10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

OR

☐ TRANSITION 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	80228
Lakewood, Colorado (Address of principal executive offices)	(Zip code)

(303) 986-4600

Registrant’s telephone number, including area code)

Indicate by check mark 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☒
Non –accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	NGVC	New York Stock Exchange

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of April 29, 2019 was 22,438,589.

Natural Grocers by Vitamin Cottage, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2019

Table of Contents

		Page Number
	PART I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2019 (unaudited) and September 30, 2018	3
	Consolidated Statements of Income for the three and six months ended March 31, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended March 31, 2019 and 2018 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2019 and 2018 (unaudited)	6
	Notes to Unaudited Interim Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
	PART II. Other Information
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 6.	Exhibits	27
SIGNATURES		28

1

Except where the context otherwise requires or where otherwise indicated: (i) 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 and (ii) 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 2019” refers to the year from October 1, 2018 to September 30, 2019).

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this 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 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, future growth, pending legal proceedings and other financial and operating information, are forward looking statements. We may use the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “target” and similar terms and phrases to identify forward-looking statements in this Form 10-Q.

The forward-looking statements contained in this 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 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 these factors include those referenced in Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 (the Form 10-K) and Part II, Item 1A - “Risk Factors” in this 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 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 applicable securities laws. You are advised, however, to consult any disclosures we may make in our future reports filed with the Securities and Exchange Commission (the SEC). Our reports and other filings with the SEC are available at the SEC’s website at www.sec.gov. Our reports and other filings with the SEC are also available, free of charge, through our website at www.naturalgrocers.com.

2

PART I. Financial Information

Item 1. Financial Statements

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	March 31, 2019			September 30, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,283			9,398
Accounts receivable, net		4,501			4,738
Merchandise inventory		95,335			94,228
Prepaid expenses and other current assets		2,544			2,590
Total current assets		113,663			110,954
Property and equipment, net		191,439			188,768
Other assets:
Deposits and other assets		1,671			1,682
Goodwill and other intangible assets, net		6,464			5,648
Deferred financing costs, net		24			31
Total other assets		8,159			7,361
Total assets	$	313,261			307,083
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	61,547			61,104
Accrued expenses		17,325			17,851
Capital and financing lease obligations, current portion		843			736
Total current liabilities		79,715			79,691
Long-term liabilities:
Capital and financing lease obligations, net of current portion		44,780			40,406
Revolving credit facility		10,192			13,192
Deferred income tax liabilities, net		5,901			6,447
Deferred compensation		—			688
Deferred rent		11,175			11,038
Leasehold incentives		8,317			8,895
Total long-term liabilities		80,365			80,666
Total liabilities		160,080			160,357
Commitments (Notes 7 and 13)
Stockholders’ equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, 22,510,279 shares issued at March 31, 2019 and September 30, 2018 and 22,431,553 and 22,373,382 outstanding at March 31, 2019 and September 30, 2018, respectively		23			23
Additional paid-in capital		56,192			56,236
Retained earnings		97,564			91,507
Common stock in treasury at cost, 78,726 and 136,897 shares, at March 31, 2019 and September 30, 2018, respectively		(598	)		(1,040	)
Total stockholders’ equity		153,181			146,726
Total liabilities and stockholders’ equity	$	313,261			307,083

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,
	2019			2018			2019			2018
Net sales	$	230,447			215,911			451,962			418,391
Cost of goods sold and occupancy costs		168,233			157,630			330,602			306,951
Gross profit		62,214			58,281			121,360			111,440
Store expenses		50,175			46,480			99,298			91,646
Administrative expenses		5,761			5,458			11,076			10,715
Pre-opening and relocation expenses		157			697			829			1,240
Operating income		6,121			5,646			10,157			7,839
Interest expense, net		(1,280	)		(1,122	)		(2,535	)		(2,211	)
Income before income taxes		4,841			4,524			7,622			5,628
(Provision for) benefit from income taxes		(981	)		(1,120	)		(1,565	)		2,957
Net income	$	3,860			3,404			6,057			8,585
Net income per common share:
Basic	$	0.17			0.15			0.27			0.38
Diluted	$	0.17			0.15			0.27			0.38
Weighted average number of shares of common stock outstanding:
Basic		22,413,055			22,353,993			22,399,665			22,356,943
Diluted		22,561,825			22,444,808			22,579,733			22,419,056

See accompanying notes to unaudited interim consolidated financial statements.

4

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Six months ended March 31,
	2019			2018
Operating activities:
Net income	$	6,057			8,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,576			14,825
Gain on disposal of property and equipment		(165	)		(28	)
Share-based compensation		663			362
Deferred income tax benefit		(546	)		(4,171	)
Non-cash interest expense		6			6
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable, net		254			(832	)
Merchandise inventory		(1,107	)		(3,261	)
Prepaid expenses and other assets(1)		97			(635	)
Income tax receivable(1)		(65	)		1,082
Increase (decrease) in:
Accounts payable		4,469			4,181
Accrued expenses		(517	)		1,276
Deferred compensation		(688	)		(566	)
Deferred rent and leasehold incentives		(441	)		914
Net cash provided by operating activities		22,593			21,738
Investing activities:
Acquisition of property and equipment(1)		(17,644	)		(10,530	)
Acquisition of other intangibles(1)		(251	)		(29	)
Proceeds from sale of property and equipment		792			34
Proceeds from property insurance settlements		22			—
Net cash used in investing activities		(17,081	)		(10,525	)
Financing activities:
Borrowings under credit facility		185,200			176,000
Repayments under credit facility		(188,200	)		(184,800	)
Capital and financing lease obligations payments		(362	)		(271	)
Repurchases of common stock		—			(581	)
Payments on withholding tax for restricted stock unit vesting		(265	)		(11	)
Net cash used in financing activities		(3,627	)		(9,663	)
Net increase in cash and cash equivalents		1,885			1,550
Cash and cash equivalents, beginning of period		9,398			6,521
Cash and cash equivalents, end of period	$	11,283			8,071
Supplemental disclosures of cash flow information:
Cash paid for interest	$	439			431
Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $59 and $49, respectively		2,087			1,748
Income taxes paid		2,962			90
Deferred compensation paid		700			700
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid	$	1,228			2,377
Property acquired through capital and financing lease obligations		4,842			4,428

⁽¹⁾ Certain prior year amounts have been separated for consistency with current year presentation.

See accompanying notes to unaudited interim consolidated financial statements.

5

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended March 31, 2019 and March 31, 2018

(Unaudited)

(Dollars in thousands, except per share data)

	Common stock –$0.001 par
	value
	Shares outstanding		Amount		Additional paid-in capital			Retained earnings		Treasury stock			Total stockholders’ equity
Balances September 30, 2018		22,373,382	$	23	$	56,236		$	91,507	$	(1,040	)	$	146,726
Net income		—		—		—			2,197		—			2,197
Share-based compensation		18,928		—		101			—		144			245
Balances December 31, 2018		22,392,310		23		56,337			93,704		(896	)		149,168
Net income		—		—		—			3,860		—			3,860
Share-based compensation		39,243		—		(145	)		—		298			153
Balances March 31, 2019		22,431,553	$	23	$	56,192		$	97,564	$	(598	)	$	153,181

	Common stock –$0.001 par
	value
	Shares outstanding			Amount		Additional paid-in capital		Retained earnings		Treasury stock			Total stockholders’ equity
Balances September 30, 2017		22,448,056		$	23	$	55,678	$	78,846	$	(664	)	$	133,883
Net income		—			—		—		5,181		—			5,181
Share-based compensation		1,226			—		147		—		9			156
Repurchase of common stock		(101,573	)		—		—		—		(581	)		(581	)
Balances December 31, 2017		22,347,709			23		55,825		84,027		(1,236	)		138,639
Net income		—			—		—		3,404		—			3,404
Share-based compensation		16,571			—		69		—		127			196
Repurchase of common stock		—			—		—		—		—			—
Balances March 31, 2018		22,364,280		$	23	$	55,894	$	87,431	$	(1,109	)	$	142,239

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, 2019 and 2018

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 operates its retail stores under its trademark Natural Grocers by Vitamin Cottage®. As of March 31, 2019, the Company operated 152 stores in 19 states. The Company also has a bulk food repackaging facility and distribution center in Golden, Colorado. The Company had 148 stores in 19 states as of September 30, 2018.

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 Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. The information included in this Form 10-Q should be read in conjunction with Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in the Form 10-K. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial results. 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 accompanying unaudited consolidated financial statements include all the accounts of the holding company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company) and Vitamin Cottage Two Ltd. Liability Company (VC2). 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 product categories, which are presented as a percentage of sales for the three and six months ended March 31, 2019 and 2018, as follows:

	Three months ended March 31,					Six months ended March 31,
	2019			2018		2019		2018
Grocery		68	%		67		68		67
Dietary supplements		22			23		21		22
Other		10			10		11		11
		100	%		100		100		100

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 (including the fair value of assets acquired and liabilities assumed in a business combination), the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates on an ongoing basis, including those related to: allowances for self-insurance reserves; valuation of inventories; useful lives of property and equipment for depreciation and amortization; impairment of finite-lived intangible assets, long-lived assets, and goodwill; lease assumptions; and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Reform Act). The Tax Reform Act significantly revised the ongoing federal income tax by, among other things, lowering U.S. corporate income tax rates effective January 1, 2018. The Company has a U.S. federal income tax rate of 21.0% for the fiscal year ending September 30, 2019. The Tax Reform Act resulted in a blended U.S. federal income tax rate of approximately 24.3% for the fiscal year ended September 30, 2018. Remeasurement of the Company’s deferred tax balance under the Tax Reform Act resulted in a non-cash tax benefit of approximately $4.3 million for the six months ended March 31, 2018 and the fiscal year ended September 30, 2018.

7

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers,” Topic 606, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and will replace most existing revenue recognition guidance in GAAP. ASU 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled for the transfer of those goods or services. The Company adopted this ASU and related amendments on October 1, 2018, using the modified retrospective approach. Additionally, upon adoption of this ASU, the Company elected the following practical expedients:

- ASU 2016-09, pursuant to which the incremental costs of obtaining a contract are recognized as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

- ASU 2016-12, pursuant to which sales taxes and other similar taxes collected from customers are presented net of sales.

- ASU 2016-20, pursuant to which the transaction price allocated to performance obligations is not disclosed when the related contract has a duration of one year or less.

Updated accounting policies and other disclosures are discussed below in Recent Accounting Pronouncements in this Note 2. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements for the three or six months ended March 31, 2019.

Recent Accounting Pronouncements 

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” Topic 350, “Intangibles – Goodwill and Other” (ASU 2017-04). The amendments in ASU 2017-04 simplify the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017, and the ASU is effective for the Company’s first quarter of the fiscal year ending September 30, 2020. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases,” Topic 842, “Leases” (ASU 2016-02). ASU No. 2016-02 requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU 2016-02 also requires certain quantitative and qualitative disclosures. The provisions of ASU 2016-02 are effective for the Company’s first quarter of the fiscal year ending September 30, 2020, with early adoption permitted. The Company will apply the transition provisions of ASU 2016-02 at its adoption date, whereby prior periods will continue to be reported in accordance with the historical accounting guidance then in effect, as permitted by ASU 2018-11, “Leases,” Topic 842, “Targeted Improvements,” released in July 2018.

The adoption of ASU 2016-02 will result in a material increase to the Company’s consolidated balance sheets for lease liabilities and right-of-use assets. The Company is also performing a comprehensive review of its current processes to determine and implement changes required to support the adoption of this standard. As part of this review process, the Company is implementing new software solutions to support the lease reporting upon adoption. The Company is currently evaluating the other effects the adoption of ASU 2016-02 will have on its consolidated financial statements.

In January 2018, the FASB issued ASU 2018-01, “Leases,” Topic 842, “Land Easement Practical Expedient for Transition to Topic 842” (ASU 2018-01). ASU 2018-01 permits an entity to elect a transition practical expedient to not assess, under Accounting Standards Codification (ASC) 842, land easements that exist or expired before the standard’s effective date that were not previously accounted for as leases under ASC 840. The Company plans to elect this practical expedient in implementing ASU 2016-02.

In June 2018, the FASB issued ASU 2018-07, “Compensation-Stock Compensation,” Topic 718, “Improvements to Nonemployee Share-Based Payment Accounting” (ASU 2018-07) as part of its Simplification Initiative to reduce complexity when accounting for share-based payments to non-employees. ASU 2018-07 expands the scope of Topic 718 to more closely align share-based payment transactions for acquiring goods and services from non-employees with the accounting for share-based payments to employees, with certain exceptions. The provisions of ASU 2018-07 are effective for the Company’s first quarter of the fiscal year ending September 30, 2020, with early adoption permitted. This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

3. Revenue Recognition

The nature of the goods the Company transfers to customers at the point of sale consists of merchandise purchased for resale. In these transactions, the Company acts as a principal and recognizes revenue (“net sales”) from the sale of goods when control of the promised goods is transferred to the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all the remaining benefits from, the transferred goods.

The Company’s performance obligations are satisfied upon the transfer of goods to the customer (at the point of sale), and payment from the customer is also due at that time. Transaction prices are considered fixed. Discounts provided to customers at the point of sale are recognized as a reduction in revenue as the goods are sold. Revenue excludes sales and usage-based taxes collected.

Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as revenue when the gift cards are redeemed by the customer and the performance obligation is satisfied by the Company. The Company also recognizes revenue for a portion of gift card values that is not expected to be redeemed (“breakage”). The estimated breakage takes into consideration several factors, including the laws and regulations applicable to each jurisdiction. The Company determines the amount of breakage income to be recognized on gift cards using historical experience to estimate amounts that will ultimately not be redeemed. The Company recognizes such breakage income in proportion to redemption rates of the overall population of gift cards.

8

As of each of March 31, 2019 and September 30, 2018, the balance of contract liabilities related to unredeemed gift cards was $1.0 million. Revenue for the three months ended March 31, 2019 includes approximately $0.2 million that was included in the contract liability balance of unredeemed gift cards at September 30, 2018. Revenue for the six months ended March 31, 2019 includes approximately $0.5 million that was included in the contract liability balance of unredeemed gift cards at September 30, 2018.

The following table disaggregates our revenue by product category for the three months and six months ended March 31, 2019 and 2018, dollars in thousands:

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Grocery	$	157,802		144,467		309,103		280,568
Dietary supplements		49,700		48,830		95,484		92,395
Other		22,945		22,614		47,375		45,428
	$	230,447		215,911		451,962		418,391

4. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units (RSUs) were to vest, resulting in the issuance of common stock that would then share in the Company’s earnings.

Presented below are basic and diluted EPS for the three and six months ended March 31, 2019 and 2018, dollars in thousands, except per share data:

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Net income	$	3,860		3,404		6,057		8,585
Weighted average number of shares of common stock outstanding		22,413,055		22,353,993		22,399,665		22,356,943
Effect of dilutive securities		148,770		90,815		180,068		62,113
Weighted average number of shares of common stock outstanding including effect of dilutive securities		22,561,825		22,444,808		22,579,733		22,419,056
Basic earnings per share	$	0.17		0.15		0.27		0.38
Diluted earnings per share	$	0.17		0.15		0.27		0.38

There were 72,599 and 27,574 non-vested RSUs for the three and six months ended March 31, 2019, respectively, excluded from the calculation of diluted EPS as they are antidilutive. There were 75,169 and 172,356 non-vested RSUs for the three and six months ended March 31, 2018, respectively, excluded from the calculation of diluted EPS as they are antidilutive.

The Company did not declare any dividends in the three or six months ended March 31, 2019 or 2018.

5. Debt

Credit Facility 

On January 28, 2016, the Company entered into a credit facility (the 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 and VC2. The Credit Facility is secured by a lien on substantially all of the Company’s assets. The amount available for borrowing under the Credit Facility is $50.0 million, including a $5.0 million sublimit for standby letters of credit. The Company has the right to borrow, prepay and re-borrow amounts under the Credit Facility at any time prior to the maturity date. The Credit Facility matures on January 31, 2021. For floating rate borrowings under the Credit Facility, interest is determined by the lender’s administrative agent based on the most recent compliance certificate of the operating company and stated at the base rate less the lender spread based upon 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 based upon certain financial measures. The unused commitment fee is based upon certain financial measures.

9

The Credit Facility requires compliance with certain customary operational and financial covenants, including a leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations. Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the administrative agent’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 incurred in the ordinary course of business, including cash dividends to the holding company for the repurchase of shares of common stock in an amount not to exceed $10.0 million.

The Company had $10.2 million and $13.2 million outstanding under the Credit Facility as of March 31, 2019 and September 30, 2018, respectively. As of each of March 31, 2019 and September 30, 2018, the Company had undrawn, issued and outstanding letters of credit of $1.0 million, which were reserved against the amount available for borrowing under the terms of the Credit Facility. The Company had $38.8 million and $35.8 million available for borrowing under the Credit Facility as of March 31, 2019 and September 30, 2018, respectively.

As of March 31, 2019 and September 30, 2018, the Company was in compliance with the financial covenants under the Credit Facility.

Capital and Financing Lease Obligations

The Company had 21 and 20 leases as of March 31, 2019 and September 30, 2018, respectively, that are included in capital and financing lease obligations (see Note 7). No rent expense is recorded 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. The interest rate on capital and financing lease obligations is determined at the inception of the lease.

Interest

The Company incurred gross interest expense of approximately $1.3 million and $1.1 million for the three months ended March 31, 2019 and 2018, respectively, and approximately $2.6 million and $2.3 million for the six months ended March 31, 2019 and 2018, respectively. Interest expense for the three and six months ended March 31, 2019 and 2018 relates primarily to interest on capital and financing lease obligations. The Company capitalized interest of less than $0.1 million for each of the three months ended March 31, 2019 and 2018, respectively, and approximately $0.1 million and less than $0.1 million for the six months ended March 31, 2019 and 2018, respectively.

6. Stockholders’ Equity

Share Repurchases

On May 4, 2016, the Company’s Board of Directors (the Board) authorized a two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company’s common stock. On May 2, 2018, the Board authorized a two-year extension of the Company’s share repurchase program. As a result of such extension, the share repurchase program will terminate on May 4, 2020. Repurchases under the Company’s share repurchase program are made from time to time at management’s discretion on the open market or through privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the Exchange Act), subject to market conditions, applicable legal requirements and other relevant factors. Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The share repurchase program does not obligate the Company to purchase any particular amount of common stock and may be suspended, modified or discontinued by the Company without prior notice.

Prior to October 1, 2018, the Company repurchased 199,543 shares under the share repurchase program. The Company did not repurchase any shares during the six months ended March 31, 2019. During the six months ended March 31, 2018, the Company repurchased 101,573 shares under the share repurchase program. The dollar value of the shares of the Company’s common stock that may yet be purchased under the share repurchase program is approximately $8.3 million.

Prior to October 1, 2018, the Company reissued 62,646 treasury shares at a cost of approximately $0.6 million to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of stock grants. During the three and six months ended March 31, 2019, the Company reissued 39,243 treasury shares at a cost of approximately $0.3 million and 58,171 treasury shares at a cost of approximately $0.4 million, respectively, to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of common stock grants. During the three and six months ended March 31, 2018, the Company reissued 16,571 and 17,797 treasury shares, respectively, at a cost of approximately $0.1 million for each period, to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of common stock grants. At March 31, 2019 and September 30, 2018, the Company held in treasury 78,726 shares and 136,897 shares, respectively, totaling approximately $0.6 million and $1.0 million, respectively.

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7. Lease Commitments

Capital and financing lease obligations as of March 31, 2019 and September 30, 2018, were as follows, dollars in thousands:

	As of
	March 31, 2019			September 30, 2018
Capital lease finance obligations, due in monthly installments through fiscal year 2033	$	34,992			32,523
Capital lease obligations, due in monthly installments through fiscal year 2041		6,126			4,763
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2034		4,505			2,350
Capital lease obligations for assets under construction, due in monthly installments through fiscal year 2034		—			1,506
Total capital and financing lease obligations		45,623			41,142
Less current portion		(843	)		(736	)
Total capital and financing lease obligations, net of current portion	$	44,780			40,406

8. Property and Equipment

The Company had the following property and equipment balances as of March 31, 2019 and September 30, 2018, dollars in thousands:

				As of
	Useful lives (in years)			March 31, 2019			September 30, 2018
Construction in process		n/a		$	7,986			15,879
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively		40			37,970			35,700
Capitalized real estate leases		15			7,241			5,735
Land		n/a			1,230			192
Buildings		40			23,481			19,262
Land improvements	5	–	24		1,335			1,016
Leasehold and building improvements	1	–	25		139,312			131,474
Fixtures and equipment	5	–	7		128,610			122,984
Computer hardware and software	3	–	5		20,401			21,181
					367,566			353,423
Less accumulated depreciation and amortization					(176,127	)		(164,655	)
Property and equipment, net				$	191,439			188,768

Capitalized real estate leases for build-to-suit stores includes the assets for the Company’s buildings under capital lease finance obligations, and capitalized real estate leases includes assets for the Company’s buildings under capital lease obligations (see Note 7).

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Depreciation and amortization expense for the three and six months ended March 31, 2019 and 2018 is summarized as follows, dollars in thousands:

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	185		196		367		392
Depreciation and amortization expense included in store expenses		6,848		6,835		13,690		13,685
Depreciation and amortization expense included in administrative expenses		257		379		519		748
Total depreciation and amortization expense	$	7,290		7,410		14,576		14,825

9. Goodwill and Other Intangible Assets

The Company had the following goodwill and other intangible asset balances as of March 31, 2019 and September 30, 2018, dollars in thousands:

	Useful lives			As of
	(in years)			March 31, 2019			September 30, 2018
Amortizable intangible assets:
Other intangibles	0.5	-	3	$	2,197			138
Amortizable intangible assets					2,197			138
Less accumulated amortization					(1,320	)		(77	)
Amortizable intangible assets, net					877			61
Trademark	Indefinite				389			389
Total other intangibles, net					1,266			450
Goodwill	Indefinite				5,198			5,198
Total goodwill and other intangibles, net				$	6,464			5,648

10. Accrued Expenses

The composition of accrued expenses as of March 31, 2019 and September 30, 2018 is summarized as follows, dollars in thousands:

	As of
	March 31,		September 30,
	2019		2018
Accrued property, sales and use tax payable	$	6,361		7,043
Income tax payable		102		903
Payroll and employee-related expenses		7,683		6,992
Accrued marketing expenses		591		335
Deferred revenue related to gift card sales		1,361		1,453
Other		1,227		1,125
Total accrued expenses	$	17,325		17,851

11. Income Taxes

Income taxes are accounted for in accordance with the provisions of ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

Remeasurement of the Company’s deferred tax balance as a result of the Tax Reform Act resulted in a non-cash tax benefit of approximately $4.3 million for the six months ended March 31, 2018.

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12. Related Party Transactions

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

Chalet Properties, LLC: The Company has five operating leases and one capital lease 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, 2019 and 2018. Rent paid to Chalet was approximately $0.6 million for each of the six months ended March 31, 2019 and 2018.

Isely Family Land Trust LLC: The Company has one operating lease with the Isely Family Land Trust LLC (the 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, 2019 and 2018. Rent paid to the Land Trust was approximately $0.2 million for each of the six months ended March 31, 2019 and 2018.

FTVC LLC: The Company has one operating lease for a store location with FTVC LLC, which is owned by the Company’s four non-independent Board members and other related family members. Rent paid to FTVC LLC was less than $0.1 million for each of the three months ended March 31, 2019 and 2018. Rent paid to FTVC LLC was less than $0.1 million for each of the six months ended March 31, 2019 and 2018.

13. Commitments and Contingencies

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to employment-related 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 Form 10-Q and with the audited consolidated financial statements and notes thereto in our Form 10-K. This MD&A contains forward-looking statements. Refer to “Forward-Looking Statements” at the beginning of this Form 10-Q for an explanation of these types of statements. 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 offer a variety of natural and organic groceries and dietary supplements that meet our strict quality standards. We believe we have been at the forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado. As of March 31, 2019, we operated 152 stores in 19 states, including Colorado, Arkansas, Arizona, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.

We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The size of our stores varies from approximately 5,000 to 16,000 selling square feet. During the twelve months ended March 31, 2019, our new stores averaged approximately 10,000 selling square feet.

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2018, we increased our store count at a compound annual growth rate of 15.5%. In fiscal year 2018, we opened eight new stores. We currently plan to open seven to eight new stores in fiscal year 2019, five of which opened during the six months ended March 31, 2019. Since March 31, 2019, we have not opened any new stores. As of the date of this report, we have signed leases for five new stores that we plan to open in fiscal years 2019 and beyond. In addition, since March 31, 2019, we have purchased the land and building at which we plan to open one new store. We plan to relocate five stores in fiscal year 2019, two of which were relocated during the six months ended March 31, 2019. Since March 31, 2019, we have relocated one store.

Performance Highlights

Key highlights of our performance for the three and six months ended March 31, 2019 are discussed briefly below and 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 $230.4 million for the three months ended March 31, 2019, an increase of $14.5 million, or 6.7%, compared to net sales of $215.9 million for the three months ended March 31, 2018. Net sales were $452.0 million for the six months ended March 31, 2019, an increase of $33.6 million, or 8.0%, compared to net sales of $418.4 million for the six months ended March 31, 2018.

● Comparable store sales and daily average comparable store sales. Comparable store sales and daily average comparable store sales for the three months ended March 31, 2019 each increased 2.9% compared to the three months ended March 31, 2018. Comparable store sales and daily average comparable store sales for the six months ended March 31, 2019 each increased 4.2% compared to the six months ended March 31, 2018.

● Mature store sales and daily average mature store sales. Mature store sales and daily average mature store sales for the three months ended March 31, 2019 each increased 1.8% compared to the three months ended March 31, 2018. Mature store sales and daily average mature store sales for the six months ended March 31, 2019 each increased 2.7% compared to the six months ended March 31, 2018.

● Net income. Net income was $3.9 million for the three months ended March 31, 2019, an increase of $0.5 million, or 13.4%, compared to net income of $3.4 million for the three months ended March 31, 2018. Net income was $6.1 million for the six months ended March 31, 2019, a decrease of $2.5 million, or 29.4%, compared to net income of $8.6 million for the six months ended March 31, 2018. Net income for the six months ended March 31, 2018 was favorably impacted by $4.3 million due to the non-cash remeasurement of deferred tax assets and liabilities.

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● EBITDA. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $13.4 million for the three months ended March 31, 2019, an increase of $0.4 million, or 2.7%, compared to $13.1 million for the three months ended March 31, 2018. EBITDA was $24.7 million for the six months ended March 31, 2019, an increase of $2.1 million, or 9.1%, compared to $22.7 million for the six months ended March 31, 2018. EBITDA is not a measure of financial performance under GAAP. Refer to the “Non-GAAP Financial Measures” section in this MD&A for a definition of EBITDA and a reconciliation of net income to EBITDA.

● Liquidity. As of March 31, 2019, cash and cash equivalents was $11.3 million, and there was $38.8 million available for borrowing under our Credit Facility, net of undrawn, issued and outstanding letters of credit of $1.0 million.

● New store growth. We opened one new store during the three months ended March 31, 2019. We opened five new stores and closed one store during the six months ended March 31, 2019. We operated a total of 152 stores as of March 31, 2019. We plan to open a total of seven to eight new stores in fiscal year 2019, which would result in an annual new store growth rate of 4.7% to 5.4% for fiscal year 2019.

● Store Relocations and Remodels. We relocated two stores during the six months ended March 31, 2019. We plan to relocate a total of five stores during fiscal year 2019.

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:

● Impact of broader economic trends. The grocery industry and our sales are affected by general economic conditions, including, but not limited to, consumer spending, the level of disposable consumer income, consumer debt, interest rates, the price of commodities, the political environment and consumer confidence. In this regard, we believe our financial results for the three and six months ended March 31, 2019 reflected improvement in the oil and gas markets we serve, although they generally continue to lag behind our non-oil and gas markets.

●	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 continue to open new stores and enter new 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. Mature stores are stores that have been open for any part of five fiscal years or longer.
	As we expand across the United States 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 will continue into the foreseeable future. Our financial results for the three and six months ended March 31, 2019 reflect the effects of these factors, and we anticipate future periods will be similarly impacted.
	Our performance is also 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, changing consumer choices and the cost of these products. A change in consumer preferences away from our offerings, including those resulting from reductions or changes in our offerings, would have a material adverse effect on our business. Additionally, negative publicity regarding the safety of dietary supplements, product recalls or new or upgraded regulatory standards may adversely affect demand for the products we sell and could result in lower consumer traffic, sales and results of operations.

● Increased Competition. The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry. Our competition varies by market and includes conventional supermarkets such as Kroger and Safeway; mass or discount retailers such as Wal-Mart and Target; natural and gourmet markets such as Whole Foods and The Fresh Market; foreign-based discount retailers such as Aldi and Lidl; specialty food retailers such as Sprouts and Trader Joe’s; warehouse clubs such as Sam’s Club and Costco; dietary supplement retailers such as GNC and The Vitamin Shoppe; online retailers such as Amazon; meal delivery services such as Blue Apron; independent health food stores; drug stores; farmers’ markets; food co-ops; and multi-level marketers. Competition in the grocery industry is likely to intensify, and shopping dynamics may shift, as a result of, among other things, Amazon’s acquisition of Whole Foods, the plans of Aldi and Lidl to expand their presence in the United States and the expanding availability of grocery ordering, pick-up and delivery options. These businesses compete with us on the basis of price, selection, quality, customer service, shopping experience, ease of ordering and delivery or any combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of natural and organic foods. We also face internally generated competition when we open new stores in markets we already serve. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional education, differentiate us in the industry and provide a competitive advantage.

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Outlook

We believe there are several key factors that have contributed to our success and will enable us to increase our comparable store sales and continue to profitably expand. These factors include 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. The rate of new store growth will depend on economic and business conditions and other factors. We continue to enhance our infrastructure to enable us to support our growth. In addition, in recent years we believe we have enhanced customer loyalty and increased customer engagement by expanding our digital and social media presence and further developing the {N}power^® customer loyalty program. In September 2018, we launched a new website (www.naturalgrocers.com) which was designed to offer a more personalized and convenient online experience for our customers. The new website features more advanced ecommerce capabilities, enhanced product and recipe search interfaces and improved functionality with mobile and tablet devices.

We believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales. However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industry and regional and general economic conditions. As we continue to expand our store base, we believe there are opportunities for increased leverage in 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 and increased competition, such sourcing economies and efficiencies at our bulk food repackaging facility and distribution center may not be reflected in our gross margin in the near term. In addition, our ability to leverage costs may be limited due to the fixed nature of our rent obligations and related occupancy expenses.

Our operating results may be affected by the above-described factors as well as a variety of other internal and external factors and trends described more fully in Item 1A - “Risk Factors” in our Form 10-K and Part II, Item 1A – “Risk Factors” in this 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 and 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 (for example, as a result of leap years or the Easter holiday shift between quarters).

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● 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 2019 are stores that opened during or before fiscal year 2014). 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 (for example, as a result of leap years or the Easter holiday shift between quarters).

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

● Average transaction size. Average transaction size, or basket 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 expense and store occupancy costs. Store occupancy costs include rent, common area maintenance and real estate 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 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. Rent payments for leases classified as capital and financing lease obligations are not recorded in cost of goods sold and occupancy costs. Rather, these 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 net 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 consist of labor-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 minimum 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 being a public company, 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.

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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.

Interest expense, net

Interest expense consists of the interest associated with capital and financing lease obligations, net of capitalized interest. Interest expense also includes interest we incur on our outstanding indebtedness, including under our Credit Facility.

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 ended March 31,						Six months ended March 31,
	2019			2018			2019			2018
Statements of Income Data:*
Net sales		100.0	%		100.0			100.0			100.0
Cost of goods sold and occupancy costs		73.0			73.0			73.1			73.4
Gross profit		27.0			27.0			26.9			26.6
Store expenses		21.8			21.5			22.0			21.9
Administrative expenses		2.5			2.5			2.5			2.6
Pre-opening and relocation expenses		0.1			0.3			0.2			0.3
Operating income		2.7			2.6			2.2			1.9
Interest expense, net		(0.6	)		(0.5	)		(0.6	)		(0.5	)
Income before income taxes		2.1			2.1			1.7			1.3
(Provision for) benefit from income taxes		(0.4	)		(0.5	)		(0.3	)		0.7
Net income		1.7	%		1.6			1.3			2.1
__________________________
*Figures may not sum due to rounding.
Number of stores at end of period		152			145			152			145
Number of new stores opened during the period		1			3			5			5
Twelve-month store unit growth rate		4.8	%		7.4			4.8			7.4
Change in comparable store sales		2.9			7.1			4.2			5.9
Change in daily average comparable store sales		2.9			7.1			4.2			5.9
Change in mature store sales		1.8			4.3			2.7			3.0
Change in daily average mature store sales		1.8			4.3			2.7			3.0

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Three months ended March 31, 2019 compared to the three months ended March 31, 2018

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

	Three months ended March 31,						Change In
	2019			2018			Dollars			Percent
Statements of Income Data:
Net sales	$	230,447			215,911			14,536			6.7	%
Cost of goods sold and occupancy costs		168,233			157,630			10,603			6.7
Gross profit		62,214			58,281			3,933			6.7
Store expenses		50,175			46,480			3,695			7.9
Administrative expenses		5,761			5,458			303			5.6
Pre-opening and relocation expenses		157			697			(540	)		(77.5	)
Operating income		6,121			5,646			475			8.4
Interest expense, net		(1,280	)		(1,122	)		(158	)		14.1
Income before income taxes		4,841			4,524			317			7.0
Provision for income taxes		(981	)		(1,120	)		139			(12.4	)
Net income	$	3,860			3,404			456			13.4

Net sales

Net sales increased $14.5 million, or 6.7%, to $230.4 million for the three months ended March 31, 2019 compared to $215.9 million for the three months ended March 31, 2018, primarily due to a $6.2 million increase in comparable store sales and a $9.1 million increase in new store sales, partially offset by a $0.7 million decrease in sales from one store that closed during the first quarter of fiscal 2019. Daily average comparable store sales increased 2.9% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The daily average comparable store sales increase resulted from a 3.5% increase in daily average transaction size, partially offset by a 0.6% decrease in average transaction count. Comparable store average transaction size was $36.89 for the three months ended March 31, 2019. Daily average mature store sales increased 1.8% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in comparable store sales during the three months ended March 31, 2019 was primarily driven by several marketing initiatives, promotional pricing campaigns and increased membership in and usage of the {N}power customer loyalty program. In addition, we believe the increase in comparable store sales during the three months ended March 31, 2019 reflected enhanced focus on leadership, training and improved operating processes in our stores.

Gross profit

Gross profit increased $3.9 million, or 6.7%, to $62.2 million for the three months ended March 31, 2019 compared to $58.3 million for the three months ended March 31, 2018, primarily driven by an increase in the number of comparable stores. Gross margin remained unchanged at 27.0% for the three months ended March 31, 2019 and 2018. Gross margin for the three months ended March 31, 2019 reflects a decrease in occupancy expenses as a percentage of sales, offset by a lower product margin attributed to a shift in sales mix to lower margin products.

We had 21 and 18 store leases that were classified as capital and financing lease obligations for the three months ended March 31, 2019 and 2018, 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, 2019 and 2018 would have been approximately 60 and 55 basis points higher, respectively, than as reported for each period.

Store expenses

Store expenses increased $3.7 million, or 7.9%, to $50.2 million for the three months ended March 31, 2019 compared to $46.5 million for the three months ended March 31, 2018. Store expenses as a percentage of sales were 21.8% and 21.5% for the three months ended March 31, 2019 and 2018, respectively. The increase in store expenses as a percentage of sales was primarily due to increases in building services and maintenance expenses and marketing expenses, partially offset by decreases in depreciation and labor-related expenses, all as a percentage of sales.

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Administrative expenses

Administrative expenses increased $0.3 million, or 5.6%, to $5.8 million for the three months ended March 31, 2019 compared to $5.5 million for the three months ended March 31, 2018. Administrative expenses as a percentage of sales were unchanged at 2.5% for the three months ended March 31, 2019 and 2018.

Pre-opening and relocation expenses

Pre-opening and relocation expenses decreased $0.5 million, or 77.5%, to $0.2 million for the three months ended March 31, 2019 compared to $0.7 million for the three months ended March 31, 2018, due to the impact of the number and timing of new store openings and relocations. We opened one new store and relocated one store during the three months ended March 31, 2019 compared to opening three new stores during the three months ended March 31, 2018. Pre-opening and relocation expenses as a percentage of sales were 0.1% and 0.3% for the three months ended March 31, 2019 and 2018, respectively.

Interest expense

Interest expense, net of capitalized interest, increased $0.2 million, or 14.1%, for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in interest expense is primarily due to an increase in the number of capital leases during the three months ended March 31, 2019. If the capital and financing lease obligations had qualified as operating leases, interest expense as a percentage of sales would have been approximately 45 basis points lower than as reported for each of the three months ended March 31, 2019 and 2018.

Income taxes

Income tax expense decreased $0.1 million for the three months ended March 31, 2019 to $1.0 million compared to $1.1 million for the three months ended March 31, 2018. The Company’s effective income tax rate for the three months ended March 31, 2019 was approximately 20.3% compared to 24.8% for the three months ended March 31, 2018. The decrease in the effective income tax rate for the three months ended March 31, 2019 is primarily due to the decrease in the federal corporate tax rate as a result of the Tax Reform Act.

Net income

Net income was $3.9 million, or $0.17 diluted earnings per share, for the three months ended March 31, 2019 compared to $3.4 million, or $0.15 diluted earnings per share, for the three months ended March 31, 2018.

Six months ended March 31, 2019 compared to the six months ended March 31, 2018

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

	Six months ended March 31,						Change In
	2019			2018			Dollars			Percent
Statements of Income Data:
Net sales	$	451,962			418,391			33,571			8.0	%
Cost of goods sold and occupancy costs		330,602			306,951			23,651			7.7
Gross profit		121,360			111,440			9,920			8.9
Store expenses		99,298			91,646			7,652			8.3
Administrative expenses		11,076			10,715			361			3.4
Pre-opening and relocation expenses		829			1,240			(411	)		(33.1	)
Operating income		10,157			7,839			2,318			29.6
Interest expense, net		(2,535	)		(2,211	)		(324	)		14.7
Income before income taxes		7,622			5,628			1,994			35.4
(Provision for) benefit from income taxes		(1,565	)		2,957			(4,522	)		152.9
Net income	$	6,057			8,585			(2,528	)		(29.4	)

Net sales

Net sales increased $33.6 million, or 8.0%, to $452.0 million for the six months ended March 31, 2019 compared to $418.4 million for the six months ended March 31, 2018, primarily due to a $17.3 million increase in comparable store sales and a $17.4 million increase in new store sales, partially offset by a $1.2 million decrease in sales from one store that closed during the first quarter of fiscal 2019. Daily average comparable store sales increased 4.2% for the six months ended March 31, 2019 compared to the six months ended March 31, 2018. The daily average comparable store sales increase resulted from a 3.3% increase in average transaction size and a 0.8% increase in daily average transaction count. Comparable store average transaction size was $36.69 for the six months ended March 31, 2019. Daily average mature store sales increased 2.7% for the six months ended March 31, 2019 compared to the six months ended March 31, 2018. The increase in comparable store sales during the six months ended March 31, 2019 was primarily driven by several marketing initiatives, promotional pricing campaigns and increased membership in and usage of the {N}power customer loyalty program. In addition, we believe the increase in comparable store sales during the six months ended March 31, 2019 reflected enhanced focus on leadership, training and improved operating processes in our stores.

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Gross profit

Gross profit increased $9.9 million, or 8.9%, to $121.4 million for the six months ended March 31, 2019 compared to $111.4 million for the six months ended March 31, 2018, primarily driven by an increase in the number of comparable stores. Gross margin increased to 26.9% for the six months ended March 31, 2019 from 26.6% for the six months ended March 31, 2018. Gross margin during the six months ended March 31, 2019 increased primarily due to improved product margins, attributed to more focused promotional pricing campaigns, and to a decrease in occupancy expense as a percentage of sales, partially offset by a shift in sales mix to lower margin products.

We had 21 and 18 store leases that were classified as capital and financing lease obligations for the six months ended March 31, 2019 and 2018, 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 six months ended March 31, 2019 and 2018 would have been approximately 60 and 55 basis points higher, respectively, than as reported.

Store expenses

Store expenses increased $7.7 million, or 8.3%, to $99.3 million for the six months ended March 31, 2019 compared to $91.6 million for the six months ended March 31, 2018. Store expenses as a percentage of sales were 22.0% and 21.9% for the six months ended March 31, 2019 and 2018, respectively. The increase in store expenses as a percentage of sales was primarily due to increases in building services and maintenance expenses and marketing expenses, partially offset by decreases in depreciation, labor-related and utilities expenses, all as a percentage of sales.

Administrative expenses

Administrative expenses increased $0.4 million, or 3.4%, to $11.1 million for the six months ended March 31, 2019 compared to $10.7 million for the six months ended March 31, 2018. Administrative expenses as a percentage of sales were 2.5% and 2.6% the six months ended March 31, 2019 and 2018, respectively.

Pre-opening and relocation expenses

Pre-opening and relocation expenses decreased $0.4 million, or 33.1%, to $0.8 million for the six months ended March 31, 2019 compared to $1.2 million for the six months ended March 31, 2018, due to the impact of the number and timing of new store openings and relocations. We opened five new stores and relocated two stores during the six months ended March 31, 2019 compared to opening five new stores and relocating one store during the six months ended March 31, 2018. Pre-opening and relocation expenses as a percentage of sales were 0.2% and 0.3% for the six months ended March 31, 2019 and 2018, respectively.

Interest expense

Interest expense, net of capitalized interest, increased $0.3 million, or 14.7%, for the six months ended March 31, 2019 compared to the six months ended March 31, 2018. The increase in interest expense is primarily due an increase in the number of capital leases during the six months ended March 31, 2019. If the capital and financing lease obligations had qualified as operating leases, interest expense as a percentage of sales would have been approximately 50 and 45 basis points lower than as reported for the six months ended March 31, 2019 and 2018, respectively.

Income taxes

Income tax expense increased $4.5 million for the six months ended March 31, 2019 to $1.6 million compared to a $3.0 million benefit for the six months ended March 31, 2018. Income taxes for the six months ended March 31, 2018 reflected the favorable impact of a $4.3 million non-cash remeasurement of our deferred tax assets and liabilities as a result of the enactment of the Tax Reform Act. The Company’s effective income tax rate for the six months ended March 31, 2019 was approximately 20.5%. Exclusive of the adjustment to deferred income tax assets and liabilities, the Company’s effective income tax rate for the six months ended March 31, 2018 was approximately 24.5%. The decrease in the effective income tax rate for the six months ended March 31, 2019 is primarily due to the decrease in the federal corporate tax rate as a result of the Tax Reform Act.

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Net income

Net income was $6.1 million, or $0.27 diluted earnings per share, for the six months ended March 31, 2019 compared to $8.6 million, or $0.38 diluted earnings per share, for the six months ended March 31, 2018. Excluding the favorable impact of the remeasurement of our deferred tax assets and liabilities as a result of the enactment of the Tax Reform Act, net income for the six months ended March 31, 2018 was $4.3 million, or $0.19 diluted earnings per share.

Non-GAAP financial measures 

EBITDA

EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. 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,
	2019		2018		2019		2018
Net income	$	3,860		3,404		6,057		8,585
Interest expense, net		1,280		1,122		2,535		2,211
Provision for (benefit from) income taxes		981		1,120		1,565		(2,957	)
Depreciation and amortization		7,290		7,410		14,576		14,825
EBITDA	$	13,411		13,056		24,733		22,664

EBITDA increased 2.7% to $13.4 million in the three months ended March 31, 2019 compared to $13.1 million for the three months ended March 31, 2018. EBITDA increased 9.1% to $24.7 million in the six months ended March 31, 2019 compared to $22.7 million for the six months ended March 31, 2018. EBITDA as a percentage of sales was 5.8% and 6.0% in the three months ended March 31, 2019 and 2018, respectively. EBITDA as a percentage of sales was 5.5% and 5.4% in the six months ended March 31, 2019 and 2018, respectively. 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, 2019 and 2018, respectively, and by approximately 60 and 55 basis points for the six months ended March 31, 2019 and 2018, 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.

Management believes some investors’ understanding of our performance is enhanced by including EBITDA, a non-GAAP financial measure. 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 is a component of a measure in our financial covenants under our Credit Facility.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes 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 analysts’ and investors’ understanding of our business and our results of operations, as well as assisting analysts and 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 those 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 the consolidated financial statements as indicators of financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, 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;

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● 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.

Liquidity and Capital Resources

Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under the Credit Facility. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, interest and principal payments for outstanding indebtedness and corporate taxes. As of March 31, 2019, we had $11.3 million in cash and cash equivalents, as well as $38.8 million available for borrowing under our Credit Facility.

On May 4, 2016, our Board authorized a two-year share repurchase program pursuant to which the Company may expend up to $10.0 million to repurchase shares of the Company’s common stock. On May 2, 2018, our Board authorized a two-year extension of the Company’s share repurchase program. As a result of such extension, the share repurchase program will terminate on May 4, 2020. We did not repurchase any shares during the six months ended March 31, 2019. Between April 1, 2019 and April 29, 2019 (the latest practicable date for making the determination), we did not repurchase any additional shares of our common stock. The dollar value of the shares of common stock that may yet be purchased under the share repurchase program is approximately $8.3 million. We expect funding for any future share repurchases will come from operating cash flow, excess cash and/or borrowings under our Credit Facility. The timing and amount of shares repurchased will be dictated by our capital needs and stock market conditions.

We plan to continue to open new stores, which may require us to borrow additional amounts under the Credit Facility. We plan to spend approximately $9.9 million to $12.9 million on capital expenditures during the third and fourth quarters of fiscal year 2019 in connection with two to three new store openings and three store relocations. We believe that cash and cash equivalents, together with the cash generated from operations and the borrowing availability under our 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.

Typically, our new stores require an upfront capital investment of approximately $2.2 million per store consisting of capital expenditures of approximately $1.6 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 ended March 31,
	2019			2018
Net cash provided by operating activities	$	22,593			21,738
Net cash used in investing activities		(17,081	)		(10,525	)
Net cash used in financing activities		(3,627	)		(9,663	)
Net increase in cash and cash equivalents		1,885			1,550
Cash and cash equivalents, beginning of period		9,398			6,521
Cash and cash equivalents, end of period	$	11,283			8,071

Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities increased $0.9 million, or 3.9%, to $22.6 million for the six months ended March 31, 2019 compared to $21.7 million for the six months ended March 31, 2018. The increase in cash provided by operating activities was primarily due to an increase in net income adjusted for non-cash items, partially offset by a decrease in cash provided by working capital. Our working capital requirements for inventory will likely increase as we continue to open new stores.

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Investing Activities

Net cash used in investing activities increased $6.6 million, or 62.3%, to $17.1 million for the six months ended March 31, 2019 compared to $10.5 million for the six months ended March 31, 2018. This increase was primarily due to a $7.1 million increase in cash paid for property and equipment, which was due to the timing of payments related to new store openings and relocations in the six months ended March 31, 2019.

Financing Activities

Cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and payments of capital and financing lease obligations. Cash used in financing activities was $3.6 million and $9.7 million for the six months ended March 31, 2019 and 2018, respectively.

Credit Facility

The amount available for borrowing under the Credit Facility is $50.0 million, including a $5.0 million sublimit for standby letters of credit. The operating company is the borrower under the Credit Facility and its obligations under the Credit Facility are guaranteed by the holding company and VC2. The Credit Facility is secured by a lien on substantially all of the Company’s assets. The Company has the right to borrow, prepay and re-borrow amounts under the Credit Facility at any time prior to the maturity date. The Credit Facility matures on January 31, 2021.

For floating rate borrowings under the Credit Facility, interest is determined by the lender’s administrative agent based on the most recent compliance certificate of the operating company and stated at the base rate less the lender spread based upon 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 based upon certain financial measures. The unused commitment fee is based upon certain financial measures.

The Credit Facility requires compliance with certain customary operational and financial covenants, including a leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations. Additionally, the Credit Facility prohibits the payment of cash dividends, except that so long as no default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company for various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business, and for repurchases of shares of common stock in an amount not to exceed $10.0 million.

We had $10.2 million and $13.2 million outstanding under the Credit Facility as of March 31, 2019 and September 30, 2018, respectively. As of each of March 31, 2019 and September 30, 2018, we had undrawn, issued and outstanding letters of credit of $1.0 million, which were reserved against the amount available for borrowing under the terms of the Credit Facility. We had $38.8 million and $35.8 million available for borrowing under the Credit Facility as of March 31, 2019 and September 30, 2018, respectively.

As of March 31, 2019 and September 30, 2018, the Company was in compliance with the debt covenants under the Credit Facility.

Share Repurchases

Certain information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 6 of Notes to Unaudited Interim Consolidated Financial Statements included in Part I, Item 1 of this Form 10- Q.

Off-Balance Sheet Arrangements 

As of March 31, 2019, our off-balance sheet arrangements consisted of operating leases and the undrawn portion of our Credit Facility. The majority of our stores and facilities are leased, with varying terms and renewal options. As of March 31, 2019, we owned the buildings in which six of our stores are located; of those buildings, five are located on land that is leased pursuant to a ground lease. As of March 31, 2019, 21 store 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 effect on our consolidated financial statements or financial condition.

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Recent Accounting Pronouncements

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

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with 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” under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

To a limited extent, we are exposed to interest rate changes with respect to our 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 Exchange Act, as of the end of the period covered by this 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, 2019.

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.

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PART II. Other Information

Item 1. Legal Proceedings

We periodically are involved in various legal proceedings, including discrimination and other employment-related claims, customer personal injury claims, investigations and other proceedings arising in the ordinary course of business. 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

The risk factor below updates those disclosed in Part I, “Item 1A-Risk Factors,” of our Form 10-K.

Executive, legislative or regulatory action that restricts or closes access to the United States market from Mexico or Canada could have a material adverse effect on our business, financial condition and results of operations.

Certain of the produce and other products that we sell at our stores are purchased, or contain ingredients sourced, from suppliers in Mexico and Canada. Since President Trump took office, tensions with Mexico and Canada over trade, immigration and other issues have increased. Such tensions could lead to executive, legislative, or regulatory action to restrict or close access to the United States market from Mexico or Canada. If action were taken to restrict or close access to the United States market from Mexico or Canada, the produce and other products that we source from those countries may no longer be available or may not be available at commercially attractive prices, which in turn could have a material adverse effect on our business, financial condition and results of operations.

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Item 6. Exhibits

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 Todd Dissinger, 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, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2019 (unaudited) and September 30, 2018, (ii) Consolidated Statements of Income for the three and six months ended March 31, 2019 and 2018 (unaudited), (iii) Consolidated Statements of Cash Flows for the six months ended March 31, 2019 and 2018 (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2019 and 2018 (unaudited) and (v) Notes to Unaudited Interim Consolidated Financial Statements.

† The certifications attached as Exhibit 32.1 that accompany this 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 Form 10-Q, irrespective of any general incorporation language contained in such filing.

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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 2, 2019.

Natural Grocers by Vitamin Cottage, Inc.
By:	/s/ KEMPER ISELY
	Kemper Isely, Co-President
	(Principal Executive Officer)
By:	/s/ TODD DISSINGER
	Todd Dissinger, Chief Financial Officer
	(Principal Financial and Accounting Officer)

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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 2, 2019

/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 2, 2019

/s/ Zephyr Isely

Zephyr Isely

Co-President and a Principal Executive Officer

EX-31.3

Exhibit 31.3

CERTIFICATION

I, Todd Dissinger, 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 2, 2019

/s/ Todd Dissinger

Todd Dissinger

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 on Form 10-Q of Natural Grocers by Vitamin Cottage, Inc. (the “Company”) for the fiscal quarter ended March 31, 2019, 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 Todd Dissinger, Chief Financial Officer and Principal Financial Officer of the Company, 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 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 2, 2019

/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/ Todd Dissinger

Todd Dissinger

Chief Financial Officer and Principal Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Mar. 31, 2019	Apr. 29, 2019
Document Information [Line Items]
Entity Registrant Name	Natural Grocers by Vitamin Cottage, Inc.
Entity Central Index Key	0001547459
Trading Symbol	ngvc
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		22,438,589
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Sep. 30, 2018
Current assets:
Cash and cash equivalents	$ 11,283	$ 9,398
Accounts receivable, net	4,501	4,738
Merchandise inventory	95,335	94,228
Prepaid expenses and other current assets	2,544	2,590
Total current assets	113,663	110,954
Property and equipment, net	191,439	188,768
Other assets:
Deposits and other assets	1,671	1,682
Goodwill and other intangible assets, net	6,464	5,648
Deferred financing costs, net	24	31
Total other assets	8,159	7,361
Total assets	313,261	307,083
Current liabilities:
Accounts payable	61,547	61,104
Accrued expenses	17,325	17,851
Capital and financing lease obligations, current portion	843	736
Total current liabilities	79,715	79,691
Long-term liabilities:
Capital and financing lease obligations, net of current portion	44,780	40,406
Revolving credit facility	10,192	13,192
Deferred income tax liabilities, net	5,901	6,447
Deferred compensation		688
Deferred rent	11,175	11,038
Leasehold incentives	8,317	8,895
Total long-term liabilities	80,365	80,666
Total liabilities	160,080	160,357
Commitments (Notes 7 and 13)
Stockholders’ equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, 22,510,279 shares issued at March 31, 2019 and September 30, 2018 and 22,431,553 and 22,373,382 outstanding at March 31, 2019 and September 30, 2018, respectively	23	23
Additional paid-in capital	56,192	56,236
Retained earnings	97,564	91,507
Common stock in treasury at cost, 78,726 and 136,897 shares, at March 31, 2019 and September 30, 2018, respectively	(598)	(1,040)
Total stockholders’ equity	153,181	146,726
Total liabilities and stockholders’ equity	$ 313,261	$ 307,083

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2019	Sep. 30, 2018
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	22,510,279	22,510,279
Common stock, shares outstanding (in shares)	22,431,553	22,373,382
Treasury stock, shares (in shares)	78,726	136,897

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Net sales	$ 230,447	$ 215,911	$ 451,962	$ 418,391
Cost of goods sold and occupancy costs	168,233	157,630	330,602	306,951
Gross profit	62,214	58,281	121,360	111,440
Store expenses	50,175	46,480	99,298	91,646
Administrative expenses	5,761	5,458	11,076	10,715
Pre-opening and relocation expenses	157	697	829	1,240
Operating income	6,121	5,646	10,157	7,839
Interest expense, net	(1,280)	(1,122)	(2,535)	(2,211)
Income before income taxes	4,841	4,524	7,622	5,628
(Provision for) benefit from income taxes	(981)	(1,120)	(1,565)	2,957
Net income	$ 3,860	$ 3,404	$ 6,057	$ 8,585
Net income per common share:
Basic (in dollars per share)	$ 0.17	$ 0.15	$ 0.27	$ 0.38
Diluted (in dollars per share)	$ 0.17	$ 0.15	$ 0.27	$ 0.38
Weighted average number of shares of common stock outstanding:
Basic (in shares)	22,413,055	22,353,993	22,399,665	22,356,943
Diluted (in shares)	22,561,825	22,444,808	22,579,733	22,419,056

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands		6 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Operating activities:
Net income		$ 6,057	$ 8,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		14,576	14,825
Gain on disposal of property and equipment		(165)	(28)
Share-based compensation		663	362
Deferred income tax benefit		(546)	(4,171)
Non-cash interest expense		6	6
Changes in operating assets and liabilities
Accounts receivable, net		254	(832)
Merchandise inventory		(1,107)	(3,261)
Prepaid expenses and other assets(1)	[1]	97	(635)
Income tax receivable(1)	[1]	(65)	1,082
Accounts payable		4,469	4,181
Accrued expenses		(517)	1,276
Deferred compensation		(688)	(566)
Deferred rent and leasehold incentives		(441)	914
Net cash provided by operating activities		22,593	21,738
Investing activities:
Acquisition of property and equipment(1)	[1]	(17,644)	(10,530)
Acquisition of other intangibles(1)	[1]	(251)	(29)
Proceeds from sale of property and equipment		792	34
Proceeds from property insurance settlements		22
Net cash used in investing activities		(17,081)	(10,525)
Financing activities:
Borrowings under credit facility		185,200	176,000
Repayments under credit facility		(188,200)	(184,800)
Capital and financing lease obligations payments		(362)	(271)
Repurchases of common stock			(581)
Payments on withholding tax for restricted stock unit vesting		(265)	(11)
Net cash used in financing activities		(3,627)	(9,663)
Net increase in cash and cash equivalents		1,885	1,550
Cash and cash equivalents, beginning of period		9,398	6,521
Cash and cash equivalents, end of period		11,283	8,071
Supplemental disclosures of cash flow information:
Cash paid for interest		439	431
Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $59 and $49, respectively		2,087	1,748
Income taxes paid		2,962	90
Deferred compensation paid		700	700
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid		1,228	2,377
Property acquired through capital and financing lease obligations		$ 4,842	$ 4,428

[1] Certain prior year amounts have been separated for consistency with current year presentation.

XML

Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Capitalized interest	$ 59	$ 25

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock Outstanding [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Sep. 30, 2017	22,448,056
Balance at Sep. 30, 2017		$ 23	$ 55,678	$ 78,846	$ (664)	$ 133,883
Net income				5,181		5,181
Share-based compensation (in shares)	1,226
Share-based compensation			147		9	156
Repurchase of common stock (in shares)	(101,573)
Repurchase of common stock					(581)	(581)
Balance (in shares) at Dec. 31, 2017	22,347,709
Balance at Dec. 31, 2017		23	55,825	84,027	(1,236)	138,639
Balance (in shares) at Sep. 30, 2017	22,448,056
Balance at Sep. 30, 2017		23	55,678	78,846	(664)	133,883
Net income						8,585
Repurchase of common stock (in shares)	(101,573)
Balance (in shares) at Mar. 31, 2018	22,364,280
Balance at Mar. 31, 2018		23	55,894	87,431	(1,109)	142,239
Balance (in shares) at Dec. 31, 2017	22,347,709
Balance at Dec. 31, 2017		23	55,825	84,027	(1,236)	138,639
Net income				3,404		3,404
Share-based compensation (in shares)	16,571
Share-based compensation			69		127	196
Repurchase of common stock (in shares)
Repurchase of common stock
Balance (in shares) at Mar. 31, 2018	22,364,280
Balance at Mar. 31, 2018		23	55,894	87,431	(1,109)	142,239
Balance (in shares) at Sep. 30, 2018	22,373,382
Balance at Sep. 30, 2018		23	56,236	91,507	(1,040)	146,726
Net income				2,197		2,197
Share-based compensation (in shares)	18,928
Share-based compensation			101		144	245
Balance (in shares) at Dec. 31, 2018	22,392,310
Balance at Dec. 31, 2018		23	56,337	93,704	(896)	149,168
Balance (in shares) at Sep. 30, 2018	22,373,382
Balance at Sep. 30, 2018		23	56,236	91,507	(1,040)	146,726
Net income						$ 6,057
Repurchase of common stock (in shares)						0
Balance (in shares) at Mar. 31, 2019	22,431,553
Balance at Mar. 31, 2019		23	56,192	97,564	(598)	$ 153,181
Balance (in shares) at Dec. 31, 2018	22,392,310
Balance at Dec. 31, 2018		23	56,337	93,704	(896)	149,168
Net income				3,860		3,860
Share-based compensation (in shares)	39,243
Share-based compensation			(145)		298	153
Balance (in shares) at Mar. 31, 2019	22,431,553
Balance at Mar. 31, 2019		$ 23	$ 56,192	$ 97,564	$ (598)	$ 153,181

XML

Note 1 - Organization

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Nature of Operations [Text Block]

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 operates its retail stores under its trademark

Natural Grocers by Vitamin Cottage

®. As of

March 31, 2019,

the Company operated

152

stores in

19

states. The Company also has a bulk food repackaging facility and distribution center in Golden, Colorado. The Company had

148

stores in

19

states as of

September 30, 2018.

XML

Note 2 - Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

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 Article

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by GAAP for annual financial statements. The information included in this Form

10

-Q should be read in conjunction with Item

7

– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in the Form

10

-K. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial results. 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 accompanying unaudited consolidated financial statements include all the accounts of the holding company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company) and Vitamin Cottage Two Ltd. Liability Company (

VC2

). 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 product categories, which are presented as a percentage of sales for the

three

and

six

months ended

March 31, 2019

and

2018,

as follows:

	Three months ended March 31,					Six months ended March 31,
	2019			2018		2019		2018
Grocery		68	%		67		68		67
Dietary supplements		22			23		21		22
Other		10			10		11		11
		100	%		100		100		100

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 (including the fair value of assets acquired and liabilities assumed in a business combination), the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates on an ongoing basis, including those related to: allowances for self-insurance reserves; valuation of inventories; useful lives of property and equipment for depreciation and amortization; impairment of finite-lived intangible assets, long-lived assets, and goodwill; lease assumptions; and litigation based on currently available information. Changes in facts and circumstances

may

result in revised estimates and actual results could differ from those estimates.

U.S. Tax Reform

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Reform Act). The Tax Reform Act significantly revised the ongoing federal income tax by, among other things, lowering U.S. corporate income tax rates effective

January 1, 2018.

The Company has a U.S. federal income tax rate of

21.0%

for the fiscal year ending

September 30, 2019.

The Tax Reform Act resulted in a blended U.S. federal income tax rate of approximately

24.3%

for the fiscal year ended

September 30, 2018.

Remeasurement of the Company’s deferred tax balance under the Tax Reform Act resulted in a non-cash tax benefit of approximately

$4.3

million for the

six

months ended

March 31, 2018

and the fiscal year ended

September 30, 2018.

Recently Adopted Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2014

-

09,

“Revenue from Contracts with Customers,” Topic

606,

“Revenue from Contracts with Customers” (ASU

2014

-

09

). ASU

2014

-

09

provides guidance for revenue recognition and will replace most existing revenue recognition guidance in GAAP. ASU

2014

-

09’s

core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled for the transfer of those goods or services. The Company adopted this ASU and related amendments on

October 1, 2018,

using the modified retrospective approach. Additionally, upon adoption of this ASU, the Company elected the following practical expedients:

- ASU 2016 - 09, pursuant to which the incremental costs of obtaining a contract are recognized as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

- ASU 2016 - 12, pursuant to which sales taxes and other similar taxes collected from customers are presented net of sales.

- ASU 2016 - 20, pursuant to which the transaction price allocated to performance obligations is not disclosed when the related contract has a duration of one year or less.

Updated accounting policies and other disclosures are discussed below in

Recent Accounting Pronouncements

in this Note

2.

The adoption of ASU

2014

-

09

did

not

have a material impact on the Company’s consolidated financial statements for the

three

or

six

months ended

March 31, 2019.

Recent Accounting Pronouncements

 

In

January 2017,

the FASB issued ASU

2017

-

04,

“Simplifying the Test for Goodwill Impairment,” Topic

350,

“Intangibles – Goodwill and Other” (ASU

2017

-

04

). The amendments in ASU

2017

-

04

simplify the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the

first

step in the current

two

-step impairment test. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis. Early adoption is permitted for annual and interim goodwill impairment testing dates after

January 1, 2017,

and the ASU is effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020.

The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

In

February 2016,

the FASB issued ASU

2016

-

02,

“Leases,” Topic

842,

“Leases” (ASU

2016

-

02

). ASU

No.

2016

-

02

requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with terms of more than

12

months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU

2016

-

02

also requires certain quantitative and qualitative disclosures. The provisions of ASU

2016

-

02

are effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020,

with early adoption permitted. The Company will apply the transition provisions of ASU

2016

-

02

at its adoption date, whereby prior periods will continue to be reported in accordance with the historical accounting guidance then in effect, as permitted by ASU

2018

-

11,

“Leases,” Topic

842,

“Targeted Improvements,” released in

July 2018.

The adoption of ASU

2016

-

02

will result in a material increase to the Company’s consolidated balance sheets for lease liabilities and right-of-use assets. The Company is also performing a comprehensive review of its current processes to determine and implement changes required to support the adoption of this standard. As part of this review process, the Company is implementing new software solutions to support the lease reporting upon adoption. The Company is currently evaluating the other effects the adoption of ASU

2016

-

02

will have on its consolidated financial statements.

In

January 2018,

the FASB issued ASU

2018

-

01,

“Leases,” Topic

842,

“Land Easement Practical Expedient for Transition to Topic

842”

(ASU

2018

-

01

). ASU

2018

-

01

permits an entity to elect a transition practical expedient to

not

assess, under Accounting Standards Codification (ASC)

842,

land easements that exist or expired before the standard’s effective date that were

not

previously accounted for as leases under ASC

840.

The Company plans to elect this practical expedient in implementing ASU

2016

-

02.

In

June 2018,

the FASB issued ASU

2018

-

07,

“Compensation-Stock Compensation,” Topic

718,

“Improvements to Nonemployee Share-Based Payment Accounting” (ASU

2018

-

07

) as part of its Simplification Initiative to reduce complexity when accounting for share-based payments to non-employees. ASU

2018

-

07

expands the scope of Topic

718

to more closely align share-based payment transactions for acquiring goods and services from non-employees with the accounting for share-based payments to employees, with certain exceptions. The provisions of ASU

2018

-

07

are effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020,

with early adoption permitted. This ASU is

not

expected to have a material impact on the Company’s consolidated financial statements.

XML

Note 3 - Revenue Recognition

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3.

Revenue Recognition

The nature of the goods the Company transfers to customers at the point of sale consists of merchandise purchased for resale. In these transactions, the Company acts as a principal and recognizes revenue (“net sales”) from the sale of goods when control of the promised goods is transferred to the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all the remaining benefits from, the transferred goods.

The Company’s performance obligations are satisfied upon the transfer of goods to the customer (at the point of sale), and payment from the customer is also due at that time. Transaction prices are considered fixed. Discounts provided to customers at the point of sale are recognized as a reduction in revenue as the goods are sold. Revenue excludes sales and usage-based taxes collected.

Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as revenue when the gift cards are redeemed by the customer and the performance obligation is satisfied by the Company. The Company also recognizes revenue for a portion of gift card values that is

not

expected to be redeemed (“breakage”). The estimated breakage takes into consideration several factors, including the laws and regulations applicable to each jurisdiction. The Company determines the amount of breakage income to be recognized on gift cards using historical experience to estimate amounts that will ultimately

not

be redeemed. The Company recognizes such breakage income in proportion to redemption rates of the overall population of gift cards.

As of each of

March 31, 2019

and

September 30, 2018,

the balance of contract liabilities related to unredeemed gift cards was

$1.0

million. Revenue for the

three

months ended

March 31, 2019

includes approximately

$0.2

million that was included in the contract liability balance of unredeemed gift cards at

September 30, 2018.

Revenue for the

six

months ended

March 31, 2019

includes approximately

$0.5

million that was included in the contract liability balance of unredeemed gift cards at

September 30, 2018.

The following table disaggregates our revenue by product category for the

three

months and

six

months ended

March 31, 2019

and

2018,

dollars in thousands:

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Grocery	$	157,802		144,467		309,103		280,568
Dietary supplements		49,700		48,830		95,484		92,395
Other		22,945		22,614		47,375		45,428
	$	230,447		215,911		451,962		418,391

XML

Note 4 - Earnings Per Share

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

4

. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units (RSUs) were to vest, resulting in the issuance of common stock that would then share in the Company’s earnings.

Presented below are basic and diluted EPS for the

three

and

six

months ended

March 31, 2019

and

2018,

dollars in thousands, except per share data:

	Three months ended March 31,				Six months ended March 31,
	201 9		201 8		201 9		201 8
Net income	$	3,860		3,404		6,057		8,585
Weighted average number of shares of common stock outstanding		22,413,055		22,353,993		22,399,665		22,356,943
Effect of dilutive securities		148,770		90,815		180,068		62,113
Weighted average number of shares of common stock outstanding including effect of dilutive securities		22,561,825		22,444,808		22,579,733		22,419,056
Basic earnings per share	$	0.17		0.15		0.27		0.38
Diluted earnings per share	$	0.17		0.15		0.27		0.38

There were

72,599

and

27,574

non-vested RSUs for the

three

and

six

months ended

March 31, 2019,

respectively, excluded from the calculation of diluted EPS as they are antidilutive. There were

75,169

and

172,356

non-vested RSUs for the

three

and

six

months ended

March 31, 2018,

respectively, excluded from the calculation of diluted EPS as they are antidilutive.

The Company did

not

declare any dividends in the

three

or

six

months ended

March 31, 2019

or

2018.

XML

Note 5 - Debt

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Debt and Capital Leases Disclosures [Text Block]

5

. Debt

Credit Facility

On

January 28, 2016,

the Company entered into a credit facility (the 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 and

VC2.

The Credit Facility is secured by a lien on substantially all of the Company’s assets. The amount available for borrowing under the Credit Facility is

$50.0

million, including a

$5.0

million sublimit for standby letters of credit. The Company has the right to borrow, prepay and re-borrow amounts under the Credit Facility at any time prior to the maturity date. The Credit Facility matures on

January 31, 2021.

For floating rate borrowings under the Credit Facility, interest is determined by the lender’s administrative agent based on the most recent compliance certificate of the operating company and stated at the base rate less the lender spread based upon 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 based upon certain financial measures. The unused commitment fee is based upon certain financial measures.

The Credit Facility requires compliance with certain customary operational and financial covenants, including a leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations. Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the administrative agent’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 incurred in the ordinary course of business, including cash dividends to the holding company for the repurchase of shares of common stock in an amount

not

to exceed

$10.0

million.

The Company had

$10.2

million and

$13.2

million outstanding under the Credit Facility as of

March 31, 2019

and

September 30, 2018,

respectively. As of each of

March 31, 2019

and

September 30, 2018,

the Company had undrawn, issued and outstanding letters of credit of

$1.0

million, which were reserved against the amount available for borrowing under the terms of the Credit Facility. The Company had

$38.8

million and

$35.8

million available for borrowing under the Credit Facility as of

March 31, 2019

and

September 30, 2018,

respectively.

As of

March 31, 2019

and

September 30, 2018,

the Company was in compliance with the financial covenants under the Credit Facility.

Capital and Financing Lease Obligations

The Company had

21

and

20

leases as of

March 31, 2019

and

September 30, 2018,

respectively, that are included in capital and financing lease obligations (see Note

7

).

No

rent expense is recorded 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. The interest rate on capital and financing lease obligations is determined at the inception of the lease.

Interest

The Company incurred gross interest expense of approximately

$1.3

million and

$1.1

million for the

three

months ended

March 31, 2019

and

2018,

respectively, and approximately

$2.6

million and

$2.3

million for the

six

months ended

March 31, 2019

and

2018,

respectively. Interest expense for the

three

and

six

months ended

March 31, 2019

and

2018

relates primarily to interest on capital and financing lease obligations. The Company capitalized interest of less than

$

0.1

million for each of the

three

months ended

March 31, 2019

and

2018,

respectively, and approximately

$0.1

million and less than

$0.1

million for the

six

months ended

March 31, 2019

and

2018,

respectively.

XML

Note 6 - Stockholders' Equity

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

6

. S

tock

holders’ Equity

Share Repurchases

On

May 4, 2016,

the Company’s Board of Directors (the Board) authorized a

two

-year share repurchase program pursuant to which the Company

may

repurchase up to

$10.0

million in shares of the Company’s common stock. On

May 2, 2018,

the Board authorized a

two

-year extension of the Company’s share repurchase program. As a result of such extension, the share repurchase program will terminate on

May 4, 2020.

Repurchases under the Company’s share repurchase program are made from time to time at management’s discretion on the open market or through privately negotiated transactions in compliance with Rule

10b

-

18

under the Securities Exchange Act of

1934,

as amended (the Exchange Act), subject to market conditions, applicable legal requirements and other relevant factors. Repurchases of common stock

may

also be made under a Rule

10b5

-

1

plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The share repurchase program does

not

obligate the Company to purchase any particular amount of common stock and

may

be suspended, modified or discontinued by the Company without prior notice.

Prior to

October 1, 2018,

the Company repurchased

199,543

shares under the share repurchase program. The Company did

not

repurchase any shares during the

six

months ended

March 31, 2019.

During the

six

months ended

March 31, 2018,

the Company repurchased

101,573

shares under the share repurchase program. The dollar value of the shares of the Company’s common stock that

may

yet be purchased under the share repurchase program is approximately

$8.3

million.

Prior to

October 1, 2018,

the Company reissued

62,646

treasury shares at a cost of approximately

$0.6

million to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of stock grants. During the

three

and

six

months ended

March 31, 2019,

the Company reissued

39,243

treasury shares at a cost of approximately

$0.3

million and

58,171

treasury shares at a cost of approximately

$0.4

million, respectively, to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of common stock grants. During the

three

and

six

months ended

March 31, 2018,

the Company reissued

16,571

and

17,797

treasury shares, respectively, at a cost of approximately

$

0.1

million for each period, to satisfy the issuance of common stock pursuant to the vesting of certain RSUs and the award of common stock grants. At

March 31, 2019

and

September 30, 2018,

the Company held in treasury

78,726

shares and

136,897

shares, respectively, totaling approximately

$0.6

million and

$1.0

million, respectively.

XML

Note 7 - Lease Commitments

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

7

.

Lease Commitments

Capital and financing lease obligations as of

March 31, 2019

and

September 30, 2018,

were as follows, dollars in thousands:

	As of
	March 31 , 201 9			September 30, 201 8
Capital lease finance obligations, due in monthly installments through fiscal year 2033	$	34,992			32,523
Capital lease obligations, due in monthly installments through fiscal year 2041		6,126			4,763
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2034		4,505			2,350
Capital lease obligations for assets under construction, due in monthly installments through fiscal year 2034		—			1,506
Total capital and financing lease obligations		45,623			41,142
Less current portion		(843	)		(736	)
Total capital and financing lease obligations, net of current portion	$	44,780			40,406

XML

Note 8 - Property and Equipment

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

8

. Property and Equipment

The Company had the following property and equipment balances as of

March 31, 2019

and

September 30, 2018,

dollars in thousands:

				As of
	Useful lives (in years)			March 31 , 201 9			September 30, 201 8
Construction in process		n/a		$	7,986			15,879
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively		40			37,970			35,700
Capitalized real estate leases		15			7,241			5,735
Land		n/a			1,230			192
Buildings		40			23,481			19,262
Land improvements	5	–	24		1,335			1,016
Leasehold and building improvements	1	–	25		139,312			131,474
Fixtures and equipment	5	–	7		128,610			122,984
Computer hardware and software	3	–	5		20,401			21,181
					367,566			353,423
Less accumulated depreciation and amortization					(176,127	)		(164,655	)
Property and equipment, net				$	191,439			188,768

Capitalized real estate leases for build-to-suit stores includes the assets for the Company’s buildings under capital lease finance obligations, and capitalized real estate leases includes assets for the Company’s buildings under capital lease obligations (see Note

7

).

Depreciation and amortization expense for the

three

and

six

months ended

March 31, 2019

and

2018

is summarized as follows, dollars in thousands:

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	185		196		367		392
Depreciation and amortization expense included in store expenses		6,848		6,835		13,690		13,685
Depreciation and amortization expense included in administrative expenses		257		379		519		748
Total depreciation and amortization expense	$	7,290		7,410		14,576		14,825

XML

Note 9 - Goodwill and Other Intangible Assets

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

9

. Goodwill and Other Intangible Assets

The Company had the following goodwill and other intangible asset balances as of

March 31, 2019

and

September 30, 2018,

dollars in thousands:

	Useful lives			As of
	(in years)			March 31 , 201 9			September 30, 2018
Amortizable intangible assets:
Other intangibles	0.5	-	3	$	2,197			138
Amortizable intangible assets					2,197			138
Less accumulated amortization					(1,320	)		(77	)
Amortizable intangible assets, net					877			61
Trademark	Indefinite				389			389
Total other intangibles, net					1,266			450
Goodwill	Indefinite				5,198			5,198
Total goodwill and other intangibles, net				$	6,464			5,648

XML

Note 10 - Accrued Expenses

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

10

.

Accrued Expenses

The composition of accrued expenses as of

March 31, 2019

and

September 30, 2018

is summarized as follows, dollars in thousands:

	As of
	March 31 ,		September 30,
	201 9		201 8
Accrued property, sales and use tax payable	$	6,361		7,043
Income tax payable		102		903
Payroll and employee-related expenses		7,683		6,992
Accrued marketing expenses		591		335
Deferred revenue related to gift card sales		1,361		1,453
Other		1,227		1,125
Total accrued expenses	$	17,325		17,851

XML

Note 11 - Income Taxes

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

1

.

Income Taxes

Income taxes are accounted for in accordance with the provisions of ASC

740.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

Remeasurement of the Company’s deferred tax balance as a result of the Tax Reform Act resulted in a non-cash tax benefit of approximately

$4.3

million for the

six

months ended

March 31, 2018.

XML

Note 12 - Related Party Transactions

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1

2

. Related Party Transactions

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

Chalet Properties,

LLC:

The Company has

five

operating leases and

one

capital lease 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, 2019

and

2018.

Rent paid to Chalet was approximately

$0.6

million for each of the

six

months ended

March 31, 2019

and

2018.

Isely Family Land Trust LLC:

The Company has

one

operating lease with the Isely Family Land Trust LLC (the 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, 2019

and

2018.

Rent paid to the Land Trust was approximately

$

0.2

million for each of the

six

months ended

March 31, 2019

and

2018.

FTVC LLC:

The Company has

one

operating lease for a store location with FTVC LLC, which is owned by the Company’s

four

non-independent Board members and other related family members. Rent paid to FTVC LLC was less than

$0.1

million for each of the

three

months ended

March 31, 2019

and

2018.

Rent paid to FTVC LLC was less than

$0.1

million for each of the

six

months ended

March 31, 2019

and

2018.

XML

Note 13 - Commitments and Contingencies

6 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

1

3

. Commitments and Contingencies

The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but

not

limited to employment-related 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.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

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 Article

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by GAAP for annual financial statements. The information included in this Form

10

-Q should be read in conjunction with Item

7

– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in the Form

10

-K. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial results. 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 accompanying unaudited consolidated financial statements include all the accounts of the holding company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company) and Vitamin Cottage Two Ltd. Liability Company (

VC2

). 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 product categories, which are presented as a percentage of sales for the

three

and

six

months ended

March 31, 2019

and

2018,

as follows:

	Three months ended March 31,					Six months ended March 31,
	2019			2018		2019		2018
Grocery		68	%		67		68		67
Dietary supplements		22			23		21		22
Other		10			10		11		11
		100	%		100		100		100

Use of Estimates, Policy [Policy Text Block]

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 (including the fair value of assets acquired and liabilities assumed in a business combination), the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates on an ongoing basis, including those related to: allowances for self-insurance reserves; valuation of inventories; useful lives of property and equipment for depreciation and amortization; impairment of finite-lived intangible assets, long-lived assets, and goodwill; lease assumptions; and litigation based on currently available information. Changes in facts and circumstances

may

result in revised estimates and actual results could differ from those estimates.

Income Tax, Policy [Policy Text Block]

U.S. Tax Reform

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Reform Act). The Tax Reform Act significantly revised the ongoing federal income tax by, among other things, lowering U.S. corporate income tax rates effective

January 1, 2018.

The Company has a U.S. federal income tax rate of

21.0%

for the fiscal year ending

September 30, 2019.

The Tax Reform Act resulted in a blended U.S. federal income tax rate of approximately

24.3%

for the fiscal year ended

September 30, 2018.

Remeasurement of the Company’s deferred tax balance under the Tax Reform Act resulted in a non-cash tax benefit of approximately

$4.3

million for the

six

months ended

March 31, 2018

and the fiscal year ended

September 30, 2018.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2014

-

09,

“Revenue from Contracts with Customers,” Topic

606,

“Revenue from Contracts with Customers” (ASU

2014

-

09

). ASU

2014

-

09

provides guidance for revenue recognition and will replace most existing revenue recognition guidance in GAAP. ASU

2014

-

09’s

core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled for the transfer of those goods or services. The Company adopted this ASU and related amendments on

October 1, 2018,

using the modified retrospective approach. Additionally, upon adoption of this ASU, the Company elected the following practical expedients:

- ASU 2016 - 09, pursuant to which the incremental costs of obtaining a contract are recognized as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

- ASU 2016 - 12, pursuant to which sales taxes and other similar taxes collected from customers are presented net of sales.

- ASU 2016 - 20, pursuant to which the transaction price allocated to performance obligations is not disclosed when the related contract has a duration of one year or less.

Updated accounting policies and other disclosures are discussed below in

Recent Accounting Pronouncements

in this Note

2.

The adoption of ASU

2014

-

09

did

not

have a material impact on the Company’s consolidated financial statements for the

three

or

six

months ended

March 31, 2019.

Recent Accounting Pronouncements

 

In

January 2017,

the FASB issued ASU

2017

-

04,

“Simplifying the Test for Goodwill Impairment,” Topic

350,

“Intangibles – Goodwill and Other” (ASU

2017

-

04

). The amendments in ASU

2017

-

04

simplify the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the

first

step in the current

two

-step impairment test. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis. Early adoption is permitted for annual and interim goodwill impairment testing dates after

January 1, 2017,

and the ASU is effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020.

The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

In

February 2016,

the FASB issued ASU

2016

-

02,

“Leases,” Topic

842,

“Leases” (ASU

2016

-

02

). ASU

No.

2016

-

02

requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with terms of more than

12

months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. ASU

2016

-

02

also requires certain quantitative and qualitative disclosures. The provisions of ASU

2016

-

02

are effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020,

with early adoption permitted. The Company will apply the transition provisions of ASU

2016

-

02

at its adoption date, whereby prior periods will continue to be reported in accordance with the historical accounting guidance then in effect, as permitted by ASU

2018

-

11,

“Leases,” Topic

842,

“Targeted Improvements,” released in

July 2018.

The adoption of ASU

2016

-

02

will result in a material increase to the Company’s consolidated balance sheets for lease liabilities and right-of-use assets. The Company is also performing a comprehensive review of its current processes to determine and implement changes required to support the adoption of this standard. As part of this review process, the Company is implementing new software solutions to support the lease reporting upon adoption. The Company is currently evaluating the other effects the adoption of ASU

2016

-

02

will have on its consolidated financial statements.

In

January 2018,

the FASB issued ASU

2018

-

01,

“Leases,” Topic

842,

“Land Easement Practical Expedient for Transition to Topic

842”

(ASU

2018

-

01

). ASU

2018

-

01

permits an entity to elect a transition practical expedient to

not

assess, under Accounting Standards Codification (ASC)

842,

land easements that exist or expired before the standard’s effective date that were

not

previously accounted for as leases under ASC

840.

The Company plans to elect this practical expedient in implementing ASU

2016

-

02.

In

June 2018,

the FASB issued ASU

2018

-

07,

“Compensation-Stock Compensation,” Topic

718,

“Improvements to Nonemployee Share-Based Payment Accounting” (ASU

2018

-

07

) as part of its Simplification Initiative to reduce complexity when accounting for share-based payments to non-employees. ASU

2018

-

07

expands the scope of Topic

718

to more closely align share-based payment transactions for acquiring goods and services from non-employees with the accounting for share-based payments to employees, with certain exceptions. The provisions of ASU

2018

-

07

are effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020,

with early adoption permitted. This ASU is

not

expected to have a material impact on the Company’s consolidated financial statements.

XML

Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Product Information [Table Text Block]

	Three months ended March 31,					Six months ended March 31,
	2019			2018		2019		2018
Grocery		68	%		67		68		67
Dietary supplements		22			23		21		22
Other		10			10		11		11
		100	%		100		100		100

XML

Note 3 - Revenue Recognition (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Grocery	$	157,802		144,467		309,103		280,568
Dietary supplements		49,700		48,830		95,484		92,395
Other		22,945		22,614		47,375		45,428
	$	230,447		215,911		451,962		418,391

XML

Note 4 - Earnings Per Share (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended March 31,				Six months ended March 31,
	201 9		201 8		201 9		201 8
Net income	$	3,860		3,404		6,057		8,585
Weighted average number of shares of common stock outstanding		22,413,055		22,353,993		22,399,665		22,356,943
Effect of dilutive securities		148,770		90,815		180,068		62,113
Weighted average number of shares of common stock outstanding including effect of dilutive securities		22,561,825		22,444,808		22,579,733		22,419,056
Basic earnings per share	$	0.17		0.15		0.27		0.38
Diluted earnings per share	$	0.17		0.15		0.27		0.38

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Note 7 - Lease Commitments (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Debt [Table Text Block]

	As of
	March 31 , 201 9			September 30, 201 8
Capital lease finance obligations, due in monthly installments through fiscal year 2033	$	34,992			32,523
Capital lease obligations, due in monthly installments through fiscal year 2041		6,126			4,763
Capital lease finance obligations for assets under construction, due in monthly installments through fiscal year 2034		4,505			2,350
Capital lease obligations for assets under construction, due in monthly installments through fiscal year 2034		—			1,506
Total capital and financing lease obligations		45,623			41,142
Less current portion		(843	)		(736	)
Total capital and financing lease obligations, net of current portion	$	44,780			40,406

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Note 8 - Property and Equipment (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

				As of
	Useful lives (in years)			March 31 , 201 9			September 30, 201 8
Construction in process		n/a		$	7,986			15,879
Capitalized real estate leases for build-to-suit stores, including unamortized land of $617 and $617, respectively		40			37,970			35,700
Capitalized real estate leases		15			7,241			5,735
Land		n/a			1,230			192
Buildings		40			23,481			19,262
Land improvements	5	–	24		1,335			1,016
Leasehold and building improvements	1	–	25		139,312			131,474
Fixtures and equipment	5	–	7		128,610			122,984
Computer hardware and software	3	–	5		20,401			21,181
					367,566			353,423
Less accumulated depreciation and amortization					(176,127	)		(164,655	)
Property and equipment, net				$	191,439			188,768

Depreciation and Amortization Expense [Table Text Block]

	Three months ended March 31,				Six months ended March 31,
	2019		2018		2019		2018
Depreciation and amortization expense included in cost of goods sold and occupancy costs	$	185		196		367		392
Depreciation and amortization expense included in store expenses		6,848		6,835		13,690		13,685
Depreciation and amortization expense included in administrative expenses		257		379		519		748
Total depreciation and amortization expense	$	7,290		7,410		14,576		14,825

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Note 9 - Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	Useful lives			As of
	(in years)			March 31 , 201 9			September 30, 2018
Amortizable intangible assets:
Other intangibles	0.5	-	3	$	2,197			138
Amortizable intangible assets					2,197			138
Less accumulated amortization					(1,320	)		(77	)
Amortizable intangible assets, net					877			61
Trademark	Indefinite				389			389
Total other intangibles, net					1,266			450
Goodwill	Indefinite				5,198			5,198
Total goodwill and other intangibles, net				$	6,464			5,648

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Note 10 - Accrued Expenses (Tables)

6 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	As of
	March 31 ,		September 30,
	201 9		201 8
Accrued property, sales and use tax payable	$	6,361		7,043
Income tax payable		102		903
Payroll and employee-related expenses		7,683		6,992
Accrued marketing expenses		591		335
Deferred revenue related to gift card sales		1,361		1,453
Other		1,227		1,125
Total accrued expenses	$	17,325		17,851

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Note 1 - Organization (Details Textual)	Mar. 31, 2019	Sep. 30, 2018
Number of Stores	152	148
Number of States in which Entity Operates	19	19

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details Textual) $ in Millions	6 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018 USD ($)	Sep. 30, 2019	Sep. 30, 2018 USD ($)
Number of Reportable Segments	1
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent				24.30%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability		$ (4.3)		$ (4.3)
Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies - Sales From Natural and Organic Retail Stores (Details)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Sales percentage	100.00%	100.00%	100.00%	100.00%
Grocery [Member]
Sales percentage	68.00%	67.00%	68.00%	67.00%
Dietary Supplements [Member]
Sales percentage	22.00%	23.00%	21.00%	22.00%
Other [Member]
Sales percentage	10.00%	10.00%	11.00%	11.00%

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Note 3 - Revenue Recognition (Details Textual) - Gift Cards [Member] - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Mar. 31, 2019	Mar. 31, 2019	Sep. 30, 2018
Contract with Customer, Liability, Total	$ 1.0	$ 1.0	$ 1.0
Contract with Customer, Liability, Revenue Recognized	$ 0.2	$ 0.5

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Note 3 - Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Net sales	$ 230,447	$ 215,911	$ 451,962	$ 418,391
Grocery [Member]
Net sales	157,802	144,467	309,103	280,568
Dietary Supplements [Member]
Net sales	49,700	48,830	95,484	92,395
Manufactured Product, Other [Member]
Net sales	$ 22,945	$ 22,614	$ 47,375	$ 45,428

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Note 4 - Earnings Per Share (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Dividends, Total	$ 0	$ 0	$ 0	$ 0
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	72,599	75,169	27,574	172,356

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Note 4 - Earnings Per Share - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 3,860	$ 3,404	$ 6,057	$ 8,585
Weighted average number of shares of common stock outstanding (in shares)	22,413,055	22,353,993	22,399,665	22,356,943
Effect of dilutive securities (in shares)	148,770	90,815	180,068	62,113
Weighted average number of shares of common stock outstanding including effect of dilutive securities (in shares)	22,561,825	22,444,808	22,579,733	22,419,056
Basic earnings per share (in dollars per share)	$ 0.17	$ 0.15	$ 0.27	$ 0.38
Diluted earnings per share (in dollars per share)	$ 0.17	$ 0.15	$ 0.27	$ 0.38

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Note 5 - Debt (Details Textual) $ in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Jan. 28, 2016 USD ($)
Capital and Financing Lease Obligations Number of Leases	21		21		20
Interest Expense, Debt, Excluding Amortization	$ 1.3	$ 1.1	$ 2.6	$ 2.3
Interest Costs Capitalized	0.1	$ 0.1	0.1	$ 0.1
Letter of Credit [Member]
Letters of Credit Outstanding, Amount	1.0		1.0		$ 1.0
The New Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity						$ 50.0
Line of Credit Facility, Dividend Restrictions, Maximum Amount	10.0
Long-term Line of Credit, Total	10.2		10.2		13.2
Line of Credit Facility, Remaining Borrowing Capacity	$ 38.8		$ 38.8		$ 35.8
The New Credit Facility [Member] | Standby Letters of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity						$ 5.0

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Note 6 - Stockholders' Equity (Details Textual) - USD ($) $ in Thousands			3 Months Ended			6 Months Ended		12 Months Ended	29 Months Ended
	May 02, 2018	May 04, 2016	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2019	Mar. 31, 2018	Sep. 30, 2018	Sep. 30, 2018
Stock Repurchase Program, Period in Force	2 years	2 years
Stock Repurchase Program, Authorized Amount		$ 10,000
Treasury Stock, Shares, Acquired						0			199,543
Stock Repurchase Program, Remaining Authorized Repurchase Amount			$ 8,300			$ 8,300
Stock Issued During Period, Shares, Treasury Stock Reissued for Equity-based Compensation Obligations			39,243	16,571		58,171	17,797	62,646
Stock Issued During Period, Value, Treasury Stock Reissued for Equity-based Compensation Obligations			$ 300	$ 100		$ 400	$ 100	$ 600
Treasury Stock, Shares, Ending Balance			78,726			78,726		136,897	136,897
Treasury Stock, Value, Ending Balance			$ 598			$ 598		$ 1,040	$ 1,040
Common Stock Outstanding [Member]
Treasury Stock, Shares, Acquired					101,573		101,573

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Note 7 - Lease Commitments - Capital and Financing Lease Obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Sep. 30, 2018
Total capital and financing lease obligations	$ 45,623	$ 41,142
Less current portion	(843)	(736)
Total capital and financing lease obligations, net of current portion	44,780	40,406
Due in Monthly Installments Through Fiscal Year 2033 [Member]
Capital lease finance obligations	34,992	32,523
Asset not under Construction, Due in Monthly Installments Through Fiscal Year 2041 [Member]
Capital lease finance obligations	6,126	4,763
Asset under Construction Due in Monthly Installments Through Fiscal Year 2033 [Member]
Capital lease finance obligations	4,505	2,350
Asset under Construction Due in Monthly Installments Through Fiscal Year 2034 [Member]
Capital lease finance obligations		$ 1,506

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Note 8 - Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2019	Sep. 30, 2018
Property, plant, and equipment, gross	$ 367,566	$ 353,423
Less accumulated depreciation and amortization	(176,127)	(164,655)
Property and equipment, net	191,439	188,768
Construction in Progress [Member]
Property, plant, and equipment, gross	7,986	15,879
Assets Held Under Real Estate Leases for Build to Suit Stores [Member]
Property, plant, and equipment, gross	$ 37,970	35,700
Useful life (Year)	40 years
Assets Held under Capital Leases [Member]
Property, plant, and equipment, gross	$ 7,241	5,735
Useful life (Year)	15 years
Land [Member]
Property, plant, and equipment, gross	$ 1,230	192
Building [Member]
Property, plant, and equipment, gross	$ 23,481	19,262
Useful life (Year)	40 years
Land Improvements [Member]
Property, plant, and equipment, gross	$ 1,335	1,016
Land Improvements [Member] | Minimum [Member]
Useful life (Year)	5 years
Land Improvements [Member] | Maximum [Member]
Useful life (Year)	24 years
Leasehold and Building Improvements [Member]
Property, plant, and equipment, gross	$ 139,312	131,474
Leasehold and Building Improvements [Member] | Minimum [Member]
Useful life (Year)	1 year
Leasehold and Building Improvements [Member] | Maximum [Member]
Useful life (Year)	25 years
Furniture and Fixtures [Member]
Property, plant, and equipment, gross	$ 128,610	122,984
Furniture and Fixtures [Member] | Minimum [Member]
Useful life (Year)	5 years
Furniture and Fixtures [Member] | Maximum [Member]
Useful life (Year)	7 years
Computer Hardware and Software [Member]
Property, plant, and equipment, gross	$ 20,401	$ 21,181
Computer Hardware and Software [Member] | Minimum [Member]
Useful life (Year)	3 years
Computer Hardware and Software [Member] | Maximum [Member]
Useful life (Year)	5 years

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Note 8 - Property and Equipment - Schedule of Property and Equipment (Details) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2019	Sep. 30, 2018
Property, plant, and equipment, gross	$ 367,566	$ 353,423
Unamortized Land [Member]
Property, plant, and equipment, gross	$ 617	$ 617

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Note 8 - Property and Equipment - Depreciation and Amortization Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Depreciation and amortization expense	$ 7,290	$ 7,410	$ 14,576	$ 14,825
Cost of Sales [Member]
Depreciation and amortization expense	185	196	367	392
Stores [Member]
Depreciation and amortization expense	6,848	6,835	13,690	13,685
General and Administrative Expense [Member]
Depreciation and amortization expense	$ 257	$ 379	$ 519	$ 748

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Note 9 - Goodwill and Other Intangible Assets - Summary of Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2019	Sep. 30, 2018
Amortizable intangible assets	$ 2,197	$ 138
Less accumulated amortization	(1,320)	(77)
Amortizable intangible assets, net	877	61
Trademark	389	389
Total other intangibles, net	1,266	450
Goodwill	5,198	5,198
Total goodwill and other intangibles, net	6,464	5,648
Other Intangible Assets [Member]
Amortizable intangible assets	$ 2,197	$ 138
Other Intangible Assets [Member] | Minimum [Member]
Intangible assets useful life (Year)	182 days
Other Intangible Assets [Member] | Maximum [Member]
Intangible assets useful life (Year)	3 years

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Note 10 - Accrued Expenses - Composition of Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Sep. 30, 2018
Accrued property, sales and use tax payable	$ 6,361	$ 7,043
Income tax payable	102	903
Payroll and employee-related expenses	7,683	6,992
Accrued marketing expenses	591	335
Deferred revenue related to gift card sales	1,361	1,453
Other	1,227	1,125
Total accrued expenses	$ 17,325	$ 17,851

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Note 11 - Income Taxes (Details Textual) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Mar. 31, 2018	Sep. 30, 2018
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ (4.3)	$ (4.3)

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Note 12 - Related Party Transactions (Details Textual) $ in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)
Chalet [Member]
Number of Operating Leases	5		5
Number of Capital Leases	1		1
Related Party Transaction Number of Owners That Are Non-Independent Board Members of the Entity			4
Related Party Transaction, Expenses from Transactions with Related Party	$ 0.3	$ 0.3	$ 0.6	$ 0.6
Isely Family Land Trust LLC [Member]
Number of Operating Leases	1		1
Related Party Transaction, Expenses from Transactions with Related Party	$ 0.1	0.1	$ 0.2	0.2
FTVC, LLC [Member]
Number of Operating Leases	1		1
Related Party Transaction Number of Owners That Are Non-Independent Board Members of the Entity			4
FTVC, LLC [Member] | Maximum [Member]
Related Party Transaction, Expenses from Transactions with Related Party	$ 0.1	$ 0.1	$ 0.1	$ 0.1