8-K
Natural Grocers by Vitamin Cottage, Inc. (NGVC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 8, 2025
Natural Grocers by Vitamin Cottage, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-35608 | 45-5034161 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation) | (Commission<br><br> <br>File No.) | (IRS Employer<br><br> <br>Identification No.) |
12612 West Alameda Parkway
Lakewood, Colorado 80228
(Address of principal executive offices) (Zip Code)
(303) 986-4600
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
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 |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02 Results of Operations and Financial Condition.
On May 8, 2025, Natural Grocers by Vitamin Cottage, Inc. issued a press release announcing its financial results for the three and six months ended March 31, 2025. A copy of the press release is furnished herewith as Exhibit 99.1.
The information contained in this Item 2.02, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. Additionally, the information contained in this Item 2.02 or Exhibit 99.1 shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release of Natural Grocers by Vitamin Cottage, Inc. dated May 8, 2025 announcing financial results. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL). |
SIGNATURE
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.
Dated: May 8, 2025
| Natural Grocers by Vitamin Cottage, Inc. | |
|---|---|
| By: | /s/ Kemper Isely |
| Name: | Kemper Isely |
| Title: | Co-President |
ex_813423.htm
Exhibit 99.1
Natural Grocers by Vitamin Cottage Announces Second Quarter Fiscal 2025 Results
Raises Fiscal 2025 Outlook
Lakewood, Colorado, May 8, 2025. Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its second quarter of fiscal 2025 ended March 31, 2025.
Highlights for Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024
| ● | Net sales increased 9.0% to $335.8 million; |
|---|---|
| ● | Daily average comparable store sales increased 8.9%, and accelerated to 16.4% on a two-year basis; |
| --- | --- |
| ● | Net income increased 64.6% to $13.1 million, with diluted earnings per share of $0.56; |
| --- | --- |
| ● | Adjusted EBITDA increased 33.3% to $26.3 million; and |
| --- | --- |
| ● | Opened two new stores. |
| --- | --- |
“Our second quarter results were exceptional as we delivered record sales and earnings. Daily average comparable store sales increased 8.9%, with transaction count up 5.9% and transaction size increasing 2.8%. Moreover, sales growth continued to be broad-based across product categories, geographic regions and store vintages, and was relatively consistent throughout the second quarter,” said Kemper Isely, Co-President. “We believe there is a continuing trend in consumers’ prioritization of health and wellness, including a heightened focus on food and nutrition, and that we are well positioned to capitalize on this dynamic. New customers are increasingly drawn to our relevant value offering of high-quality, natural and organic products at Always Affordable^SM^ prices. Furthermore, we are enhancing customer engagement through our effective marketing initiatives, compelling offers and {N}power® rewards program.”
Mr. Isely added, “In addition to strong sales growth yielding expense leverage, effective promotions and enhanced store productivity drove the operating margin improvement of 150 basis points and the 60% increase in diluted earnings per share. Based on the strong second quarter results, we are increasing our fiscal 2025 outlook for daily average comparable store sales growth and diluted earnings per share.”
In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) in conformity with U.S. generally accepted accounting principles (GAAP), the Company is also presenting EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The reconciliation from GAAP to these non-GAAP financial measures is provided at the end of this earnings release.
Operating Results — Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024
Net sales during the second quarter of fiscal 2025 increased $27.7 million, or 9.0%, to $335.8 million, compared to the second quarter of fiscal 2024, due to a $27.2 million increase in comparable store sales and a $3.5 million increase in new store sales, partially offset by a $2.9 million decrease in net sales related to closed stores. Daily average comparable store sales increased 8.9% in the second quarter of fiscal 2025, comprised of a 5.9% increase in daily average transaction count and a 2.8% increase in daily average transaction size.
Gross profit during the second quarter of fiscal 2025 increased $11.4 million, or 12.6%, to $101.7 million, compared to $90.4 million in the second quarter of fiscal 2024. Gross profit reflects earnings after product and store occupancy costs. Gross margin increased 100 basis points to 30.3% during the second quarter of fiscal 2025, compared to 29.3% in the second quarter of fiscal 2024. The increase in gross margin was driven by higher product margin primarily attributed to effective promotions.
Store expenses during the second quarter of fiscal 2025 increased 5.1% to $72.8 million, primarily driven by higher compensation expenses. Store expenses as a percentage of net sales were 21.7% during the second quarter of fiscal 2025, down from 22.5% in the second quarter of fiscal 2024. The decrease in store expenses as a percentage of net sales reflects expense leverage.
Administrative expenses during the second quarter of fiscal 2025 increased 15.8% to $11.0 million, driven by higher compensation expenses and technology expenses. Administrative expenses as a percentage of net sales were 3.3% in the second quarter of fiscal 2025, up from 3.1% in the second quarter of fiscal 2024.
Operating income for the second quarter of fiscal 2025 increased 55.9% to $17.6 million. Operating margin during the second quarter of fiscal 2025 was 5.2%, up from 3.7% in the second quarter of fiscal 2024.
Net income for the second quarter of fiscal 2025 was $13.1 million, or $0.56 diluted earnings per share, compared to net income of $8.0 million, or $0.35 diluted earnings per share, for the second quarter of fiscal 2024.
Adjusted EBITDA for the second quarter of fiscal 2025 was $26.3 million, compared to $19.7 million in the second quarter of fiscal 2024.
Operating Results — First Six Months Fiscal 2025 Compared to First Six Months Fiscal 2024
During the first six months of fiscal 2025, net sales increased $56.1 million, or 9.2%, to $666.0 million, compared to the first six months of fiscal 2024, due to a $53.8 million increase in comparable store sales and a $6.4 million increase in new store sales, partially offset by a $4.1 million decrease in sales related to closed stores. Daily average comparable store sales increased 8.9% in the first six months of fiscal 2025, comprised of a 5.6% increase in daily average transaction count and a 3.1% increase in daily average transaction size.
Gross profit during the first six months of fiscal 2025 increased $21.5 million, or 12.0%, to $200.6 million, compared to $179.1 million in the first six months of fiscal 2024. Gross profit reflects earnings after product and store occupancy costs. Gross margin increased to 30.1% during the first six months of fiscal 2025, compared to 29.4% in the first six months of fiscal 2024. The increase in gross margin was driven by higher product margin primarily attributed to effective promotions, and store occupancy cost leverage.
Store expenses during the first six months of fiscal 2025 increased 6.6% to $146.3 million, primarily driven by higher compensation expenses. Store expenses as a percentage of net sales were 22.0% during the first six months of fiscal 2025, down from 22.5% in the first six months of fiscal 2024. The decrease in store expenses as a percentage of net sales reflects expense leverage.
Administrative expenses during the first six months of fiscal 2025 increased 19.1% to $22.5 million, driven by higher compensation expenses and technology expenses. Administrative expenses as a percentage of net sales were 3.4% during the first six months of fiscal 2025, up from 3.1% in the first six months of fiscal 2024.
Operating income for the first six months of fiscal 2025 increased 40.1% to $30.9 million. Operating margin during the first six months of fiscal 2025 was 4.6%, compared to 3.6% in the first six months of fiscal 2024.
Net income for the first six months of fiscal 2025 was $23.0 million, or $0.99 diluted earnings per share, compared to net income of $15.7 million, or $0.68 diluted earnings per share, for the first six months of fiscal 2024.
Adjusted EBITDA for the first six months of fiscal 2025 was $49.1 million, compared to $38.5 million in the first six months of fiscal 2024.
Balance Sheet and Cash Flow
As of March 31, 2025, the Company had $21.2 million in cash and cash equivalents, and no outstanding borrowings on its $72.5 million revolving credit facility.
During the first six months of fiscal 2025, the Company generated $36.7 million in cash from operations and invested $15.9 million in net capital expenditures, primarily for new and relocated/remodeled stores.
Dividend Announcement
Today, the Company announced the declaration of a quarterly cash dividend of $0.12 per common share. The dividend will be paid on June 11, 2025 to stockholders of record at the close of business on May 27, 2025.
Growth and Development
During the second quarter of fiscal 2025, the Company opened two new stores. The Company ended the second quarter with 169 stores in 21 states.
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Fiscal 2025 Outlook
The Company is raising its fiscal 2025 outlook for daily average comparable store sales growth and diluted earnings per share, and updating its outlook for new stores. The Company expects:
| Fiscal 2025 | Prior Outlook | Updated Outlook |
|---|---|---|
| Number of new stores | 4 to 6 | 3 to 4 |
| Number of relocations/remodels | 2 to 4 | 2 to 4 |
| Daily average comparable store sales growth | 5.0% to 7.0% | 6.5% to 7.5% |
| Diluted earnings per share | $1.57 to $1.65 | $1.78 to $1.86 |
| Capital expenditures (in millions) | $36 to $44 | $36 to $44 |
Earnings Conference Call
The Company will host a conference call today at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) to discuss this earnings release. The dial-in number is 1-888-347-6606 (US) or 1-412-902-4289 (International). The conference ID is “Natural Grocers Q2 FY 2025 Earnings Call.” A simultaneous audio webcast will be available at http://Investors.NaturalGrocers.com and archived for a minimum of 20 days.
About Natural Grocers by Vitamin Cottage
Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) is an expanding specialty retailer of natural and organic groceries, body care products and dietary supplements. The grocery products sold by Natural Grocers must meet strict quality guidelines and may not contain artificial flavors, preservatives, or sweeteners (as defined in its standards), synthetic colors, or partially hydrogenated or hydrogenated oils. The Company sells only USDA certified organic produce and exclusively pasture-raised, non-confinement dairy products, and free-range eggs. Natural Grocers’ flexible smaller-store format allows it to offer affordable prices in a shopper-friendly, clean and convenient retail environment. The Company also provides extensive free science-based nutrition education programs to help customers make informed health and nutrition choices. The Company, founded in 1955, has 169 stores in 21 states.
Visit www.NaturalGrocers.com for more information and store locations.
Forward-Looking Statements
The following constitutes a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, statements in this release are "forward-looking statements" and are based on management’s current expectations and are subject to uncertainty and changes in circumstances. All statements that are not statements of historical fact are forward-looking statements. Actual results could differ materially from these expectations due to changes in global, national, regional or local political, economic, inflationary, deflationary, recessionary, business, interest rate, labor market, competitive, market, regulatory, trade policy and other factors, and other risks detailed in the Company's Annual Report on Form 10-K and the Company's subsequent quarterly reports on Form 10-Q. The information contained herein speaks only as of the date of this release and the Company undertakes no obligation to publicly update forward-looking statements, except as may be required by the securities laws.
For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Form 10-K and the Company's subsequent quarterly reports on Form 10-Q, copies of which may be obtained by contacting Investor Relations at 303-986-4600 or by visiting the Company's website at http://Investors.NaturalGrocers.com.
Investor Contact:
Reed Anderson, ICR, 646-277-1260, reed.anderson@icrinc.com
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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, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |||||||||
| Net sales | $ | 335,769 | 308,092 | 665,990 | 609,842 | |||||||
| Cost of goods sold and occupancy costs | 234,021 | 217,735 | 465,418 | 430,725 | ||||||||
| Gross profit | 101,748 | 90,357 | 200,572 | 179,117 | ||||||||
| Store expenses | 72,755 | 69,204 | 146,281 | 137,216 | ||||||||
| Administrative expenses | 11,023 | 9,522 | 22,537 | 18,929 | ||||||||
| Pre-opening expenses | 417 | 370 | 853 | 908 | ||||||||
| Operating income | 17,553 | 11,261 | 30,901 | 22,064 | ||||||||
| Interest expense, net | (750 | ) | (1,177 | ) | (1,673 | ) | (2,071 | ) | ||||
| Income before income taxes | 16,803 | 10,084 | 29,228 | 19,993 | ||||||||
| Provision for income taxes | (3,702 | ) | (2,123 | ) | (6,189 | ) | (4,277 | ) | ||||
| Net income | $ | 13,101 | 7,961 | 23,039 | 15,716 | |||||||
| Net income per share of common stock: | ||||||||||||
| Basic | $ | 0.57 | 0.35 | 1.01 | 0.69 | |||||||
| Diluted | $ | 0.56 | 0.35 | 0.99 | 0.68 | |||||||
| Weighted average number of shares of common stock outstanding: | ||||||||||||
| Basic | 22,935,698 | 22,759,131 | 22,919,457 | 22,755,307 | ||||||||
| Diluted | 23,273,700 | 23,061,119 | 23,215,633 | 23,015,842 |
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
| September 30,<br><br> <br>2024 | |||
|---|---|---|---|
| Assets | **** | **** | **** |
| Current assets: | |||
| Cash and cash equivalents | 21,209 | 8,871 | |
| Accounts receivable, net | 12,449 | 12,610 | |
| Merchandise inventory | 124,774 | 120,672 | |
| Prepaid expenses and other current assets | 4,816 | 4,905 | |
| Total current assets | 163,248 | 147,058 | |
| Property and equipment, net | 180,847 | 178,609 | |
| Other assets: | |||
| Operating lease assets, net | 266,488 | 275,111 | |
| Finance lease assets, net | 38,596 | 40,752 | |
| Other assets | 2,763 | 458 | |
| Goodwill and other intangible assets, net | 12,648 | 13,488 | |
| Total other assets | 320,495 | 329,809 | |
| Total assets | 664,590 | 655,476 | |
| Liabilities and Stockholders’ Equity | **** | **** | **** |
| Current liabilities: | |||
| Accounts payable | 91,998 | 88,397 | |
| Accrued expenses | 35,382 | 35,847 | |
| Operating lease obligations, current portion | 36,275 | 35,926 | |
| Finance lease obligations, current portion | 4,069 | 3,960 | |
| Total current liabilities | 167,724 | 164,130 | |
| Long-term liabilities: | |||
| Operating lease obligations, net of current portion | 254,064 | 263,404 | |
| Finance lease obligations, net of current portion | 41,156 | 43,217 | |
| Deferred income tax liabilities, net | 8,671 | 10,471 | |
| Total long-term liabilities | 303,891 | 317,092 | |
| Total liabilities | 471,615 | 481,222 | |
| Stockholders’ equity: | |||
| Common stock, 0.001 par value, 50,000,000 shares authorized, 22,946,126 and 22,888,540 shares issued and outstanding at March 31, 2025 and September 30, 2024, respectively | 23 | 23 | |
| Additional paid-in capital | 61,509 | 60,327 | |
| Retained earnings | 131,443 | 113,904 | |
| Total stockholders’ equity | 192,975 | 174,254 | |
| Total liabilities and stockholders’ equity | 664,590 | 655,476 |
All values are in US Dollars.
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
| 2024 | |||||
| Operating activities: | |||||
| Net income | 23,039 | 15,716 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||
| Depreciation and amortization | 15,838 | 15,153 | |||
| Loss (gain) on impairment of long-lived assets and store closing costs | 81 | (3 | ) | ||
| Loss on disposal of property and equipment | 15 | 30 | |||
| Share-based compensation | 2,257 | 838 | |||
| Deferred income tax benefit | (1,800 | ) | (1,639 | ) | |
| Non-cash interest expense | 2 | 9 | |||
| Other | 1 | — | |||
| Changes in operating assets and liabilities: | |||||
| (Increase) decrease in: | |||||
| Accounts receivable, net | (368 | ) | 1,358 | ||
| Merchandise inventory | (4,102 | ) | 1,908 | ||
| Prepaid expenses and other assets | (2,217 | ) | 423 | ||
| Income tax receivable | — | 30 | |||
| Operating lease assets | 16,787 | 16,661 | |||
| (Decrease) increase in: | |||||
| Operating lease liabilities | (16,974 | ) | (16,768 | ) | |
| Accounts payable | 4,650 | 3,883 | |||
| Accrued expenses | (465 | ) | (752 | ) | |
| Net cash provided by operating activities | 36,744 | 36,847 | |||
| Investing activities: | |||||
| Acquisition of property and equipment | (16,040 | ) | (22,183 | ) | |
| Acquisition of other intangibles | (152 | ) | (371 | ) | |
| Proceeds from sale of property and equipment | 44 | 3 | |||
| Proceeds from property insurance settlements | 268 | 41 | |||
| Net cash used in investing activities | (15,880 | ) | (22,510 | ) | |
| Financing activities: | |||||
| Borrowings under revolving loans | 314,200 | 293,800 | |||
| Repayments under revolving loans | (314,200 | ) | (282,400 | ) | |
| Repayments under term loan | — | (4,000 | ) | ||
| Finance lease obligation payments | (1,951 | ) | (1,706 | ) | |
| Dividends to shareholders | (5,500 | ) | (27,306 | ) | |
| Payments of deferred financing costs | — | (18 | ) | ||
| Payments on withholding tax for restricted stock unit vesting | (1,075 | ) | (79 | ) | |
| Net cash used in financing activities | (8,526 | ) | (21,709 | ) | |
| Net increase (decrease) in cash and cash equivalents | 12,338 | (7,372 | ) | ||
| Cash and cash equivalents, beginning of period | 8,871 | 18,342 | |||
| Cash and cash equivalents, end of period | 21,209 | 10,970 | |||
| Supplemental disclosures of cash flow information: | |||||
| Cash paid for interest | 721 | 989 | |||
| Cash paid for interest on finance lease obligations, net of capitalized interest of 108 and 199, respectively | 964 | 961 | |||
| Income taxes paid | 7,328 | 6,466 | |||
| Supplemental disclosures of non-cash investing and financing activities: | |||||
| Acquisition of property and equipment not yet paid | 2,653 | 5,353 | |||
| Acquisition of other intangibles not yet paid | — | 283 | |||
| Lease assets obtained in exchange for new operating lease obligations | 8,282 | 9,432 | |||
| Lease assets obtained in exchange for new finance lease obligations | — | (45 | ) |
All values are in US Dollars.
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| NATURAL GROCERS BY VITAMIN COTTAGE, INC. |
|---|
| Non-GAAP Financial Measures |
| (Unaudited) |
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA as adjusted to exclude the effects of certain income and expense items that management believes make it more difficult to assess the Company’s actual operating performance, including certain items such as impairment charges, store closing costs, share-based compensation, amortization of software hosting arrangement (SaaS) implementation costs and non-recurring items.
The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands:
| Three months ended March 31, | Six months ended March 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |||||
| Net income | $ | 13,101 | 7,961 | 23,039 | 15,716 | |||
| Interest expense, net | 750 | 1,177 | 1,673 | 2,071 | ||||
| Provision for income taxes | 3,702 | 2,123 | 6,189 | 4,277 | ||||
| Depreciation and amortization | 7,888 | 7,702 | 15,838 | 15,153 | ||||
| EBITDA | 25,441 | 18,963 | 46,739 | 37,217 | ||||
| Impairment of long-lived assets and store closing costs | 31 | 335 | 118 | 424 | ||||
| Share-based compensation | 822 | 432 | 2,257 | 838 | ||||
| Amortization of SaaS implementation costs | 1 | — | 1 | — | ||||
| Adjusted EBITDA | $ | 26,295 | 19,730 | 49,115 | 38,479 |
EBITDA increased 34.2% to $25.4 million for the three months ended March 31, 2025 compared to $19.0 million for the three months ended March 31, 2024. EBITDA increased 25.6% to $46.7 million for the six months ended March 31, 2025 compared to $37.2 million for the six months ended March 31, 2024. EBITDA as a percentage of net sales was 7.6% and 6.2% for the three months ended March 31, 2025 and 2024, respectively. EBITDA as a percentage of net sales was 7.0% and 6.1% for the six months ended March 31, 2025 and 2024, respectively.
Adjusted EBITDA increased 33.3% to $26.3 million for the three months ended March 31, 2025 compared to $19.7 million for the three months ended March 31, 2024. Adjusted EBITDA increased 27.6% to $49.1 million for the six months ended March 31, 2025 compared to $38.5 million for the six months ended March 31, 2024. Adjusted EBITDA as a percentage of net sales was 7.8% and 6.4% for the three months ended March 31, 2025 and 2024, respectively. Adjusted EBITDA as a percentage of net sales was 7.4% and 6.3% for the six months ended March 31, 2025 and 2024, respectively.
Management believes some investors’ understanding of our performance is enhanced by including EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe EBITDA and Adjusted EBITDA provide additional information about: (i) our operating performance, because they assist us in comparing the operating performance of our stores on a consistent basis, as they remove 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 and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry. Management believes that some investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. By providing these non-GAAP financial measures, together with a reconciliation from net income, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
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Our competitors may define EBITDA and Adjusted EBITDA differently, and as a result, our measures of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA of other companies. Items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance. EBITDA and Adjusted EBITDA are supplemental measures of operating performance that do 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 and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:
| ● | EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; |
|---|---|
| ● | EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
| --- | --- |
| ● | EBITDA and Adjusted EBITDA do not reflect any depreciation or interest expense for leases classified as finance leases; |
| --- | --- |
| ● | EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt; |
| --- | --- |
| ● | Adjusted EBITDA does not reflect share-based compensation, impairment of long-lived assets, store closing costs and amortization of SaaS implementation costs; |
| --- | --- |
| ● | EBITDA and Adjusted EBITDA do 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 and Adjusted EBITDA do not reflect any cash requirements for such replacements. |
| --- | --- |
Due to these limitations, EBITDA and Adjusted EBITDA should not be considered as measures 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 and Adjusted EBITDA as supplemental information.
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