  We opened five new stores during the three months ended March 31, 2014, and opened nine new stores during the six months ended March 31, 2014.  We operated a total of 81 stores as of March 31, 2014.  We plan to open a total of 15 new stores in fiscal year 2014, which will result in an annual new store growth rate of 20.8% for fiscal year 2014 compared to fiscal year 2013.

Industry Trends and Economics

We have identified the following recent trends and factors that have impacted and may continue to impact our results of operations and financial condition:

·Opportunities in the growing natural and organic grocery and dietary supplements industry.  Our industry, which includes organic and natural foods and dietary supplements, continues to experience growth driven primarily by increased public interest in health and nutrition. Capitalizing on this opportunity, we continued to open new stores and markets.  As we open new stores, our results of operations have been and may continue to be materially adversely affected based on the timing and number of new stores we open, their initial sales and new lease costs.  The length of time it takes for a new store to become profitable can vary depending on a number of factors including location, competition, a new market versus an existing market, the strength of store management and general economic conditions.  Once a new store is open, it typically grows at a faster rate than mature stores for several years after its opening date. Mature stores are stores that have been open for any part of five fiscal years or longer.

As we expand across the U.S. and enter markets where consumers may not be as familiar with our brand, we seek to secure prime real estate locations for our stores to establish greater visibility with consumers in those markets.  This strategy has resulted in higher lease costs, and we anticipate these increased costs continuing into the foreseeable future.  Our financial results for the three and six months ended March 31, 2014 reflect the effects of these factors, and we anticipate future periods will be impacted likewise.

·Impact of broader economic trends.  The grocery industry and our sales are affected by general economic conditions, including, but not limited to, consumer spending, economic conditions, the level of disposable consumer income, consumer debt, interest rates, the price of commodities, the political environment and consumer confidence.

Outlook

We believe there are several key factors that have contributed to our success and will enable us to continue to expand profitably and increase our comparable store sales, including a loyal customer base, increasing basket size, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education and a shopper friendly retail environment, and our focus on high quality, affordable natural and organic groceries and dietary supplements.

We plan for the foreseeable future to continue opening new stores and entering new markets at or above recent levels of growth. During the past few years, we have successfully expanded our infrastructure to enable us to support our continued growth. This has included successfully implementing our enterprise resource planning system, hiring key personnel and developing efficient,

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effective new store opening, construction and operations processes and relocating and expanding our bulk food repackaging facility and distribution center in September 2012.  We will complete the implementation of a human resources information and learning management system in the third quarter of fiscal year 2014 which we believe will allow us to more efficiently and effectively onboard and train our employees at all locations.

We believe there are attractive opportunities for us to continue to expand our store base and focus on increasing comparable store sales. As we continue to expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as increased economies of scale in sourcing products.  However, due to our commitment to providing high-quality products at affordable prices, such sourcing economies may not be reflected in our gross margin in the near term. Additionally, higher fixed costs of our bulk food repackaging facility and distribution center resulting from the September 2012 relocation and expansion may not be offset by retail price changes or volume increases in the near term.

Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section “Risk Factors” contained in our Form 10-K, as amended by Part II, Item 1A of this report on Form 10-Q.

Key Financial Metrics in Our Business

In assessing our performance, we consider a variety of performance and financial measures. The key measures are as follows:

Net sales

Our net sales are comprised of gross sales net of discounts, in-house coupons, returns and allowances. In comparing net sales between periods we monitor the following:

·Change in comparable store sales.  We begin to include sales from a store in comparable store sales on the first day of the thirteenth full month following the store’s opening. We monitor the percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating months in the comparable reporting period of the prior year. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales. Our comparable store sales data may not be presented on the same basis as our competitors. We use the term “new stores” to refer to stores that have been open for less than thirteen months.

·Change in daily average comparable store sales.  Daily average comparable store sales are comparable store sales divided by the number of selling days in each period. We use this metric to remove the effect of differences in the number of selling days we are open during the comparable periods.

·Change in mature store sales.  We begin to include sales from a store in mature store sales after the store has been open for any part of five fiscal years (for example, our mature stores for fiscal year 2014 are stores that opened during or before fiscal year 2009).  We monitor the percentage change in mature store sales by comparing sales from all stores in our mature store base for a reporting period against sales from the same stores for the same number of operating months in the comparable reporting period of the prior year.  When a store that is included in mature store sales is remodeled or relocated, we continue to consider sales from that store to be mature store sales. Our mature store sales data may not be presented on the same basis as our competitors.

·Change in daily average mature store sales.  Daily average mature store sales are mature store sales divided by the number of selling days in each period. We use this metric to remove the effect of differences in the number of selling days during the comparable periods.

·Transaction count.  Transaction count represents the number of transactions reported at our stores over such period and includes transactions that are voided, return transactions and exchange transactions.

·Average transaction size.  Average transaction size is calculated by dividing net sales by transaction count for a given time period. We use this metric to track the trends in average dollars spent in our stores per customer transaction.

Cost of goods sold and occupancy costs

Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging facility), buying costs, shrink and store occupancy costs. Store occupancy costs include rent, common area maintenance and real estate

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taxes. Depreciation expense included in cost of goods sold relates to depreciation of assets directly used at our bulk food repackaging facility.  The components of our cost of goods sold and occupancy costs may not be identical to those of our competitors, and as a result, our cost of goods sold and occupancy costs data included in this report on Form 10-Q may not be identical to those of our competitors, and may not be comparable to similar data made available by our competitors.  Occupancy costs as a percentage of sales typically decrease as new stores mature and increase sales. We do not record straight-line rent expense in cost of goods sold and occupancy costs for the leases classified as capital and financing lease obligations, but rather rent payments are recognized as a reduction of the related obligations and as interest expense. Additionally, depreciation expense related to the capitalized asset is recorded in store expenses.

Gross profit and gross margin

Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a percentage of sales. Gross margin is impacted by changes in retail prices, product costs, occupancy costs, and the mix of products sold, as well as the rate at which we open new stores.

Store expenses

Store expenses consist of store level expenses, such as salary and benefits, share-based compensation, supplies, utilities, depreciation, advertising, bank credit card charges and other related costs associated with operations and purchasing support. Depreciation expense included in store expenses relates to depreciation for assets directly used at the stores including depreciation on capitalized real estate leases, land improvements, leasehold improvements, fixtures and equipment and computer hardware and software.  Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets, primarily related to store relocations. The majority of store expenses are comprised of salary related expenses which we closely manage and which trend closely with sales. Labor related expenses as a percentage of sales tend to be higher at new stores compared to comparable stores, as new stores require a certain level of staffing in order to maintain adequate levels of customer service combined with lower sales. As new stores increase their sales, labor related expenses as a percentage of sales typically decrease.

Administrative expenses

Administrative expenses consist of home office related expenses, such as salary and benefits, share-based compensation, office supplies, hardware and software expenses, depreciation and amortization expense, occupancy costs (including rent, common area maintenance, real estate taxes and utilities), professional services expenses, expenses associated with our board and other general and administrative expenses. Depreciation expense included in administrative expenses relates to depreciation for assets directly used at the home office including depreciation on land improvements, leasehold improvements, fixtures and equipment and computer hardware and software.

Pre-opening and relocation expenses

Pre-opening and relocation expenses may include rent expense, salaries, advertising, supplies and other miscellaneous costs incurred prior to the store opening. Rent expense is generally incurred from one to four months prior to a store’s opening date for store leases classified as operating. For store leases classified as capital or financing leases, no pre-opening rent expense is recognized. Other pre-opening and relocation expenses are generally incurred in the 60 days prior to the store opening. Certain advertising and promotional costs associated with opening a new store may be incurred both before and after the store opens. All pre-opening and relocation costs are expensed as incurred.

Operating income

Operating income consists of gross profit less store expenses, administrative expenses and pre-opening and relocation expenses. Operating income can be impacted by a number of factors, including the timing of new store openings and store relocations, whether or not a store lease is classified as an operating or a capital or financing lease, as well as increases in store expenses and administrative expenses. The amount of time it takes for new stores to become profitable can vary depending on a number of factors, including location, competition, a new market versus an existing market, the strength of store management, general economic conditions and the amount of time it takes a new store to become mature.

Interest expense

Interest expense consists of the interest associated with capital and financing lease obligations.  Interest expense also includes interest we pay on our outstanding indebtedness, which includes our revolving credit facility.

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Results of Operations

The following table presents key components of our results of operations expressed as a percentage of net sales for the periods presented:

	Three months endedMarch 31,				Six months endedMarch 31,
	2014		2013		2014		2013
Statements of Income Data:*
Net sales	100.0	%	100.0		100.0		100.0
Cost of goods sold and occupancy costs	70.3		70.1		70.5		70.5
Gross profit	29.7		29.9		29.5		29.5
Store expenses	20.6		20.8		20.7		20.9
Administrative expenses	2.7		3.1		3.0		3.3
Pre-opening and relocation expenses	0.9		0.7		0.8		0.7
Operating income	5.5		5.2		5.0		4.6
Interest expense	(0.5	)	(0.4	)	(0.6	)	(0.3	)
Income before income taxes	4.9		4.8		4.4		4.3
Provision for income taxes	(1.9	)	(1.8	)	(1.7	)	(1.6	)
Net income	3.1	%	3.0		2.8		2.7

*Figures may not sum due to rounding.

Number of stores at end of period	81		65	81	65
Number of stores opened during the period	5		4	9	6
Total store unit count increase period over period	24.6	%	22.6	24.6	22.6
Change in comparable store sales	6.9		8.1	8.7	10.4
Change in daily average comparable store sales	5.7		10.6	8.1	11.6
Change in mature store sales	4.9		3.5	5.9	5.7
Change in daily average mature store sales	3.7		5.8	5.3	6.9

Three months ended March 31, 2014 compared to the three months ended March 31, 2013

The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands:

	Three months endedMarch 31,					Increase (Decrease)
	2014			2013		Dollars		Percent
Statements of Income Data:
Net sales	$	130,343		106,485		23,858		22.4	%
Cost of goods sold and occupancy costs	91,590			74,668		16,922		22.7
Gross profit	38,753			31,817		6,936		21.8
Store expenses	26,877			22,163		4,714		21.3
Administrative expenses	3,548			3,342		206		6.2
Pre-opening and relocation expenses	1,211			796		415		52.1
Operating income	7,117			5,516		1,601		29.0
Other (expense) income:
Interest expense	(704		)	(401	)	(303	)	75.6
Other income, net	1			2		(1	)	(50.0	)
Income before income taxes	6,414			5,117		1,297		25.3
Provision for income taxes	(2,415		)	(1,900	)	(515	)	27.1
Net income	$	3,999		3,217		782		24.3

Net sales

Net sales increased $23.9 million, or 22.4%, to $130.3 million for the three months ended March 31, 2014 compared to $106.5 million for the three months ended March 31, 2013, primarily due to a $16.6 million increase in sales from new stores and a $7.3 million, or 6.9%, increase in comparable store sales.  Daily average comparable store sales increased 5.7% for the three months

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ended March 31, 2014 as compared to the three months ended March 31, 2013. The daily average comparable store sales increase was primarily driven by a 2.0% increase in daily average transaction count and a 3.7% increase in average transaction size.  Comparable store average transaction size was $36.76 in the three months ended March 31, 2014 compared to $36.37 in the three months ended March 31, 2013.  Daily average mature store sales increased 3.7% in the three months ended March 31, 2014 as compared to three months ended March 31, 2013.

Gross profit

Gross profit increased $6.9 million, or 21.8%, to $38.8 million for the three months ended March 31, 2014 compared to $31.8 million for the three months ended March 31, 2013, primarily driven by positive comparable store sales and new store growth.  Gross margin decreased slightly to 29.7% for the three months ended March 31, 2014 from 29.9% for the three months ended March 31, 2013 primarily due to an increase in occupancy costs as a percentage of sales for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, partially offset by an increase in product gross margin.  The positive impact in product margin is due to increased product margin across most departments, offset by a shift in sales mix towards products with lower margin in the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.  Gross margin benefited from operating efficiencies at the bulk food repackaging and distribution center in the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.  The increase in occupancy costs were primarily due to increased average lease expenses at new stores.

The Company had nine and seven leases for stores which were classified as capital and financing lease obligations for the three months ended March 31, 2014 and 2013, respectively.  If these leases had qualified as operating leases, the straight-line rent expense would have been included in occupancy costs, and our costs of goods sold and occupancy costs as a percentage of sales during the three months ended March 31, 2014 and 2013 would have been approximately 60 and 40 basis points higher, respectively, than as reported.

Store expenses

Store expenses increased $4.7 million, or 21.3%, to $26.9 million in the three months ended March 31, 2014 from $22.2 million in the three months ended March 31, 2013. Store expenses as a percentage of sales were 20.6% and 20.8% for the three months ended March 31, 2014 and 2013, respectively. The decrease in store expenses as a percentage of sales was primarily due to a decrease in salaries, benefits and related expenses at comparable stores, as well as a decrease in advertising expenses, partially offset by increases in depreciation and, to a lesser extent, utilities expense.  The decrease in salaries, benefits and related expenses at comparable stores was due to leverage from the increase in sales, as the increased salary related expenses required to support the sales growth was less than the increase in sales.  The decrease in advertising expenses was primarily due to lower television advertising during the quarter.

Administrative expenses

Administrative expenses increased $0.2 million, or 6.2%, to $3.5 million for the three months ended March 31, 2014 compared to $3.3 million for the three months ended March 31, 2013, primarily due to the addition of general and administrative positions to support our store growth, as well as increased share-based compensation costs.  Administrative expenses as a percentage of sales were 2.7% and 3.1% for the three months ended March 31, 2014 and 2013, respectively.  The decrease in administrative expenses as a percentage of sales was a result of our ability to support additional store investments and sales without proportionate increases in overhead expenses.

Pre-opening and relocation expenses

Pre-opening and relocation expenses increased $0.4 million, or 52.1%, in the three months ended March 31, 2014 to $1.2 million compared to $0.8 million for the three months ended March 31, 2013, due to the increased number of new store openings, the impact of the timing of the openings and possession of stores that are not yet opened, and the lease classification for those stores that were opened.  We opened five new stores for the three months ended March 31, 2014, all of which are classified as operating leases.  We opened four new stores for the three months ended March 31, 2013, three of which were classified as capital and financing lease obligations with no straight-line rent expense included in preopening and relocation expenses.  Pre-opening and relocation expenses as a percentage of sales were 0.9% and 0.7% for the three months ended March 31, 2014 and 2013, respectively.

Interest expense

Interest expense increased $0.3 million, or 75.6%, to $0.7 million in the three months ended March 31, 2014 compared to $0.4 million for the three months ended March 31, 2013 due to an increase in interest expense related to capital and financing lease obligations.  If the capital and financing lease obligations had qualified as operating leases, interest expense as a percent of sales would have been approximately 55 and 40 basis points lower than as reported in the three months ended March 31, 2014 and 2013, respectively.

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Income taxes

Our effective income tax rate for the three months ended March 31, 2014 and 2013 was 37.7% and 37.1%, respectively. The increase in our effective income tax rate was primarily due to an increase in federal income taxes.  Our federal income taxes increased because of additional taxable net income and a consequential higher tax rate.  Our additional taxable net income was due in part to the impact of prior deductions for bonus depreciation.

Net income

Net income increased 24.3% to $4.0 million, or $0.18 diluted earnings per share, in the three months ended March 31, 2014 from $3.2 million, or $0.14 diluted earnings per share, in the three months ended March 31, 2013.

Six months ended March 31, 2014 compared to the six months ended March 31, 2013

The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands:

	Six months endedMarch 31,					Increase (Decrease)
	2014			2013		Dollars		Percent
Statements of Income Data:
Net sales	$	250,923		202,316		48,607		24.0	%
Cost of goods sold and occupancy costs	176,789			142,662		34,127		23.9
Gross profit	74,134			59,654		14,480		24.3
Store expenses	52,050			42,366		9,684		22.9
Administrative expenses	7,437			6,668		769		11.5
Pre-opening and relocation expenses	2,100			1,315		785		59.7
Operating income	12,547			9,305		3,242		34.8
Other (expense) income:
Interest expense	(1,411		)	(656	)	(755	)	115.1
Other income, net	2			4		(2	)	(50.0	)
Income before income taxes	11,138			8.653		2,485		28.7
Provision for income taxes	(4,217		)	(3,215	)	(1,002	)	31.2
Net income	$	6,921		5,438		1,483		27.3

Net sales

Net sales increased $48.6 million, or 24.0%, to $250.9 million for the six months ended March 31, 2014 compared to $202.3 million for the six months ended March 31, 2013 primarily due to a $31.1 million increase in sales from new stores and a $17.5 million, or 8.7%, increase in comparable store sales.  Daily average comparable store sales increased 8.1% for the six months ended March 31, 2014 as compared to the six months ended March 31, 2013. The daily average comparable store sales increase was primarily driven by a 3.5% increase in daily average transaction count and a 4.4% increase in average transaction size.  Comparable store average transaction size was $36.67 in the six months ended March 31, 2014 compared to $36.03 in the six months ended March 31, 2013.  Daily average mature store sales increased 5.3% in the six months ended March 31, 2014 as compared to six months ended March 31, 2013.

Gross profit

Gross profit increased $14.5 million, or 24.3%, to $74.1 million for the six months ended March 31, 2014 compared to $59.7 million for the six months ended March 31, 2013, primarily driven by positive comparable store sales and new store growth.  Gross margin was 29.5% for each of the six months ended March 31, 2014 and 2013.  Gross margin for the six months ended March 31, 2014 was positively impacted by increases in product margin across almost all departments, partially offset by a shift in sales mix towards products with lower margin. Additionally, gross margin benefited from operating efficiencies at the bulk food repackaging and distribution center in the six months ended March 31, 2014 as compared to the six months ended March 31, 2013.  Gross margin for the six months ended March 31, 2014 was negatively impacted by an increase in occupancy costs as a percentage of sales for the six months ended March 31, 2014 as compared to the six months ended March 31, 2013 primarily due to increased average lease expenses at new stores.

The Company had nine and seven leases for stores which were classified as capital and financing lease obligations for the six months ended March 31, 2014 and 2013, respectively.  If these leases had qualified as operating leases, the straight-line expense

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would have been included in occupancy costs, and our costs of goods sold and occupancy costs as a percentage of sales during the six months ended March 31, 2014 and 2013 would have been approximately 60 and 35 basis points higher, respectively, than as reported.

Store expenses

Store expenses increased $9.7 million, or 22.9%, to $52.1 million in the six months ended March 31, 2014 from $42.4 million in the six months ended March 31, 2013. Store expenses as a percentage of sales were 20.7% and 20.9% for the six months ended March 31, 2014 and 2013, respectively. The decrease in store expenses as a percentage of sales was primarily due to a decrease in salaries, benefits and related expenses at comparable stores, partially offset by increases in depreciation expense at both comparable and new stores.  The decrease in salaries, benefits and related expenses at comparable stores was due to leverage from the increase in sales, as the increased salary related expenses required to support the sales growth was less than the increase in sales.

Administrative expenses

Administrative expenses increased $0.8 million, or 11.5%, to $7.4 million for the six months ended March 31, 2014 compared to $6.7 million for the six months ended March 31, 2013, primarily due to the addition of general and administrative positions to support our store growth, as well as increased share-based compensation costs.  Administrative expenses as a percentage of sales were 3.0% and 3.3% for the six months ended March 31, 2014 and 2013, respectively.  The decrease in administrative expenses as a percentage of sales was a result of our ability to support additional store investments and sales without proportionate increases in overhead expenses.

Pre-opening and relocation expenses

Pre-opening and relocation expenses increased $0.8 million, or 59.7%, in the six months ended March 31, 2014 to $2.1 million compared to $1.3 million for the six months ended March 31, 2013, due to the increased number of new store openings, the impact of the timing of the openings and possession of stores that are not yet opened, and the lease classification for those stores that were opened.  We opened nine new stores and remodeled one store for the six months ended March 31, 2014, one of which was classified as a capital and financing lease obligation with no straight-line rent expense included in preopening and relocation expenses.  We opened six new stores for the six months ended March 31, 2013, five of which were classified as capital and financing lease obligations with no straight-line rent expense included in preopening and relocation expenses.  Pre-opening and relocation expenses as a percentage of sales were 0.8% and 0.7% for the six months ended March 31, 2014 and 2013, respectively.

Interest expense

Interest expense increased $0.8 million, or 115.1%, to $1.4 million in the six months ended March 31, 2014 compared to $0.7 million for the six months ended March 31, 2013 due to an increase in interest expense related to capital and financing lease obligations.  If the capital and financing lease obligations had qualified as operating leases, interest expense as a percent of sales would have been approximately 55 and 30 basis points lower than as reported in the six months ended March 31, 2014 and 2013, respectively.

Income taxes

Our effective income tax rate for the six months ended March 31, 2014 and 2013 was 37.9% and 37.2%, respectively. The increase in our effective income tax rate was primarily due to an increase in federal income taxes.  Our federal income taxes increased because of additional taxable net income and a consequential higher tax rate.  Our additional taxable net income was due in part to the impact of prior deductions for bonus depreciation.

During the first quarter of fiscal year 2014, the Company experienced benefits from the American Taxpayer Relief Act of 2012, which extended the 50% bonus depreciation on qualifying assets and the special 15 year life for qualified leasehold property and qualified retail improvement property for property acquired from January 1, 2013 through December 31, 2013. The Company does not anticipate future benefits from the American Taxpayer Relief Act of 2012 because its provisions expired as of December 31, 2013 and no precedent exists for it being retroactively reauthorized by Congress.

The Company also benefited from the extension of the Work Opportunity Tax Credit during the quarter ended December 31, 2013.  Although the legislative authority for this credit expired December 31, 2013, the Company believes it may benefit from the credit in the future if Congress reauthorizes it.

Net income

Net income increased 27.3% to $6.9 million, or $0.31 diluted earnings per share, in the six months ended March 31, 2014 from $5.4 million, or $0.24 diluted earnings per share, in the six months ended March 31, 2013.

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EBITDA

EBITDA increased 28.4% to $11.2 million in the three months ended March 31, 2014 compared to $8.8 million in the three months ended March 31, 2013.  EBITDA increased 32.6% to $20.6 million in the six months ended March 31, 2014 compared to $15.5 million in the six months ended March 31, 2013.  EBITDA as a percent of sales was 8.6% and 8.2% for the three months ended March 31, 2014 and 2013, respectively.  EBITDA as a percent of sales was 8.2% and 7.7% for the six months ended March 31, 2014 and 2013, respectively.  The stores with leases that are classified as capital and financing lease obligations, rather than being reflected as operating leases, increased EBITDA as a percentage of sales by approximately 60 and 55 basis points for the three months ended March 31, 2014 and 2013, respectively, and by approximately 60 and 45 basis points for the six months ended March 31, 2014 and 2013, respectively, due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that would have been included in pre-opening expenses prior to the stores’ opening dates if these leases had been accounted for as operating leases.

EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest, taxes, depreciation and amortization. We believe EBITDA provides additional information about (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA performance is a measure in our incentive compensation payments.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that some investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations.  By providing this non-GAAP financial measure, together with a reconciliation from net income, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as indicators of financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:

·EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

·EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

·EBITDA does not reflect any impact for straight-line rent expense for leases classified as capital and financing lease obligations;

·EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

·EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

·although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as supplemental information. We further believe that our presentation of this non-GAAP financial measurement provides information that is useful to analysts and investors because it is an important indicator of the strength of our operations and the performance of our business.

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The following table reconciles net income to EBITDA for the periods presented, dollars in thousands:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Net income	$	3,999	3,217	6,921	5,438
Interest expense	704		401	1,411	656
Provision for income taxes	2,415		1,900	4,217	3,215
Depreciation and amortization	4,116		3,233	8,054	6,225
EBITDA	$	11,234	8,751	20,603	15,534

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and availability under our revolving credit facility.

Our primary uses of cash are for capital expenditures predominantly in connection with opening new stores and relocating and remodeling certain existing stores, purchases of inventory, operating expense, debt service and corporate taxes. As of March 31, 2014, we had $7.8 million in cash and cash equivalents and $0.1 million in available-for-sale securities, as well as $14.3 million available under our amended and restated revolving credit facility.  As of March 31, 2014, we had an undrawn, issued and outstanding letter of credit of $0.7 million which was reserved against the amount available for borrowing under the terms of our revolving credit facility.  The Company had no amounts outstanding on the revolving credit facility as of March 31, 2014.  On December 12, 2013, we entered into an amended and restated $15.0 million credit agreement that, among other things, (i) extended the maturity date of the Company’s revolving credit facility by three years to January 31, 2017, (ii) provides the Company with the right to request the issuance of letters of credit under the credit facility up to $3.0 million, (iii) allows the Company to increase the amount available under the revolving credit facility, up to an additional amount that may not exceed $10.0 million by obtaining an additional commitment or commitments, (iv) eliminated a requirement for a consolidated EBITDA to revenue ratio and (v) amended the unused commitment fee from 0.20% to amounts ranging from 0.15% to 0.35% based on certain conditions.

We plan to continue to open new stores, which has previously required and may in the future require us to borrow additional amounts under our revolving credit facility. We plan to spend approximately $18 million to $20 million on capital expenditures during the remaining six months of fiscal year 2014. We believe that cash and cash equivalents, together with the cash generated from operations and the borrowing availability under our revolving credit facility will be sufficient to meet our working capital needs and planned capital expenditures, including capital expenditures related to new store needs for at least the next twelve months. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

We anticipate that our new stores will require, on average, an upfront capital investment of approximately $2.5 million per store consisting of capital expenditures of approximately $1.9 million, net of tenant allowances, initial inventory of approximately $0.3 million, net of payables, and pre-opening expenses of approximately $0.3 million.

Following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands:

	Six months endedMarch 31,
	2014			2013
Net cash provided by operating activities	$	15,648		10,693
Net cash used in investing activities	(16,308		)	(18,251	)
Net cash provided by (used in) financing activities	342			(236	)
Net decrease in cash and cash equivalents	(318		)	(7,794	)
Cash and cash equivalents, beginning of period	8,132			17,291
Cash and cash equivalents, end of period	$	7,814		9,497

Operating Activities

Cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities increased $5.0 million,

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or 46.3%, to $15.6 million in the six months ended March 31, 2014, from $10.7 million in the six months ended March 31, 2013. The increase in cash provided by operating activities was primarily due to an increase in net income, as adjusted for depreciation and amortization resulting from the addition of new stores, offset by changes in working capital driven by the timing of payment on inventory purchases.  Our working capital requirements for inventory will likely continue to increase as we continue to open new stores.

Investing Activities

Cash used in investing activities decreased $1.9 million, or 10.6%, to $16.3 million in the six months ended March 31, 2014 from $18.3 million in the six months ended March 31, 2013. Cash used in investing activities consists primarily of capital expenditures which increased $0.2 million to $17.9 million for the six months ended March 31, 2014 as compared to $17.7 million for the six months ended March 31, 2013. We opened nine new stores during the six months ended March 31, 2014 compared to six new stores during the six months ended March 31, 2013.  In the six months ended March 31, 2013, capital expenditures included approximately $5.0 million of capital expenditures for assets acquired in the fourth quarter of fiscal year 2012, but paid during the first quarter of fiscal year 2013, including amounts related to our bulk food repackaging and distribution center.  The remaining change in cash used for capital expenditures was due in part to the timing, costs and number of new stores opened during the six months ended March 31, 2014 as compared to the six months ended March 31, 2103.  The cash used for capital expenditures was partially offset by a $1.0 million reduction in our short term investments — available-for-sale, as well as a $0.5 million reduction in our restricted cash balance in the six months ended March 31, 2014.

Financing Activities

Cash provided by (used in) financing activities consists primarily of excess tax benefits on vested share-based compensation offset by payments of capital and financing lease obligations for the six months ended March 31, 2014. Cash provided by financing activities was $0.3 million for the six months ended March 31, 2014, as compared to cash used in financing activities of $0.2 million in the six months ended March 31, 2013.  The increase in cash provided by financing activities for the six months ended March 31, 2014 was primarily due to an increase in excess tax benefits for vested share-based compensation, and a decrease in equity issuance costs paid.

Credit Facility

Credit Facility

We are a party to the $15.0 million amended and restated revolving credit facility, which we may increase by an additional amount that may not exceed $10.0 million, as further described above in “Liquidity and Capital Resources.”  The operating company is the borrower under the credit facility, and its obligations under the credit facility are guaranteed by the holding company.

As of March 31, 2014, we had no amounts outstanding on the revolving credit facility, with a $0.7 million letter of credit issued and outstanding and $14.3 million available for borrowing.  For floating rate borrowings under the credit facility, interest is determined by the lender’s administrative agent less the lender spread, subject to the Company meeting certain financial measures.  For fixed rate borrowings under the credit facility, interest is determined by quoted LIBOR rates for the interest period plus the lender spread, subject to us meeting certain financial measures.

The amended and restated revolving credit facility requires compliance with certain operational and financial covenants (including a leverage ratio and a fixed charge coverage ratio). The revolving credit facility also contains certain other limitations on our ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions as defined in the agreement. Additionally, the revolving credit facility prohibits the payment of cash dividends to the holding company from the operating company, without the bank’s consent except when no default or event of default exists.  If no default or event of default exists, dividends are allowed for various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses in the ordinary course of business.  We do not expect such restrictions to impact our ability to meet our cash obligations.  The terms and conditions of the agreement for the revolving credit facility and associated documents are customary and include, among other things, guarantees, security interest grants, pledges and subordinations.  As of March 31, 2014, we were in compliance with the debt covenants of our credit facility.

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Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2014, dollars in thousands:

	Payments Due by Period
	Total		Less than 1 year	1 - 3 years	3 - 5 years	More than 5 years
Interest payments (1)	$	62	22	40	—	—
Operating leases (2)	248,838		19,423	40,395	38,919	150,101
Capital and financing lease obligations, including principal and interest payments (3)	42,351		2,978	5,955	5,983	27,435
Contractual obligations for construction related activities (4)	1,008		1,008	—	—	—
	$	292,259	23,431	46,390	44,902	177,536

(1)We assumed the interest payments to be paid during the remainder of the revolving credit facility using an unused commitment fee of 0.15% for amounts not borrowed as of March 31, 2014.

(2)Represents the minimum lease payments due under our operating leases, excluding annual common area maintenance, insurance and taxes related to our operating lease obligations.

(3)Represents the payments due under our capital and financing lease obligations for nine stores, all of which were open as of March 31, 2014.  We do not record rent expense for these capital leases, but rather rental payments under the capital leases are recognized as a reduction of the capital and financing lease obligations and interest expense.

(4)Contractual obligations for construction related activities include future payments to general contractors that are legally binding as of March 31, 2014 and relate to new store construction, relocations and remodels.

Off-Balance Sheet Arrangements

As of March 31, 2014, our off-balance sheet arrangements consist of operating leases and the undrawn portion of our amended and restated revolving credit facility. All of our stores, bulk food repackaging facility and distribution center and administrative facilities are leased, and as of March 31, 2014, nine leases were classified as capital and financing lease obligations, and the remaining leases were classified as operating leases in our consolidated financial statements. We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or financial condition.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements included in this report on Form 10-Q.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. We evaluate our accounting policies and resulting estimates on an ongoing basis to make adjustments we consider appropriate under the facts and circumstances.  Critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial statements include, accounting for income taxes, accounting for impairment of long-lived assets and accounting for leases, which are discussed in more detail under the caption “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II of our Form 10-K.

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Item 3.  Qualitative and Quantitative Disclosures About Market Risk

We are exposed to interest rate changes of our long-term debt, and, to a limited extent, our revolving credit facility.  We do not use financial instruments for trading or other speculative purposes.  There have been no material changes regarding our market risk position from the information provided under Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Form 10-K.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officers and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our principal executive officers and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of March 31, 2014.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1.  Legal Proceedings

We periodically are involved in various legal proceedings that are incidental to the conduct of our business, including but not limited to employment discrimination claims, customer injury claims and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from our estimates. Although we cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.

Item 1A.  Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of our Form 10-K, other than the changes to the risk factors set forth below.

If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.

We believe our success depends, in substantial part, on our ability to:

·anticipate, identify and react to natural and organic grocery and dietary supplement trends and changing consumer preferences in a timely manner;

·translate market trends into appropriate, saleable product and service offerings in our stores before our competitors; and

·develop and maintain vendor relationships that provide us access to the newest merchandise, and dairy products that satisfy upgraded standards, on reasonable terms.

Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or retail concepts. Our performance is impacted by trends regarding natural and organic products, dietary supplements and at-home meal preparation. Consumer preferences towards dietary supplements or natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, reduced or changed consumer choices and the cost of these products. Our store offerings remain composed of natural and organic products and dietary supplements. A change in consumer preferences away

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from our offerings including as a result of, among other things, reductions or changes in our offerings, would have a material adverse effect on our business. Additionally, negative publicity over the safety of any such items, or upgraded standards that reduce or change consumer choices, may adversely affect demand for our products and could result in lower customer traffic, sales and results of operations.  Reduced or changed consumer choices may result from, among other things our implementation of requirements for dairy products that satisfy our pasture-based, non-confinement standards.

If we are unable to anticipate and satisfy consumer merchandise preferences in the regions where we operate, our net sales may decrease, and we may be forced to increase markdowns of slow-moving merchandise, either of which could have a material adverse effect on our business, financial condition and results of operations.

Our future business, results of operations and financial condition may be adversely affected by reduced availability of organic products or dairy products that satisfy our pasture-based, non-confinement standards.

Our ability to ensure a continuing supply of organic products and dairy products that satisfy our pasture-based, non-confinement standards at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow organic crops or raise organic livestock or satisfy our pasture-based, non-confinement standards, the vagaries of these farming businesses and our ability to accurately forecast our sourcing requirements. The organic ingredients used in many of the products we sell are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilences. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of, or increase the price of, organic ingredients. Certain products we purchase from our suppliers include organic ingredients sourced offshore, and the availability of such ingredients may be affected by events in other countries. In addition, we and our suppliers compete with other food producers in the procurement of organic ingredients and dairy products that satisfy our pasture-based, non-confinement standards, which are often less plentiful in the open market than conventional ingredients and products. This competition may increase in the future if consumer demand increases for organic products and dairy products that satisfy our pasture-based, non-confinement standards. If supplies of organic ingredients and dairy products that satisfy our pasture-based, non-confinement standards are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to our stores and may adversely affect our business, results of operations and financial condition.

The organic products we sell rely on independent certification and must comply with the requirements of independent organizations or certification authorities in order to be labeled as such. Certain products we sell in our stores can lose their “organic” certification if a contract manufacturing plant becomes contaminated with non-organic materials or if it is not properly cleaned after a production run, among other issues. The loss of any independent certifications could reduce the availability of organic products that we can sell in our stores and harm our business.

Item 6.  Exhibits

See Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on May 1, 2014.

Natural Grocers by Vitamin Cottage, Inc.
By:	/s/ KEMPER ISELY
	Kemper Isely, Co-President
	(Principal Executive Officer)
By:	/s/ SANDRA BUFFA
	Sandra Buffa, Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of Kemper Isely, a Principal Executive Officer Required Under Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Zephyr Isely, a Principal Executive Officer Required Under Section 302(a) of the Sarbanes-Oxley Act of 2002
31.3	Certification of Sandra Buffa, Principal Financial Officer Required Under Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1†	Certification of Principal Executive Officers and Principal Financial Officer Required Under 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 ^	The following materials from Natural Grocers by Vitamin Cottage, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Cash Flows (unaudited) and (v) notes to Unaudited Interim Consolidated Financial Statements.

† The certifications attached as Exhibit 32.1 that accompany this report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Natural Grocers by Vitamin Cottage, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

^ Furnished, not filed.  Users of this data submitted electronically herewith are advised pursuant to Rule 406T of Regulation S-T that the interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Act of 1933, and otherwise are not subject to liability under these sections.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kemper Isely, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Natural Grocers by Vitamin Cottage, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 1, 2014

/s/ Kemper Isely

Kemper Isely

Co-President and a Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Zephyr Isely, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Natural Grocers by Vitamin Cottage, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 1, 2014

/s/ Zephyr Isely

Zephyr Isely

Co-President and a Principal Executive Officer

EX-31.3

Exhibit 31.3

CERTIFICATION

I, Sandra Buffa, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Natural Grocers by Vitamin Cottage, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 1, 2014

/s/ Sandra Buffa

Sandra Buffa

Chief Financial Officer and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Natural Grocers by Vitamin Cottage, Inc. (the “Company”), on Form 10-Q for the fiscal quarter ended March 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), Kemper Isely, Co-President and a Principal Executive Officer of the Company, Zephyr Isely, Co-President and a Principal Executive Officer of the Company, and Sandra Buffa, Chief Financial Officer and Principal Financial Officer of the Company, respectively, do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge:

·The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

·The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  May 1, 2014

/s/ Kemper Isely

Kemper Isely

Co-President and a Principal Executive Officer

/s/ Zephyr Isely

Zephyr Isely

Co-President and a Principal Executive Officer

/s/ Sandra Buffa

Sandra Buffa

Chief Financial Officer and Principal Financial Officer

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Supplementary Balance Sheet Information (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Sep. 30, 2013
Supplementary Balance Sheet Information
Restricted Cash	$ 0	$ 500
Payroll and employee-related expenses	5,709	5,247
Accrued income, property, sales and use tax payable	3,018	2,686
Deferred revenue related to gift card sales	728	625
Other	1,258	748
Total accrued expenses	$ 10,713	$ 9,306

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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2014

Fair Value Measurements

Schedule of financial assets and liabilities subject to fair value measurements

As of March 31, 2014 and September 30, 2013, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the fair value hierarchy, dollars in thousands:

		As of
		March 31, 2014			September 30, 2013
	Fair Value Hierarchy Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Cash and cash equivalents:
Money market fund	1	$	—	—	501	501
Investments — available-for-sale securities:
Certificates of deposit	2	95		95	585	585
Corporate bonds	2	—		—	376	376
Municipal bonds	2	—		—	188	188

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Related Party Transactions (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 item	Mar. 31, 2013
Isely Family Land Trust LLC
Related party transactions
Number of operating leases			1
Rent expense	$ 0.1	$ 0.1	$ 0.2	$ 0.2
Chalet Properties, LLC
Related party transactions
Number of operating leases			7
Number of owners that are non-independent board members			4
Rent expense	$ 0.3	$ 0.3	$ 0.6	$ 0.6

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Earnings Per Share

6 Months Ended

Mar. 31, 2014

Earnings Per Share

Earnings Per Share

3. Earnings Per Share

Basic earnings per share (EPS) excludes dilution and is computed by dividing net income by the weighted average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units were to vest, resulting in the issuance of common stock that would then share in the earnings of the Company. Presented below are basic and diluted EPS for the three and six months ended March 31, 2014 and 2013, dollars in thousands, except per share data:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Net income	$	3,999	3,217	6,921	5,438
Weighted average common shares outstanding	22,464,941		22,393,993	22,453,441	22,382,969
Effect of dilutive securities	18,812		47,452	23,760	54,214
Weighted average common shares outstanding including effect of dilutive securities	22,483,753		22,441,445	22,477,201	22,437,183
Basic earnings per share	$	0.18	0.14	0.31	0.24
Diluted earnings per share	$	0.18	0.14	0.31	0.24

There were 3,558 non-vested restricted stock units (RSUs) for the three and six months ended March 31, 2014 excluded from the calculation as they are antidilutive.  There were 4,856 antidilutive non-vested RSUs for the three and six months ended March 31, 2013.

The Company did not declare any dividends in the three and six months ended March 31, 2014 or 2013.

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Basic and Diluted EPS
Net income (in dollars)	$ 3,999	$ 3,217	$ 6,921	$ 5,438
Weighted average common shares outstanding	22,464,941	22,393,993	22,453,441	22,382,969
Effect of dilutive securities (in shares)	18,812	47,452	23,760	54,214
Weighted average common shares outstanding including effect of dilutive securities	22,483,753	22,441,445	22,477,201	22,437,183
Basic earnings per share (in dollars per share)	$ 0.18	$ 0.14	$ 0.31	$ 0.24
Diluted earnings per share (in dollars per share)	$ 0.18	$ 0.14	$ 0.31	$ 0.24
RSUs
Antidilutive securities excluded from the calculation
Antidilutive securities excluded from the calculation (in shares)	3,558	4,856	3,558	4,856

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Basis of Presentation and Summary of Significant Accounting Policies (Details)	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 item	Mar. 31, 2013
Basis of Presentation and Summary of Significant Accounting Policies
Number of reporting segments			1
Consolidated Financial Statements
Sales percentage	100.00%	100.00%	100.00%	100.00%
Grocery
Consolidated Financial Statements
Sales percentage	66.10%	64.40%	66.30%	64.20%
Dietary supplements
Consolidated Financial Statements
Sales percentage	24.00%	25.70%	23.70%	25.60%
Other
Consolidated Financial Statements
Sales percentage	9.90%	9.90%	10.00%	10.20%

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Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		0 Months Ended			0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Dec. 12, 2013 Revolving Credit Facility	Mar. 31, 2014 Revolving Credit Facility	Sep. 30, 2013 Revolving Credit Facility	Dec. 12, 2013 Revolving Credit Facility Minimum	Dec. 12, 2013 Revolving Credit Facility Maximum	Mar. 31, 2014 Letters of credit	Dec. 12, 2013 Letters of credit Maximum
Long-Term Debt
Amount available for borrowing					$ 15.0						$ 3.0
Period by which maturity date is extended					3 years
Additional maximum borrowing capacity									10.0
Unused commitment fee before amendment (as a percent)					0.20%
Unused commitment fee (as a percent)								0.15%	0.35%
Amount outstanding						0	0
Amount of letter of credit undrawn, issued and outstanding										0.7
Available balance under credit facility						14.3	15.0
Gross interest expense	$ 0.7	$ 0.4	$ 1.4	$ 0.7

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Lease Commitments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Sep. 30, 2013
Capital and financing lease obligations
Capital and Financing Lease Obligations
Total capital and financing lease obligations	$ 19,755	$ 19,822
Less current portion	(195)	(174)
Total capital and financing lease obligations, net of current portion	19,560	19,648
Capital lease finance obligations, due in monthly installments through fiscal year 2028
Capital and Financing Lease Obligations
Total capital and financing lease obligations	15,022	13,746
Capital lease finance obligations, due in monthly installments through fiscal year 2028 | Construction in process
Capital and Financing Lease Obligations
Total capital and financing lease obligations		1,284
Capital lease obligations, due in monthly installments through fiscal year 2028
Capital and Financing Lease Obligations
Total capital and financing lease obligations	$ 4,733	$ 4,792

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Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2014

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

2. Basis of Presentation and Summary of Significant Accounting Policies

Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended September 30, 2013.  In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation.  Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending September 30.

The holding company was incorporated in Delaware on April 9, 2012. The accompanying consolidated financial statements include all the accounts of the Company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company), Vitamin Cottage Two Ltd. Liability Company and Natural Systems, LLC. The operating company formed the holding company in order to facilitate the purchase of the remaining noncontrolling interest in Boulder Vitamin Cottage Group, LLC and consummation of the Company’s initial public offering (IPO) during fiscal year 2012.  All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has one reporting segment, natural and organic retail stores.  Sales from the Company’s natural and organic retail stores are derived from sales of the following products, which are presented as a percentage of sales for the three and six months ended March 31, 2014 and 2013 as follows:

	Three months endedMarch 31,			Six months endedMarch 31,
	2014		2013	2014	2013
Grocery	66.1	%	64.4	66.3	64.2
Dietary supplements	24.0		25.7	23.7	25.6
Other	9.9		9.9	10.0	10.2
	100.0	%	100.0	100.0	100.0

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU No. 2013-02 supersedes the presentation requirements for reclassifications out of accumulated other comprehensive income in both ASU No. 2011-12 and 2011-05.  ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This update was effective for the Company beginning in the quarter ended December 31, 2013. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Sep. 30, 2013
Property and Equipment
Property and Equipment, gross	$ 168,492		$ 168,492		$ 150,830
Less accumulated depreciation and amortization	(59,974)		(59,974)		(51,920)
Property and Equipment, net	108,518		108,518		98,910
Depreciation and amortization	4,116	3,233	8,054	6,225
Cost of goods sold and occupancy costs
Property and Equipment
Depreciation and amortization	190	183	376	356
Store expenses
Property and Equipment
Depreciation and amortization	3,799	2,949	7,442	5,650
Administrative expenses
Property and Equipment
Depreciation and amortization	127	101	236	219
Construction in process
Property and Equipment
Property and Equipment, gross	3,835		3,835		5,421
Capitalized real estate leases for build to suit stores
Property and Equipment
Useful lives			40 years
Property and Equipment, gross	17,107		17,107		15,774
Capitalized real estate leases
Property and Equipment
Useful lives			15 years
Property and Equipment, gross	4,866		4,866		4,866
Land improvements
Property and Equipment
Property and Equipment, gross	1,000		1,000		1,000
Land improvements | Minimum
Property and Equipment
Useful lives			5 years
Land improvements | Maximum
Property and Equipment
Useful lives			15 years
Leasehold and building improvements
Property and Equipment
Property and Equipment, gross	68,179		68,179		59,058
Leasehold and building improvements | Minimum
Property and Equipment
Useful lives			2 years
Leasehold and building improvements | Maximum
Property and Equipment
Useful lives			20 years
Fixtures and equipment
Property and Equipment
Property and Equipment, gross	64,037		64,037		56,459
Fixtures and equipment | Minimum
Property and Equipment
Useful lives			5 years
Fixtures and equipment | Maximum
Property and Equipment
Useful lives			7 years
Computer hardware and software
Property and Equipment
Property and Equipment, gross	9,468		9,468		8,252
Computer hardware and software | Minimum
Property and Equipment
Useful lives			3 years
Computer hardware and software | Maximum
Property and Equipment
Useful lives			5 years
Unamortized land
Property and Equipment
Property and Equipment, gross	617		617		617
Construction in progress / Build to suit lease in process
Property and Equipment
Property and Equipment, gross	$ 0		$ 0		$ 1,300

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Sep. 30, 2013
Current assets:
Cash and cash equivalents	$ 7,814	$ 8,132
Restricted cash	0	500
Short term investments - available-for-sale securities	95	1,149
Accounts receivable, net	1,801	2,401
Merchandise inventory	53,090	45,472
Prepaid expenses and other current assets	1,183	1,097
Deferred income tax assets	1,279	1,114
Total current assets	65,262	59,865
Property and equipment, net	108,518	98,910
Other assets:
Deposits and other assets	740	203
Goodwill and other intangible assets, net of accumulated amortization of $654 and $654, respectively	900	900
Deferred financing costs, net	44	25
Total other assets	1,684	1,128
Total assets	175,464	159,903
Current liabilities:
Accounts payable	34,096	28,918
Accrued expenses	10,713	9,306
Capital and financing lease obligations, current portion	195	174
Total current liabilities	45,004	38,398
Long-term liabilities:
Capital and financing lease obligations, net of current portion	19,560	19,648
Deferred income tax liabilities	6,606	6,877
Deferred rent	5,373	4,731
Leasehold incentives	6,743	5,716
Total long-term liabilities	38,282	36,972
Total liabilities	83,286	75,370
Commitments (Note 12)
Stockholders' equity:
Common stock, $0.001 par value. Authorized 50,000,000 shares, 22,476,986 and 22,441,253 issued and outstanding, respectively	22	22
Additional paid in capital	54,428	53,704
Retained earnings	37,728	30,807
Total stockholders' equity	92,178	84,533
Total liabilities and stockholders' equity	$ 175,464	$ 159,903

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Operating activities:
Net income	$ 6,921	$ 5,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,054	6,225
Gain on disposal of property and equipment		(2)
Share-based compensation	263	43
Excess tax benefit from share-based compensation	(460)	(211)
Deferred income tax (benefit) expense	(437)	652
Non-cash interest expense	11	31
Interest accrued on investments and amortization of premium	9	12
Other amortization		26
Decrease (increase) in:
Accounts receivable, net	600	272
Income tax receivable	359
Merchandise inventory	(7,618)	(4,993)
Prepaid expenses and other assets	(981)	(193)
Increase (decrease) in:
Accounts payable	5,382	1,339
Accrued expenses	1,876	2,072
Deferred rent and leasehold incentives	1,669	(18)
Net cash provided by operating activities	15,648	10,693
Investing activities:
Acquisition of property and equipment	(17,853)	(17,667)
Proceeds from sale of property and equipment		2
Purchase of available-for-sale securities	0	(426)
Proceeds from maturity of available-for-sale securities	1,045	340
Decrease (increase) in restricted cash	500	(500)
Net cash used in investing activities	(16,308)	(18,251)
Financing activities:
Borrowings under credit facility	530
Repayments under credit facility	(530)
Repayments under notes payable, related party		(128)
Capital and financing lease obligations payments	(88)	(33)
Excess tax benefit from share-based compensation	460	211
Equity issuance costs		(268)
Credit facility fees paid	(30)	(18)
Net cash provided by (used in) financing activities	342	(236)
Net decrease in cash and cash equivalents	(318)	(7,794)
Cash and cash equivalents, beginning of period	8,132	17,291
Cash and cash equivalents, end of period	7,814	9,497
Supplemental disclosures of cash flow information:
Cash paid for interest		6
Cash paid for interest on capital and financing lease obligations	1,392	619
Income taxes paid	3,656	1,948
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid	3,341	4,087
Property acquired through capital and financing lease obligations	$ 14	$ 10,523

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Sep. 30, 2013
Fair Value Measurements
Available-for-sale securities purchased	$ 0	$ 200	$ 0	$ 426
Proceeds from maturity of available-for-sale securities	1,000	300	1,045	340
Transfer from Level 1 to 2	0		0		0
Transfer from Level 2 to 1	0		0		0
Level 1 | Carrying Amount | Money market fund
Fair Value Measurements
Cash and cash equivalents:					501
Level 1 | Fair Value | Money market fund
Fair Value Measurements
Cash and cash equivalents:					501
Level 2 | Carrying Amount | Certificates of deposit
Fair Value Measurements
Investments - available-for-sale securities:	95		95		585
Level 2 | Carrying Amount | Corporate bonds
Fair Value Measurements
Investments - available-for-sale securities:					376
Level 2 | Carrying Amount | Municipal bonds
Fair Value Measurements
Investments - available-for-sale securities:					188
Level 2 | Fair Value | Certificates of deposit
Fair Value Measurements
Investments - available-for-sale securities:	95		95		585
Level 2 | Fair Value | Corporate bonds
Fair Value Measurements
Investments - available-for-sale securities:					376
Level 2 | Fair Value | Municipal bonds
Fair Value Measurements
Investments - available-for-sale securities:					188
Level 3
Fair Value Measurements
Assets	$ 0		$ 0		$ 0

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Lease Commitments (Tables)

6 Months Ended

Mar. 31, 2014

Lease Commitments

Schedule of capital and financing lease obligations

Capital and financing lease obligations as of March 31, 2014 and September 30, 2013, are as follows, dollars in thousands:

	As of
	March 31, 2014			September 30, 2013
Capital lease finance obligations, due in monthly installments through fiscal year 2028	$	15,022		13,746
Capital lease obligations, due in monthly installments through fiscal year 2028	4,733			4,792
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2028	—			1,284
Total capital and financing lease obligations	19,755			19,822
Less current portion	(195		)	(174	)
Total capital and financing lease obligations, net of current portion	$	19,560		19,648

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Share-Based Compensation (Details) (USD $)	3 Months Ended		6 Months Ended					1 Months Ended	6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 RSUs	Mar. 31, 2014 RSUs Chief Financial Officer	Jun. 30, 2008 RSUs Chief Financial Officer	Jan. 31, 2014 RSUs Chief Financial Officer Vesting over 18 month	Mar. 31, 2014 RSUs Board	Mar. 31, 2014 RSUs One Third Chief Financial Officer item	Mar. 31, 2014 RSUs One Third Chief Financial Officer Vesting over six month	Mar. 31, 2014 RSUs One Third Chief Financial Officer Vesting over 12 month	Mar. 31, 2014 RSUs One Third Chief Financial Officer Vesting over 18 month
Share-based compensation
Common stock value equivalent to which awards granted			$ 50,000
Vesting period								18 months	12 months		6 months	12 months	18 months
RSUs
Non-vested at the beginning of the period (in shares)					86,053
Granted (in shares)					3,558
Forfeited (in shares)					(556)
Vested (in shares)					(35,733)
Non-vested at the end of the period (in shares)					53,322
Weighted average grant date fair value
Non-vested at the beginning of the period (in dollars per share)					$ 21.80
Granted (in dollars per share)					$ 42.16
Forfeited (in dollars per share)					$ 34.07
Vested (in dollars per share)					$ 4.60
Non-vested at the end of the period (in dollars per share)					$ 34.56
Awards grant entitlement as percentage of fully diluted shares							1.20%
Vesting rights percentage upon completion of the IPO						66.67%
Percentage of awards settled in shares of common stock						33.33%
Settlement percentage of awards in shares of common stock										100.00%
Number of equal parts over which awards vest										3
Total share-based compensation expense before income taxes (in dollars)	200,000	100,000	300,000	100,000
Unrecognized share-based compensation expense (in dollars)					$ 1,500,000
Weighted average period over which unrecognized compensation expense is to be recognized					3 years

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Supplementary Balance Sheet Information (Tables)

6 Months Ended

Mar. 31, 2014

Supplementary Balance Sheet Information

Schedule of composition of accrued expenses

The composition of accrued expenses is summarized as follows as of March 31, 2014 and September 30, 2013, dollars in thousands:

	As of
	March 31,		September 30,
	2014		2013
Payroll and employee-related expenses	$	5,709	5,247
Accrued income, property, sales and use tax payable	3,018		2,686
Deferred revenue related to gift card sales	728		625
Other	1,258		748
Total accrued expenses	$	10,713	9,306

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Organization

6 Months Ended

Mar. 31, 2014

Organization

Organization

1. Organization

Nature of Business

Natural Grocers by Vitamin Cottage, Inc. (Natural Grocers or the holding company) and its consolidated subsidiaries (collectively, the Company) operate retail stores that specialize in natural and organic groceries and dietary supplements. The Company typically operates its retail stores under its trademark Natural Grocers by Vitamin Cottage® with 81 stores as of March 31, 2014, including 32 stores in Colorado, 13 in Texas, six in Oregon, five each in Kansas and New Mexico, four in Montana, three each in Arizona, Idaho, Nebraska and Oklahoma, two in Wyoming, and one each in Missouri and Utah, as well as a bulk food repackaging facility and distribution center in Colorado. The Company had 72 stores as of September 30, 2013.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Sep. 30, 2013
Consolidated Balance Sheets
Goodwill and other intangible assets, accumulated amortization (in dollars)	$ 654	$ 654
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, Authorized shares	50,000,000	50,000,000
Common stock, issued shares	22,476,986	22,441,253
Common stock, outstanding shares	22,476,986	22,441,253

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Related Party Transactions

6 Months Ended

Mar. 31, 2014

Related Party Transactions

Related Party Transactions

11. Related Party Transactions

The Company has ongoing relationships with related entities as noted below:

Isely Family Land Trust LLC:  The Company has one operating lease for a store location with the Isely Family Land Trust LLC (Land Trust). The Land Trust is owned by the Isely Children’s Trust and by the Margaret A. Isely Family Trust. Rent paid to the Land Trust was approximately $0.1 million for each of the three months ended March 31, 2014 and 2013.  Rent paid to the Land Trust was approximately $0.2 million for each of the six months ended March 31, 2014 and 2013.

Chalet Properties, LLC:  The Company has seven operating leases with Chalet Properties, LLC (Chalet). Chalet is owned by the Company’s four non-independent board members: Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, and other related family members. Rent paid to Chalet was approximately $0.3 million for each of the three months ended March 31, 2014 and 2013.  Rent paid to Chalet was approximately $0.6 million for each of the six months ended March 31, 2014 and 2013.

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Document and Entity Information	6 Months Ended
	Mar. 31, 2014	Apr. 29, 2014
Document and Entity Information
Entity Registrant Name	Natural Grocers by Vitamin Cottage, Inc.
Entity Central Index Key	0001547459
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,476,986
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Commitments and Contingencies

6 Months Ended

Mar. 31, 2014

Commitments and Contingencies

Commitments and Contingencies

12. Commitments and Contingencies

Legal

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to employment discrimination claims, customer injury claims and investigations. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, prospects, financial condition, cash flows or results of operations.

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Consolidated Statements of Income
Net sales	$ 130,343	$ 106,485	$ 250,923	$ 202,316
Cost of goods sold and occupancy costs	91,590	74,668	176,789	142,662
Gross profit	38,753	31,817	74,134	59,654
Store expenses	26,877	22,163	52,050	42,366
Administrative expenses	3,548	3,342	7,437	6,668
Pre-opening and relocation expenses	1,211	796	2,100	1,315
Operating income	7,117	5,516	12,547	9,305
Other (expense) income:
Interest expense	(704)	(401)	(1,411)	(656)
Other income, net	1	2	2	4
Total other expense	(703)	(399)	(1,409)	(652)
Income before income taxes	6,414	5,117	11,138	8,653
Provision for income taxes	(2,415)	(1,900)	(4,217)	(3,215)
Net income	$ 3,999	$ 3,217	$ 6,921	$ 5,438
Net income per common share:
Basic (in dollars per share)	$ 0.18	$ 0.14	$ 0.31	$ 0.24
Diluted (in dollars per share)	$ 0.18	$ 0.14	$ 0.31	$ 0.24
Weighted average common shares outstanding:
Basic (in shares)	22,464,941	22,393,993	22,453,441	22,382,969
Diluted (in shares)	22,483,753	22,441,445	22,477,201	22,437,183

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Property and Equipment

6 Months Ended

Mar. 31, 2014

Property and Equipment

Property and Equipment

6. Property and Equipment

The Company had the following property and equipment balances as of March 31, 2014 and September 30, 2013, dollars in thousands:

		As of
	Useful lives(in years)	March 31,2014			September 30,2013
Construction in process	n/a	$	3,835		5,421
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively	40	17,107			15,774
Capitalized real estate leases	15	4,866			4,866
Land improvements	5 - 15	1,000			1,000
Leasehold and building improvements	2 - 20	68,179			59,058
Fixtures and equipment	5 - 7	64,037			56,459
Computer hardware and software	3 - 5	9,468			8,252
		168,492			150,830
Less accumulated depreciation and amortization		(59,974		)	(51,920	)
Property and equipment, net		$	108,518		98,910

As of March 31, 2014 and September 30, 2013, respectively, capitalized real estate leases for build-to-suit stores includes the assets for the Company’s buildings for build-to-suit stores under capital lease finance obligations, and capitalized real estate leases includes assets for the Company’s buildings under capital leases (see Note 5).

Construction in process includes zero and approximately $1.3 million as of March 31, 2014 and September 30, 2013, respectively, related to construction costs for build-to-suit leases in process for which the Company was deemed the owner during the construction period.

Depreciation and amortization expense for the three and six months ended March 31, 2014 and 2013 is summarized as follows, dollars in thousands:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	190	183	376	356
Depreciation and amortization expense included in store expenses	3,799		2,949	7,442	5,650
Depreciation and amortization expense included in administrative expenses	127		101	236	219
Total depreciation and amortization expense	$	4,116	3,233	8,054	6,225

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Lease Commitments

6 Months Ended

Mar. 31, 2014

Lease Commitments

Lease Commitments

5.  Lease Commitments

Capital and financing lease obligations as of March 31, 2014 and September 30, 2013, are as follows, dollars in thousands:

	As of
	March 31, 2014			September 30, 2013
Capital lease finance obligations, due in monthly installments through fiscal year 2028	$	15,022		13,746
Capital lease obligations, due in monthly installments through fiscal year 2028	4,733			4,792
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2028	—			1,284
Total capital and financing lease obligations	19,755			19,822
Less current portion	(195		)	(174	)
Total capital and financing lease obligations, net of current portion	$	19,560		19,648

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Property and Equipment (Tables)

6 Months Ended

Mar. 31, 2014

Property and Equipment

Schedule of property and equipment, net

The Company had the following property and equipment balances as of March 31, 2014 and September 30, 2013, dollars in thousands:

		As of
	Useful lives(in years)	March 31,2014			September 30,2013
Construction in process	n/a	$	3,835		5,421
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively	40	17,107			15,774
Capitalized real estate leases	15	4,866			4,866
Land improvements	5 - 15	1,000			1,000
Leasehold and building improvements	2 - 20	68,179			59,058
Fixtures and equipment	5 - 7	64,037			56,459
Computer hardware and software	3 - 5	9,468			8,252
		168,492			150,830
Less accumulated depreciation and amortization		(59,974		)	(51,920	)
Property and equipment, net		$	108,518		98,910

Schedule of depreciation and amortization expense

Depreciation and amortization expense for the three and six months ended March 31, 2014 and 2013 is summarized as follows, dollars in thousands:

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	190	183	376	356
Depreciation and amortization expense included in store expenses	3,799		2,949	7,442	5,650
Depreciation and amortization expense included in administrative expenses	127		101	236	219
Total depreciation and amortization expense	$	4,116	3,233	8,054	6,225

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2014

Basis of Presentation and Summary of Significant Accounting Policies

Consolidated Financial Statements

Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended September 30, 2013.  In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation.  Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending September 30.

The holding company was incorporated in Delaware on April 9, 2012. The accompanying consolidated financial statements include all the accounts of the Company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company), Vitamin Cottage Two Ltd. Liability Company and Natural Systems, LLC. The operating company formed the holding company in order to facilitate the purchase of the remaining noncontrolling interest in Boulder Vitamin Cottage Group, LLC and consummation of the Company’s initial public offering (IPO) during fiscal year 2012.  All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has one reporting segment, natural and organic retail stores.  Sales from the Company’s natural and organic retail stores are derived from sales of the following products, which are presented as a percentage of sales for the three and six months ended March 31, 2014 and 2013 as follows:

	Three months endedMarch 31,			Six months endedMarch 31,
	2014		2013	2014	2013
Grocery	66.1	%	64.4	66.3	64.2
Dietary supplements	24.0		25.7	23.7	25.6
Other	9.9		9.9	10.0	10.2
	100.0	%	100.0	100.0	100.0

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU No. 2013-02 supersedes the presentation requirements for reclassifications out of accumulated other comprehensive income in both ASU No. 2011-12 and 2011-05.  ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This update was effective for the Company beginning in the quarter ended December 31, 2013. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.

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Fair Value Measurements

6 Months Ended

Mar. 31, 2014

Fair Value Measurements

Fair Value Measurements

9. Fair Value Measurements

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).  The three levels are defined as follows:

Level 1—	Inputs are unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2—	Inputs include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
Level 3—	Inputs are unobservable and are considered significant to the fair value measurement.

Non-financial assets, such as goodwill and long-lived assets, are accounted for at fair value, if determined to be impaired, on a non-recurring basis.  These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, at least on an annual basis.

The carrying amounts of financial instruments not included in the table below, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of those instruments.

As of March 31, 2014 and September 30, 2013, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the fair value hierarchy, dollars in thousands:

		As of
		March 31, 2014			September 30, 2013
	Fair Value Hierarchy Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Cash and cash equivalents:
Money market fund	1	$	—	—	501	501
Investments — available-for-sale securities:
Certificates of deposit	2	95		95	585	585
Corporate bonds	2	—		—	376	376
Municipal bonds	2	—		—	188	188

The money market fund and available-for-sale securities are carried at fair value. For debt securities for which quoted market prices are not available, the fair value is determined using an income approach valuation technique that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk. During the three and six months ended March 31, 2014, the Company made no purchases of available-for-sale securities.  During the three and six months ended March 31, 2013, the Company made purchases of $0.2 million and $0.4 million, respectively, of available-for-sale securities.  During the three and six months ended March 31, 2014, the Company had $1.0 million and $1.0 million of maturities of available-for-sale securities, respectively.  During the three and six months ended March 31, 2013, the Company had $0.3 million and $0.3 million of maturities of available-for-sale securities, respectively.  During the three and six months ended March 31, 2014 and 2013, and for the fiscal year ended September 30, 2013, there were no transfers between levels and the Company had no Level 3 assets.  See Note 8 for additional disclosures.

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Supplementary Balance Sheet Information

6 Months Ended

Mar. 31, 2014

Supplementary Balance Sheet Information

Supplementary Balance Sheet Information

7. Supplementary Balance Sheet Information

Restricted Cash

As of September 30, 2013, the Company held $0.5 million in restricted cash which represented cash that was pledged as collateral for a standby letter of credit related to the Company’s workers’ compensation insurance. As of March 31, 2014, the Company had released the restricted cash balance which existed as of September 30, 2013, and had no restricted cash balance outstanding.

Accrued Expenses

The composition of accrued expenses is summarized as follows as of March 31, 2014 and September 30, 2013, dollars in thousands:

	As of
	March 31,		September 30,
	2014		2013
Payroll and employee-related expenses	$	5,709	5,247
Accrued income, property, sales and use tax payable	3,018		2,686
Deferred revenue related to gift card sales	728		625
Other	1,258		748
Total accrued expenses	$	10,713	9,306

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Investments

6 Months Ended

Mar. 31, 2014

Investments

Investments

8.  Investments

The Company had available-for-sale securities consisting of certificates of deposit totaling approximately $0.1 million as of March 31, 2014, which were classified as short-term.  The Company had available-for-sale securities generally consisting of certificates of deposit, corporate bonds and municipal bonds of approximately $1.1 million as of September 30, 2013, which were classified as short-term.  At March 31, 2014 and September 30, 2013, the average maturities of the Company’s short-term investments were approximately one month and approximately five months, respectively.  There was no other-than-temporary impairment on available-for-sale securities as of March 31, 2014 or September 30, 2013.

During the three and six months ended March 31, 2014 and 2013, the Company recorded insignificant amounts of interest income and expense relating to amortized premiums paid.

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Share-Based Compensation

6 Months Ended

Mar. 31, 2014

Share-Based Compensation

Share-Based Compensation

10. Share-based Compensation

The Company adopted an Omnibus Incentive Plan (the Plan) on July 17, 2012.  RSUs granted pursuant to the Plan, if they vest, will be settled in shares of the Company’s common stock.  Changes in non-vested RSUs outstanding under the Plan as of March 31, 2014 were as follows:

	RSUs		Weighted average grant date fair value
Non-vested as of September 30, 2013	86,053		$	21.80
Granted	3,558		42.16
Forfeited	(556	)	34.07
Vested	(35,733	)	4.60
Non-vested as of March 31, 2014	53,322		34.56

Each independent member of the Company’s Board of Directors is granted a number of RSUs under the Plan each year equal to the number of shares of common stock having a value of $50,000 based on the closing price of common stock on the New York Stock Exchange (NYSE) on the date of grant. All of these RSUs are granted on the date of the Company’s annual meeting of stockholders or, in the case of a mid-year appointment, a pro rata portion is granted at the time of appointment. In either case, the RSUs vest over a twelve month period and are expensed straight-line over that period.  The Company held its annual meeting of stockholders on March 5, 2014, and each independent member of the Company’s Board of Directors received awards based on the closing price of common stock on the NYSE on that date.  The RSU’s granted to the independent members of the Board of Directors at the Company’s annual meeting on March 6, 2013 vested on March 6, 2014.

The RSU grant to the Chief Financial Officer (CFO Award) under the Plan was in accordance with the terms of her employment agreement that was signed in June 2008, which stated she was entitled to receive a grant of RSUs equal to 1.2% of the fully diluted shares of the Company in connection with an IPO.  Two-thirds of the CFO Award vested immediately upon completion of the IPO and was settled in a combination of common stock and cash.  The remaining one-third was settled 100% in shares of common stock and vested, in three equal parts over a six, 12 and 18 month period following the IPO.  In January 2014, which was 18 months after the IPO, the final portion vested.

The Company recorded total share-based compensation expense before income taxes of approximately $0.2 million and $0.3 million in the three and six months ended March 31, 2014, respectively, and recorded less than $0.1 million in each of the three and six months ended March 31, 2013, respectively.  The share-based compensation expense is included in cost of goods sold and occupancy expenses, store expenses or administrative expenses in the consolidated statements of income consistent with the manner in which the applicable officer, board member or key employee’s compensation expense is recorded.  As of March 31, 2014, there was approximately $1.5 million of unrecognized share-based compensation expense related to non-vested RSUs net of estimated forfeitures, which the Company anticipates will be recognized over a weighted average period of approximately three years.

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Investments (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Mar. 31, 2014	Sep. 30, 2013
Investment Holdings
Other than temporary impairment	$ 0	$ 0
Short-term
Investment Holdings
Available-for-sale securities consisting of certificates of deposit, corporate bonds and municipal bonds	$ 0.1	$ 1.1
Maturity period of investments	1 month	5 months

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Earnings Per Share (Tables)

6 Months Ended

Mar. 31, 2014

Earnings Per Share

Schedule of basic and diluted EPS

	Three months ended March 31,			Six months ended March 31,
	2014		2013	2014	2013
Net income	$	3,999	3,217	6,921	5,438
Weighted average common shares outstanding	22,464,941		22,393,993	22,453,441	22,382,969
Effect of dilutive securities	18,812		47,452	23,760	54,214
Weighted average common shares outstanding including effect of dilutive securities	22,483,753		22,441,445	22,477,201	22,437,183
Basic earnings per share	$	0.18	0.14	0.31	0.24
Diluted earnings per share	$	0.18	0.14	0.31	0.24

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Share-Based Compensation (Tables)

6 Months Ended

Mar. 31, 2014

Share-Based Compensation

Schedule of changes in non-vested RSUs outstanding under the Plan

Changes in non-vested RSUs outstanding under the Plan as of March 31, 2014 were as follows:

	RSUs		Weighted average grant date fair value
Non-vested as of September 30, 2013	86,053		$	21.80
Granted	3,558		42.16
Forfeited	(556	)	34.07
Vested	(35,733	)	4.60
Non-vested as of March 31, 2014	53,322		34.56

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Consolidated Statements of Comprehensive Income
Net income	$ 3,999	$ 3,217	$ 6,921	$ 5,438
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities, net of tax		1		2
Other comprehensive income		1		2
Comprehensive income	$ 3,999	$ 3,218	$ 6,921	$ 5,440

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Long-Term Debt

6 Months Ended

Mar. 31, 2014

Long-Term Debt

Long-Term Debt

4. Long-Term Debt

Credit Facility

The Company has a revolving credit facility.  The operating company is the borrower under the credit facility and its obligations under the credit facility are guaranteed by the holding company.

On December 12, 2013, the Company entered into an amended and restated $15.0 million credit agreement that, among other things, (i) extended the maturity date of the Company’s revolving credit facility by three years to January 31, 2017, (ii) provides the Company with the right to request the issuance of letters of credit under the credit facility up to $3.0 million, (iii) allows the Company to increase the amount available under the revolving credit facility, up to an additional amount that may not exceed $10.0 million by obtaining an additional commitment or commitments, (iv) eliminated a requirement for a consolidated earnings before interest, taxes, depreciation and amortization to revenue ratio and (v) amended the unused commitment fee from 0.20% to amounts ranging from 0.15% to 0.35% based on certain conditions.

The Company had no amounts outstanding on the revolving credit facility as of March 31, 2014 and September 30, 2013.  During the six months ended March 31, 2014, the Company made and repaid draws on the revolving credit facility.  As of March 31, 2014, the Company had an undrawn, issued and outstanding letter of credit of $0.7 million which was reserved against the amount available for borrowing under the terms of the revolving credit facility.  There was an available balance of $14.3 million and $15.0 million as of March 31, 2014 and September 30, 2013, respectively, under the revolving credit facility.

As of March 31, 2014 and September 30, 2013, the Company was in compliance with the debt covenants under the credit facility.

Capital and Financing Lease Obligations

From time to time, the Company enters into various leases that are included in capital and financing lease obligations.  The Company does not record rent expense for these capitalized real estate leases, but rather rental payments under the capital leases are recognized as a reduction of the capital and financing lease obligation and as interest expense (see Note 5).

Interest

The Company incurred gross interest expense of approximately $0.7 million and approximately $0.4 million in the three months ended March 31, 2014 and 2013, respectively, and approximately $1.4 million and approximately $0.7 million in the six months ended March 31, 2014 and 2013, respectively, related primarily to interest on capital and financing lease obligations.  The Company did not capitalize any interest for the three or six months ended March 31, 2014 and 2013, and had insignificant amounts of amortization of deferred financing costs for the three and six months ended March 31, 2014 and 2013.

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Organization (Details)	Mar. 31, 2014 item	Sep. 30, 2013 item
Organization
Number of retail stores	81	72
Colorado
Organization
Number of retail stores	32
Texas
Organization
Number of retail stores	13
Oregon
Organization
Number of retail stores	6
Kansas
Organization
Number of retail stores	5
New Mexico
Organization
Number of retail stores	5
Montana
Organization
Number of retail stores	4
Arizona
Organization
Number of retail stores	3
Idaho
Organization
Number of retail stores	3
Nebraska
Organization
Number of retail stores	3
Oklahoma
Organization
Number of retail stores	3
Wyoming
Organization
Number of retail stores	2
Missouri
Organization
Number of retail stores	1
Utah
Organization
Number of retail stores	1

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Mar. 31, 2014

Basis of Presentation and Summary of Significant Accounting Policies

Schedule of sales from natural and organic retail stores

	Three months endedMarch 31,			Six months endedMarch 31,
	2014		2013	2014	2013
Grocery	66.1	%	64.4	66.3	64.2
Dietary supplements	24.0		25.7	23.7	25.6
Other	9.9		9.9	10.0	10.2
	100.0	%	100.0	100.0	100.0