Item 7. 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 consolidated financial statements and notes thereto which are included elsewhere in this Form 10-K. This MD&A contains forward-looking statements. Refer to “Forward-Looking Statements” at the beginning of this Form 10-K 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, dietary supplements and body care products 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 September 30, 2025, we operated 169 stores in 21 states, including Colorado, Arizona, Arkansas, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, 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 sizes of our stores range from approximately 7,000 to 17,000 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, 2025, we increased our store count at a compound annual growth rate of 1.2%. In fiscal year 2025, we opened two new stores, relocated/remodeled three existing stores and closed two stores. We plan to open six to eight new stores and relocate/remodel two to three existing stores in fiscal year 2026. We intend to continue to target an annual new store unit growth rate of 4% to 5% for the foreseeable future. Between October 1, 2025 and the date of this Form 10-K, we did not open any new stores or relocate/remodel any existing stores and closed one store.
Performance Highlights
Key highlights of our performance are discussed briefly below and in further detail throughout this MD&A. Key financial metrics, including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A.
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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:
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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 transaction size, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education, a convenient, clean and shopper-friendly retail environment, and our focus on high quality, affordable natural and organic groceries, dietary supplements and body care products.
We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including construction permitting and the availability of construction materials, equipment and labor. 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 industries and regional and general economic conditions, including inflationary or recessionary trends. We believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products. However, due to the fixed nature of certain of our costs (in particular, our rent obligations and related occupancy costs), our ability to leverage costs may be limited.
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 this Form 10-K.
Key Financial Metrics in Our Business
In assessing our performance, we consider a variety of performance and financial measures. The key measures are as follows:
Net sales
Our net sales are comprised of gross sales net of discounts, in-house coupons, returns, and allowances. In comparing net sales between periods, we monitor the following:
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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, third-party delivery fees 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-K 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 net sales typically decrease as new stores mature and sales increase. Lease payments for leases classified as finance lease obligations are not recorded in cost of goods sold and occupancy costs. Rather, these lease payments are recognized as a reduction of the related obligations and as interest expense.
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 land improvements, leasehold improvements, fixtures and equipment and technology. Depreciation expenses on the lease assets related to the finance leases of the stores are also considered store expenses. Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets and lease terminations, primarily related to store relocations, as well as store closing costs. Store expenses also include long-lived asset impairment charges. 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 net 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 net 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), software services expenses, professional services expenses, expenses associated with our Board, expenses related to compliance with the requirements of regulations applicable to publicly traded companies, and other general and administrative expenses. Depreciation expense included in administrative expenses relates to depreciation for assets directly used at the home office including depreciation on land improvements, leasehold improvements, fixtures and equipment, and computer hardware and software.
Pre-opening expenses
Pre-opening expenses for new stores and relocations/remodels may include rent expense, salaries, advertising, supplies, and other miscellaneous costs incurred prior to the store opening. Rent expense is generally incurred from three to six months prior to a store’s opening date for store leases classified as operating. For store leases classified as finance leases, we recognize pre-opening depreciation expense. Other pre-opening expenses are generally incurred in the four to seven months 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 costs are expensed as incurred. Pre-opening expenses for remodels are incurred if the store is required to be closed due to the remodel.
Interest expense, net
Interest expense consists of the interest associated with finance lease obligations and our Credit Facility, net of capitalized interest.
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Income tax expense
Income taxes are accounted for in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 “Income Taxes”. 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 bases. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the fiscal 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. Income tax expense also includes excess tax benefits and deficiencies related to the vesting of restricted stock units.
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:
Year ended September 30,
Statements of Income Data: *
Cost of goods sold and occupancy costs 70.1 70.6 71.3
Administrative expenses 3.3 3.1 3.2
Pre-opening expenses 0.1 0.1 0.2
Interest expense, net (0.2 ) (0.3 ) (0.3 )
Income before income taxes 4.4 3.4 2.5
Provision for income taxes (0.9 ) (0.7 ) (0.4 )
__________________________
* Figures may not sum due to rounding.
Other Operating Data (Unaudited):
Store unit count increase period over period — % 2.4 0.6
Change in daily average comparable store sales 7.3 % 7.0 3.6
Number of new stores opened during the period 2 4 3
Number of stores relocated/remodeled during the period 3 4 3
Number of stores closed during the period 2 — 2
(1) Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open as of the end of the fiscal year presented.
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Year ended September 30, 2025 compared to Year ended September 30, 2024
The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands:
Year ended September 30, Change in
Statements of Income Data:
Net sales
Net sales increased $89.3 million, or 7.2%, to $1,330.8 million for the year ended September 30, 2025 compared to $1,241.6 million for the year ended September 30, 2024, due to an $86.1 million increase in comparable store sales and a $12.7 million increase in new store sales, partially offset by a $9.6 million decrease in net sales related to closed stores. Daily average comparable store sales increased 7.3% for the year ended September 30, 2025 compared to an increase of 7.0% for the year ended September 30, 2024. The daily average comparable store sales increase in fiscal year 2025 resulted from a 4.6% increase in daily average transaction count and a 2.6% increase in daily average transaction size. Comparable store average transaction size was $48.62 for the year ended September 30, 2025.
Gross profit
Gross profit increased $33.1 million, or 9.1%, to $397.9 million for the year ended September 30, 2025 compared to $364.8 million for the year ended September 30, 2024. Gross profit reflects earnings after product and store occupancy costs. Gross margin increased to 29.9% for the year ended September 30, 2025 compared to 29.4% for the year ended September 30, 2024. The increase in gross margin during the year ended September 30, 2025 was driven by higher product margin primarily attributed to effective promotions, and store occupancy cost leverage.
Store expenses
Store expenses increased $13.1 million, or 4.7%, to $290.5 million for the year ended September 30, 2025 compared to $277.4 million for the year ended September 30, 2024. The increase in store expenses was primarily driven by higher compensation expenses partially offset by lower long-lived asset impairment charges. Store expenses as a percentage of net sales were 21.8% and 22.3% for the years ended September 30, 2025 and 2024, respectively. The decrease in store expenses as a percentage of net sales was driven by expense leverage and lower long-lived asset impairment charges. Store expenses included long-lived asset impairment charges of $0.1 million and $2.2 million for fiscal years 2025 and 2024, respectively.
Administrative expenses
Administrative expenses increased $5.6 million, or 14.6%, to $44.4 million for the year ended September 30, 2025 compared to $38.7 million for the year ended September 30, 2024. The increase in administrative expenses was driven by higher compensation expenses, including costs related to our Chief Financial Officer transition, and technology expenses. Administrative expenses as a percentage of net sales were 3.3% and 3.1% for the years ended September 30, 2025 and 2024, respectively.
Pre-opening expenses
Pre-opening expenses were $1.0 million for the year ended September 30, 2025 compared to $1.7 million for the year ended September 30, 2024.
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Interest expense, net
Interest expense, net of capitalized interest, was $3.1 million for the year ended September 30, 2025 compared to $4.2 million for the year ended September 30, 2024.
Income taxes
Income tax expense increased $3.6 million to $12.5 million for the year ended September 30, 2025 compared to $8.9 million for the year ended September 30, 2024. The Company’s effective income tax rate was 21.2% and 20.7% for the years ended September 30, 2025 and 2024, respectively.
Net income
Net income was $46.4 million, or $2.00 diluted earnings per share, for the year ended September 30, 2025 compared to $33.9 million, or $1.47 diluted earnings per share, for the year ended September 30, 2024.
Year ended September 30, 2024 compared to Year ended September 30, 2023
A comparative discussion of our results of operations and other operating data for the years ended September 30, 2024 and September 30, 2023 is set out in our Annual Report on Form 10-K for the year ended September 30, 2024 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Year ended September 30, 2024 compared to Year ended September 30, 2023.”
Non-GAAP financial measures
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:
Year ended September 30,
Impairment of long-lived assets and store closing costs 118 2,547
Amortization of SaaS implementation costs 7 —
Year ended September 30, 2025 compared to Year ended September 30, 2024
EBITDA increased 20.4% to $93.8 million for the year ended September 30, 2025 compared to $77.9 million for the year ended September 30, 2024. EBITDA as a percentage of net sales was 7.0% and 6.3% for the years ended September 30, 2025 and 2024, respectively.
Adjusted EBITDA increased 17.5% to $97.9 million for the year ended September 30, 2025 compared to $83.3 million for the year ended September 30, 2024. Adjusted EBITDA as a percentage of net sales was 7.4% and 6.7% for the years ended September 30, 2025 and 2024, respectively.
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Year ended September 30, 2024 compared to Year ended September 30, 2023
A comparative discussion of EBITDA and Adjusted EBITDA for the years ended September 30, 2024 and September 30, 2023 is set out in our Annual Report on Form 10-K for the year ended September 30, 2024 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP financial measures – EBITDA and Adjusted EBITDA.”
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.
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:
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.
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 our Credit Facility. Our primary uses of cash are for purchases of merchandise inventory, operating expenses, SaaS implementation costs, capital expenditures predominantly in connection with opening, relocating and remodeling stores, property acquisitions, debt service, cash dividends, share repurchases and corporate taxes. As of September 30, 2025, we had $17.1 million in cash and cash equivalents and $70.1 million available for borrowing under our Credit Facility.
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In May 2016, our 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. Our Board subsequently extended the share repurchase program – most recently in May 2024 – and the current program will terminate on May 31, 2026. We did not repurchase any shares of our common stock during the year ended September 30, 2025. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.1 million. Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Credit Facility. The timing and the number of shares repurchased, if any, will be dictated by our capital needs and stock market conditions.
We paid a quarterly cash dividend of $0.12 per share of common stock in each quarter of fiscal year 2025. On November 19, 2025, our Board approved the payment of a quarterly cash dividend of $0.15 per share of common stock, which was paid on December 10, 2025 to stockholders of record as of the close of business on December 1, 2025.
We plan to continue to open new stores and relocate/remodel existing stores in the future, which may require us to borrow additional amounts under the Credit Facility from time to time. 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, repayment of debt, stock repurchases and dividends for the next 12 months and the foreseeable future. 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.
The following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands:
Year ended September 30,
Net cash provided by operating activities $ 55,304 73,760
Net cash used in investing activities (30,971 ) (38,600 )
Net cash used in financing activities (16,088 ) (44,631 )
Net increase (decrease) in cash and cash equivalents 8,245 (9,471 )
Cash and cash equivalents, beginning of year 8,871 18,342
Cash and cash equivalents, end of year $ 17,116 8,871
Year ended September 30, 2025 compared to Year ended September 30, 2024
Operating Activities
Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, impairment of long-lived assets and store closures, share-based compensation and changes in deferred taxes, and the effect of changes in operating assets and liabilities. Cash provided by operating activities decreased $18.5 million, or 25.0%, to $55.3 million for the year ended September 30, 2025 compared to $73.8 million for the year ended September 30, 2024. The decrease in cash provided by operating activities was due to a decrease in cash provided by operating assets and liabilities, primarily attributable to the timing of accounts payable payments and merchandise inventory purchases, and higher capitalized SaaS implementation costs, partially offset by an increase in cash provided by net income as adjusted for non-cash items.
Investing Activities
Net cash used in investing activities decreased $7.6 million, or 19.8%, to $31.0 million for the year ended September 30, 2025 compared to $38.6 million for the year ended September 30, 2024. This decrease was primarily the result of decreases in acquisitions of property and equipment of $6.3 million and other intangibles of $1.0 million during the year ended September 30, 2025 compared to the year ended September 30, 2024, and was attributed to the timing of new store openings, relocations/remodels, and software projects under development.
We plan to spend approximately $50.0 million to $55.0 million on capital expenditures during fiscal year 2026 primarily in connection with expected new store openings and store relocations/remodels.
Acquisition of property and equipment not yet paid decreased $1.3 million to $2.4 million in fiscal year 2025 compared to $3.7 million in fiscal year 2024 primarily due to the timing of payments related to new store openings and relocations/remodels.
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Financing Activities
Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders. Net cash used in financing activities was $16.1 million for the year ended September 30, 2025 compared to $44.6 million for the year ended September 30, 2024. During fiscal year 2024, we paid a special cash dividend to stockholders of $22.7 million.
Year ended September 30, 2024 compared to Year ended September 30, 2023
A comparative discussion of operating, investing and financing activities for the years ended September 30, 2024 and September 30, 2023 is set out in our Annual Report on Form 10-K for the year ended September 30, 2024 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Credit Facility
The aggregate revolving commitment amount under the Credit Facility, as of the date of this report, is $70.0 million, including a $5.0 million sub-limit for standby letters of credit. Our wholly owned subsidiary, Vitamin Cottage Natural Food Markets, Inc. (the operating company), is the borrower under the Credit Facility, and its obligations under the Credit Facility are guaranteed by us, the holding company. 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 revolving amounts under the Credit Facility at any time prior to the maturity date without premium or penalty. On November 16, 2023, we amended the Credit Facility to: (i) increase our aggregate revolving commitments from $50.0 million to $75.0 million; (ii) extend the maturity date of the revolving commitments under the Credit Facility to November 16, 2028; (iii) permit payment of a one-time cash dividend of up to $25.0 million no later than December 31, 2023; and (iv) increase the Company’s restricted payment capacity by $2.5 million, allowing the Company to repurchase shares of common stock and pay dividends on its common stock in an aggregate amount not to exceed $15.0 million during any fiscal year. The aggregate revolving commitment amount will be automatically and permanently reduced by $2.5 million on each anniversary date until the Credit Facility matures on November 16, 2028, unless we have previously exercised our option to reduce the aggregate revolving commitments to a lower amount.
Base rate loans under the Credit Facility bear interest at a fluctuating base rate as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of: (i) the federal funds rate plus 0.50%; (ii) the prime rate; and (iii) Term SOFR plus 1.00%, subject to the applicable interest rate floor, less the lender spread based upon the Company’s consolidated leverage ratio. Term SOFR loans under the Credit Facility bear interest based on Term SOFR for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is also based upon the Company’s consolidated leverage ratio.
The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated 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 required lenders’ consent, provided 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 in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on our common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
We had no revolving loan amounts outstanding under the Credit Facility as of September 30, 2025 and 2024. As of September 30, 2025 and 2024, we had undrawn, issued and outstanding letters of credit of $2.4 million and $2.2 million, respectively, which were reserved against the amount available for borrowing under the Credit Facility. We had $70.1 million and $72.8 million available for borrowing under the Credit Facility as of September 30, 2025 and 2024, respectively.
As of September 30, 2025 and 2024, the Company was in compliance with all 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 14, Stockholders’ Equity, of the Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
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Recent Accounting Pronouncements
For a description of new applicable accounting pronouncements, including those recently adopted, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
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.
We have chosen accounting policies we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Refer to our consolidated financial statements and related notes for a summary of our significant accounting policies. We believe the following accounting policies are the most critical in the preparation of our consolidated financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.
Income Taxes
We account for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. We consider the need to establish valuation allowances to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained by the relevant taxing authority. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the IRS and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.
To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require the use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.
Goodwill and Indefinite-Lived Intangible Assets
We assess our goodwill and indefinite-lived intangible assets, primarily consisting of trademarks, for possible impairment on an annual basis during our fourth fiscal quarter, and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In performing the Company’s analysis of goodwill, the Company first evaluates qualitative factors, including relevant events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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. There are significant judgments and estimates within the processes; it is therefore possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change.The Company has determined that its business, for purposes of impairment evaluation for goodwill and indefinite-lived intangible assets, consists of a single reporting unit. As of September 30, 2025, the Company has recorded no impairment charges related to goodwill and indefinite-lived intangible assets.
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Impairment of Long-Lived Assets and Store Closing Costs
We assess our long-lived assets, principally property and equipment, lease assets, and intangible and other assets subject to amortization, primarily internal-use software and implementation costs for software hosting arrangements, respectively, for possible impairment at least annually, and whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. These events or changes primarily include a significant change in current period performance combined with a history of losses and a projection of continuing losses, or a decision to close or relocate a store. The Company assesses the recoverability of the property and equipment and lease assets at the individual store level, and the intangible and other assets at the consolidated entity level. If the carrying value of such assets over their respective remaining lives is not recoverable through projected undiscounted future cash flows, impairment is recognized for any excess of the carrying value over the estimated fair value of the asset group. The fair value of the asset group is estimated based on either: (i) discounted future cash flows; (ii) an appropriate third-party market appraisal; or (iii) other valuation technique.
Our judgment regarding events or changes in circumstances that indicate the asset’s carrying value may not be recoverable is based on several factors such as historical and forecasted operating results, significant industry trends and other economic factors. Further, determining whether an impairment exists requires that we use estimates and assumptions in calculating the future undiscounted cash flows expected to be generated by the assets. These estimates and assumptions look several years into the future and include assumptions on future store revenue growth, potential impact of operational changes, competitive factors, inflation and the economy. Application of alternative assumptions could produce materially different results.
If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life, its estimated cash flows and remaining useful life are revised accordingly, and the Company may be required to record an asset impairment write-down. Additionally, related liabilities arise, such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
Leases
We lease retail stores, a bulk food repackaging facility and distribution center, land and administrative offices under long-term operating leases or finance leases. Accounting for leased properties requires compliance with technical accounting rules and significant judgment by management. Application of these accounting rules and assumptions made by management will determine whether the lease is accounted for as an operating or finance lease.
The Company recognizes a lease asset and corresponding lease liability for all leases with terms greater than 12 months, with the recognition, measurement, and presentation of lease expenses dependent on whether the lease is classified as an operating or finance lease. Lease liabilities represent the present value of lease payments not yet paid. Lease assets represent the Company’s right to use an underlying asset and are based upon the lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of lease assets.
Most leases include one or more options to renew, with renewal terms normally expressed in periods of five-year increments. The exercise of lease renewal options is at the Company’s sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option.
Since the rate implicit in the Company’s lease agreements is typically not determinable, the Company uses an estimated incremental borrowing rate, which is derived from third-party lenders, to determine the present value of lease payments. We use other observable market data to evaluate the appropriateness of the rate derived from the lenders. The estimated incremental borrowing rate is based on the borrowing rate for a secured loan with a term similar to the expected term of the lease.
Significant accounting judgment and assumptions are required in determining the accounting for leases, including:
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to interest rate changes of our long-term debt. We do not use financial instruments for trading or other speculative purposes.
Interest Rate Risk
Our principal exposure to market risk relates to changes in interest rates with respect to our Credit Facility. As of September 30, 2025, no amounts were outstanding under our Credit Facility. Our Credit Facility carries floating interest rates that are tied to the Term SOFR rate, and therefore, our statements of income and our cash flows are exposed to changes in interest rates. Based upon a sensitivity analysis at September 30, 2025, a hypothetical 100 basis point change in interest rates would change our annual interest expense by $0.2 million for the year ended September 30, 2025.
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Item 8. Financial Statements and Supplementary Data.
Natural Grocers by Vitamin Cottage, Inc.
Index to Consolidated Financial Statements
Page Number
Reports of Independent Registered Public Accounting Firm 56
Consolidated Balance Sheets as of September 30, 2025 and 2024 59
Notes to Consolidated Financial Statements 63
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Natural Grocers by Vitamin Cottage, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Natural Grocers by Vitamin Cottage, Inc. and subsidiaries (the Company) as of September 30, 2025 and 2024, the related consolidated statements of income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended September 30, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 11, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Assessment of indicators of impairment of long-lived assets
As discussed in Notes 2 and 7 to the consolidated financial statements, the Company assesses its long-lived assets for possible impairment at least annually, and whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based, in part, on operational performance at the store level. As of September 30, 2025, the Company’s long-lived assets included property and equipment, net, operating lease assets, net, and finance lease assets, net of $182.7 million, $259.6 million, and $42.9 million, respectively.
We identified the assessment of impairment triggering events related to certain long-lived assets, including property and equipment, operating lease assets, and finance lease assets, as a critical audit matter. A high degree of auditor judgment was required to evaluate the Company’s assessment of whether there were indicators of impairment, including significant changes in current performance combined with a history of losses and a projection of continuing losses, or a decision to close or relocate a store.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s long-lived asset impairment process, including a control related to the Company’s assessment of impairment triggering events. We assessed the Company’s identification and evaluation of potential impairment triggering events by:
• inspecting operating results and cash flows by store to identify stores with current period losses
• comparing actual operating and cash flow results to expected results, industry and economic trends, and to the net book value of store assets for a selection of stores
• evaluating management’s ability to effectively forecast sales and cash flow by comparing actual results to management’s historical forecasts for a selection of stores
• reading board of directors meeting minutes and available industry information
• inquiring with management regarding the intent to continue to operate stores in a manner that is consistent with projections.
/s/ KPMG LLP
We have served as the Company’s auditor since 2010.
Denver, Colorado
December 11, 2025
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Natural Grocers by Vitamin Cottage, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Natural Grocers by Vitamin Cottage, Inc. and subsidiaries' (the Company) internal control over financial reporting as of September 30, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2025 and 2024, the related consolidated statements of income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended September 30, 2025, and the related notes (collectively, the consolidated financial statements), and our report dated December 11, 2025 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Denver, Colorado
December 11, 2025
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
September 30,
Assets
Current assets:
Prepaid expenses and other current assets 6,025 4,905
Other assets:
Goodwill and other intangible assets, net 11,755 13,488
Liabilities and Stockholders’ Equity
Current liabilities:
Operating lease obligations, current portion 36,495 35,926
Finance lease obligations, current portion 4,061 3,960
Long-term liabilities:
Operating lease obligations, net of current portion 245,803 263,404
Finance lease obligations, net of current portion 45,660 43,217
Deferred income tax liabilities, net 7,863 10,471
Commitments (Notes 12 and 19)
Stockholders’ equity:
See accompanying notes to consolidated financial statements.
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Year ended September 30,
Net income per share of common stock:
Weighted average number of shares of common stock outstanding:
See accompanying notes to consolidated financial statements.
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended September 30,
Operating activities:
Loss on impairment of long-lived assets and store closing costs 81 2,102 1,268
(Gain) loss on disposal of property and equipment (34 ) 10 379
Non-cash interest expense 4 17 19
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets (5,516 ) (1,069 ) (128 )
(Decrease) increase in:
Investing activities:
Acquisition of other intangibles (178 ) (1,139 ) (1,525 )
Proceeds from sale of property and equipment 93 37 107
Proceeds from property insurance settlements 315 43 36
Financing activities:
Repayments under term loan — (7,688 ) (8,000 )
Repurchase of common stock — — (181 )
Payments of deferred financing costs — (18 ) —
Net increase (decrease) in cash and cash equivalents 8,245 (9,471 ) 6,303
Supplemental disclosures of cash flow information:
Supplemental disclosures of non-cash investing and financing activities:
Acquisition of property and equipment not yet paid $ 2,373 3,679 6,016
Acquisition of other intangibles not yet paid 10 22 3
See accompanying notes to consolidated financial statements.
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NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended September 30, 2025, 2024 and 2023
(Dollars in thousands, except per share data)
Common stock –$0.001 par Additional Total
value paid-in Retained Treasury stockholders’
Shares outstanding Amount capital earnings stock equity
Issuance of common stock 66,725 — — — — —
Repurchase of common stock (17,998 ) — — — (181 ) (181 )
Issuance of common stock 149,625 — — — — —
Adoption of accounting standard — — — (36 ) — (36 )
Share-based compensation — — 2,706 — — 2,706
Issuance of common stock 66,172 — — — — —
See accompanying notes to consolidated financial statements.
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NATURAL GROCERS BY VITAMIN COTTAGE,INC.
Notes to Consolidated Financial Statements
September 30, 2025 and 2024
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, dietary supplements and body care products. The Company operated 169 retail stores as of September 30, 2025, including 45 stores in Colorado, 25 in Texas, 14 in Oregon, 11 in Arizona, eight in each of Kansas and Utah, seven in Missouri, six in each of Idaho, Iowa, New Mexico and Oklahoma, five in Washington, four in each of Montana and Nevada, three in each of Arkansas, Nebraska and North Dakota, two in Wyoming, and one in each of Louisiana, Minnesota, and South Dakota. The Company also has a bulk food repackaging facility and distribution center in Golden, Colorado. The Company had 169 stores as of September 30, 2024.
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying 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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the 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 valuation of inventories, useful lives of long-lived assets for depreciation and amortization, impairment of goodwill, indefinite-lived intangible assets, and long-lived assets, lease assumptions, allowances for self-insurance reserves, deferred tax assets and liabilities, 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.
Segment Information
The Company has a single reportable segment: natural and organic retail stores.
Other Comprehensive Income
The Company has no other comprehensive income.
Cash and Cash Equivalents
Cash and cash equivalents include currency on hand, demand deposits with banks, money market funds, and credit and debit card transactions that typically settle within three business days. The Company considers all highly liquid investments with a remaining maturity of 90 days or less when acquired to be cash equivalents.
Accounts Receivable, Net
Accounts receivable consists primarily of receivables from vendors for certain promotional programs, magazine advertising and other miscellaneous receivables and are presented net of any allowances for credit losses. Accounts receivable also includes receivables from landlords for tenant improvement allowances. Vendor receivable balances are generally presented on a gross basis separate from any related payable due. Allowance for credit losses is calculated based on historical experience, current conditions, and reasonable and supportable forecasts about the future. Allowance for credit losses totaled $0.4 million and $0.2 million as of September 30, 2025 and 2024, respectively.
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of investments in cash and cash equivalents. The Company’s cash and cash equivalent account balances, which are held in major financial institutions, exceeded the Federal Deposit Insurance Corporation’s federally insured limits by approximately $16.1 million as of September 30, 2025.
Vendor Concentration
For the years ended September 30, 2025 and 2024, purchases from the Company’s largest vendor and its subsidiaries represented approximately 69% and 68%, respectively, of all product purchases made during such periods.
Merchandise Inventory
Merchandise inventory consists of goods held for sale. The cost of inventory includes certain costs associated with the preparation of inventory for sale, including inventory overhead costs. Merchandise inventory is carried at the lower of cost or net realizable value. Cost is determined using the weighted average cost method.
Property and Equipment, Net
Depreciable property and equipment assets, which primarily consist of leasehold and building improvements, fixtures and equipment, and buildings, are stated at historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the useful life of the relevant asset. For land improvements and leasehold and building improvements, depreciation is recorded over the shorter of the assets’ useful lives or related lease terms. Maintenance and repairs that neither add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains and losses on disposition of property and equipment are included in store expenses in the year of disposition and primarily relate to store relocations and closures.
The Company capitalizes certain costs, including internal staff compensation and interest, if applicable, as part of the historical costs of buildings and leasehold and building improvements.
Definite-Lived Intangibles and Other Assets
Intangible assets with finite lives, principally internal-use software, are amortized on a straight-line basis over their estimated useful lives. The Company evaluates the reasonableness of the useful lives of these intangibles at least annually. Other assets subject to amortization, primarily SaaS implementation costs, are amortized on a straight-line basis over the expected remaining term of the related software hosting arrangement. The Company capitalizes certain costs, including internal staff compensation and interest, if applicable, incurred with implementing, developing and/or obtaining internal-use software and SaaS implementation costs. Any costs that do not meet capitalization criteria are expensed as incurred.
Impairment of Long-Lived Assets
The Company assesses its long-lived assets, principally property and equipment, lease assets, and intangible and other assets subject to amortization, for possible impairment at least annually, and whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. These events or changes primarily include a significant change in current period performance combined with a history of losses and a projection of continuing losses, or a decision to close or relocate a store. The Company assesses the recoverability of the property and equipment and lease assets at the individual store level, and the intangible and other assets at the consolidated entity level. If the carrying value of such assets over their respective remaining lives is not recoverable through projected undiscounted future cash flows, impairment is recognized for any excess of the carrying value over the estimated fair value of the asset group. The fair value of the asset group is estimated based on either: (i) discounted future cash flows; (ii) an appropriate third-party market appraisal; or (iii) other valuation technique. In performing these analyses, the Company considers factors such as historic and forecasted operating results, trends and future prospects, current market values, significant industry trends, and other economic and regulatory factors. For the years ended September 30, 2025, 2024 and 2023, the Company recorded impairment charges related to long-lived assets of $0.1 million, $2.2 million and $1.3 million, respectively.
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Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangibles, primarily consisting of trademarks, are not amortized; rather, they are tested for impairment on an annual basis during the fourth fiscal quarter, and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In performing the Company’s analysis of goodwill, the Company first evaluates qualitative factors, including relevant events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized. The Company has determined that its business, for purposes of impairment evaluation for goodwill and indefinite-lived intangible assets, consists of a single reporting unit. As of September 30, 2025, the Company has recorded no impairment charges related to goodwill or indefinite-lived intangibles.
Deferred Financing Costs
Certain costs incurred with borrowings or establishment of credit facilities are deferred. These costs are amortized over the life of the credit facility using the straight-line method.
Leases
The Company leases retail stores, a bulk food repackaging facility and distribution center, and administrative offices under long-term operating or finance leases. These leases include scheduled increases in minimum rents and renewal provisions at the option of the Company. The lease term for accounting purposes commences with the date the Company takes possession of the space and ends on the later of the primary lease term or the expiration of any renewal periods that are deemed to be reasonably certain. The Company recognizes a lease asset and corresponding lease liability for all leases with terms greater than 12 months, with the recognition, measurement, and presentation of lease expenses dependent on whether the lease is classified as an operating or finance lease.
Operating Leases
Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. The rent payment pursuant to the lease agreement is recorded as a reduction of the operating lease liability and lease asset and as single lease expense over the remaining term of the applicable lease.
Finance Leases
Finance lease liabilities represent the present value of lease payments not yet paid. Finance lease assets represent the Company’s right to use an underlying asset and are based upon the lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of finance lease assets. The Company does not record single lease expense for the rental payments under finance leases, but rather payments under the finance lease obligations are recognized as a reduction of the finance lease obligation and as interest expense over the remaining term of the lease. The lease asset is depreciated on a straight-line basis over the remaining term of the applicable lease.
Self-Insurance
The Company is self-insured for certain losses, liabilities and employee benefit costs. Stop-loss coverages or deductibles mitigate the Company’s exposure to any significant level of claims. Self-insured losses are accrued based upon the Company’s estimates of the aggregate claims incurred but not reported using analyses of actual claims, historical claims experience, demographic factors and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from the Company’s assumptions.
Revenue Recognition
Revenue is recognized at the point of sale, net of in-house coupons, discounts and returns. Sales taxes are not included in sales. The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. The Company records a contract liability within accrued expenses when it sells the Company’s gift cards and records a sale when a customer redeems the gift card.
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Cost of Goods Sold and Occupancy Costs
Cost of goods sold and occupancy costs includes the cost of inventory sold during the period net of discounts and allowances, as well as distribution, shipping and handling costs, store occupancy costs and costs of the bulk food repackaging facility and distribution center. The amount shown is net of various rebates from third-party vendors in the form of quantity discounts and payments. Vendor consideration associated with product discounts is recorded as a reduction in the cost of the product. Store occupancy costs include operating lease expense, common area maintenance and real estate taxes. Store occupancy costs do not include any lease expense amounts for the store leases classified as finance leases.
Store Expenses
Store expenses consist of store-level expenses such as salaries, benefits and share-based compensation, supplies, utilities, depreciation (including depreciation for lease assets related to finance leases), gain or loss on disposal of assets, long-lived asset impairment charges, store closing costs, and other related expenses associated with operations support. Store expenses also include purchasing support services and advertising and marketing costs.
Administrative Expenses
Administrative expenses consist of salaries, benefits and share-based compensation, rent and other occupancy costs, depreciation, office supplies, hardware and software expenses, software services expenses, professional services expenses, and other general and administrative expenses.
Pre-Opening Expenses
Costs associated with the opening of new stores or relocating/remodeling existing stores are expensed as incurred.
Advertising and Marketing
Advertising and marketing costs are expensed as incurred and are included in store expenses and pre-opening expenses in the consolidated statements of income. Total advertising and marketing expenses for the years ended September 30, 2025, 2024 and 2023 were $7.0 million, $7.9 million and $6.9 million, respectively, net of vendor reimbursements of $9.3 million, $7.9 million and $7.1 million for the years ended September 30, 2025, 2024 and 2023, respectively.
Share-Based Compensation
The Company adopted the 2012 Omnibus Incentive Plan in connection with its initial public offering on July 25, 2012. Restricted stock units are granted at the market price of the Company’s common stock on the date of grant and expensed over the applicable vesting period.
The excess tax benefits for recognized compensation costs are reported as a credit to income tax expense and as operating cash flows when such excess tax benefits are realized by a reduction to current taxes payable.
Income Taxes
The Company accounts for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates.
The Company considers the need to establish valuation allowances to reduce deferred income tax assets to the amounts the Company believes are more likely than not to be recovered.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. In addition, the Company is subject to periodic audits and examinations by the Internal Revenue Service (IRS) and other state and local taxing authorities.
Any interest or penalties incurred related to income taxes are expensed as incurred and treated as permanent differences for tax purposes.
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On July 4, 2025, the U.S. federal government enacted tax legislation commonly referred to as OBBBA. The OBBBA, among other things, makes permanent 100% bonus depreciation for certain capital expenditures and immediate deduction for domestic research or experimental expenditures (R&D deduction). This legislation was effective for the Company’s consolidated financial statements for the year ended September 30, 2025, except for the R&D deduction which will be effective for the Company’s fiscal year 2026. The Company reflected the impact of the OBBBA in its deferred tax liabilities for the year ended September 30, 2025. The enactment of the OBBBA did not have a material impact on the Company’s consolidated financial statements for the year ended September 30, 2025. The Company is currently assessing the impact of the OBBBA on future periods.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update (ASU) 2023-07, “Improvements to Reportable Segment Disclosures,” ASC Topic 280, “Segment Reporting” (ASU 2023-07). The ASU 2023-07 provisions require enhanced disclosures primarily about significant segment expenses. In addition, the provisions enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The Company adopted ASU 2023-07 effective for the year ended September 30, 2025 by updating its single reportable segment disclosures (see Note 18), but there was no other impact on the Company’s consolidated financial statements upon adoption.
In March 2023, the FASB issued ASU 2023-01, “Common Control Arrangements,” ASC Topic 842, “Leases” (ASU 2023-01). Issue 1, Terms and Conditions to Be Considered, of ASU 2023-01 is not applicable to public entities. Issue 2, Accounting for Leasehold Improvements, of ASU 2023-01 requires leasehold improvements associated with common control leases to be amortized over the useful life of the improvements and certain disclosures when the useful life of leasehold improvements to the common control group exceeds the related lease term. The provisions of ASU 2023-01, Issue 2, were effective for the Company’s first quarter of the year ended September 30, 2025. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements for the year ended September 30, 2025.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” ASC Topic 326, “Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), subsequently amended by various standard updates. ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates. ASU 2016-13 also requires financial assets to be measured net of expected credit losses at the time of initial recognition. ASU 2019-10, issued in November 2019, delayed the effective date of ASU 2016-13 for smaller reporting companies such as the Company. The Company adopted ASU 2016-13 effective October 1, 2023 by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of retained earnings. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements for the year ended September 30, 2024.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” ASC Topic 740, “Income Taxes” (ASU 2023-09). The ASU 2023-09 provisions require entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items equal to or greater than 5% of the statutory income tax rate amount. ASU 2023-09 also requires that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5% of total income taxes paid. In addition, ASU 2023-09 eliminates some disclosures relating to estimates of the change in unrecognized tax benefits reasonably possible within 12 months. The provisions of ASU 2023-09 will be effective for the Company’s year ending September 30, 2026. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” ASC Subtopic 220-40, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures” (ASU 2024-03). The ASU 2024-03 provisions require entities, on both an interim and annual basis, to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption of the entity’s income statement, and disclose a qualitative description of the amounts remaining in the relevant expense captions that are not separately disaggregated quantitatively. In addition, ASU 2024-03 requires the disclosure of the total amount of selling expenses and certain other items. The provisions of ASU 2024-03 will be effective for the Company’s year ending September 30, 2028. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.
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In September 2025, the FASB issued ASU 2025-06, “Targeted Improvements to the Accounting for Internal-Use Software,” ASC Subtopic 350-40, “Intangibles – Goodwill and Other – Internal-Use Software” (ASU 2025-06). The ASU 2025-06 provisions require entities to start capitalizing software costs when management has authorized and committed to funding the project, and it is probable that the project will be completed and used as intended. In addition, ASU 2025-06 adds some disclosure requirements and incorporates the recognition requirements for website-specific development costs from its present subtopic. The provisions of ASU 2025-06 will be effective for the Company’s first quarter of the year ending September 30, 2029. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.
No other new accounting pronouncements effective or issued prior to the filing of this Form 10-K had, or are 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 the Company’s 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.
As of September 30, 2025 and 2024, the balance of contract liabilities related to unredeemed gift cards was $1.6 million and $1.5 million, respectively. Revenue for the year ended September 30, 2025 includes $0.8 million that was included in the contract liability balance of unredeemed gift cards at September 30, 2024.
Rewards program points are accrued as deferred revenue at the retail value per point, net of estimated breakage based on historical redemption rates experienced within the rewards program. Rewards points are forfeited at the end of each calendar year.
The following table disaggregates the Company’s revenue by product category for the years ended September 30, 2025, 2024 and 2023, dollars in thousands and as a percentage of net sales:
Year ended September 30,
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 is computed using the treasury stock method and reflects the potential dilution that could occur if the Company’s granted but unvested restricted stock units were to vest, resulting in the issuance of common stock that would then share in the earnings of the Company.
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The following table presents the Company’s basic and diluted EPS for the years ended September 30, 2025, 2024 and 2023, dollars in thousands, except per share data:
Year ended September 30,
There were 32,096, 27,944 and 62,752 non-vested restricted stock units for the years ended September 30, 2025, 2024 and 2023, respectively, excluded from the calculation of diluted EPS as they are antidilutive.
5. Fair Value Measurements
The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and market participant’s assumptions (unobservable inputs). Non-financial assets, such as goodwill, indefinite-lived intangibles and long-lived assets, are accounted for at fair value on a non-recurring basis. These items are tested for impairment on the occurrence of a triggering event or, in the case of goodwill and indefinite-lived intangibles, at least on an annual basis.
During fiscal year 2025, long-lived assets with an aggregate carrying value of $0.1 million were written down to their fair value of less than $0.1 million, resulting in asset impairment charges of $0.1 million. During fiscal year 2024, long-lived assets with an aggregate carrying value of $6.1 million were written down to their fair value of $3.9 million, resulting in asset impairment charges of $2.2 million. During fiscal year 2023, long-lived assets with an aggregate carrying value of $5.9 million were written down to their fair value of $4.6 million, resulting in asset impairment charges of $1.3 million. The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of those assets and liabilities.
6. Property and Equipment
The Company had the following property and equipment balances as of September 30, 2025 and 2024, dollars in thousands:
Useful lives As of September 30,
Construction in process n/a $ 3,009 5,758
Less accumulated depreciation and amortization (298,079 ) (279,502 )
Total costs capitalized for qualifying construction projects of leasehold and building improvements included $0.2 million, $0.4 million and $0.5 million for the years ended September 30, 2025, 2024 and 2023, respectively, related to internal staff compensation. Depreciation expense related to capitalized internal staff compensation was $0.4 million, $0.7 million and $0.7 million for the years ended September 30, 2025, 2024 and 2023, respectively. Capitalized interest costs were $0.3 million for each of the years ended September 30, 2025, 2024 and 2023.
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Depreciation and amortization expense for the years ended September 30, 2025, 2024 and 2023 is summarized as follows, dollars in thousands:
Year ended September 30,
7. Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, lease assets, and intangible and other assets subject to amortization, are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the property and equipment and lease assets at the individual store level, and the intangible and other assets subject to amortization at the consolidated entity level. If the carrying value of such assets over their respective remaining lives is not recoverable through projected undiscounted future cash flows, the Company measures the amount of impairment based on either: (i) discounted future cash flows; (ii) an appropriate third-party market appraisal; or (iii) other valuation technique. In performing these analyses, the Company considers factors such as historic and forecasted operating results, trends and future prospects, current market values, significant industry trends, and other economic and regulatory factors.
As of September 30, 2025 and 2024, the Company had property and equipment assets of $182.7 million and $178.6 million, respectively, operating lease assets of $259.6 million and $275.1 million, respectively, finance lease assets of $42.9 million and $40.8 million, respectively, intangible assets subject to amortization of $6.2 million and $7.9 million, respectively, and other assets subject to amortization of $5.1 million and $0.2 million, respectively. In fiscal years 2025, 2024 and 2023, the Company concluded, as a result of its review for potential long-lived asset impairments, that certain long-lived assets were impaired. The Company recorded asset impairments of $0.1 million, $2.2 million and $1.3 million for the years ended September 30, 2025, 2024 and 2023, respectively.
8. Other Assets
Other assets as of September 30, 2025 and 2024, are summarized as follows, dollars in thousands:
Useful lives As of September 30,
Amortizable other assets:
Less accumulated amortization (7 ) (— )
Amortizable other assets, net 5,143 171
Deferred sublease rents n/a 127 127
Other n/a 2 2
Total internal staff compensation costs capitalized related to SaaS implementations were $0.7 million and less than $0.1 million for the years ended September 30, 2025 and 2024, respectively.
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9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets as of September 30, 2025 and 2024, are summarized as follows, dollars in thousands:
Useful lives As of September 30,
Amortizable intangible assets:
Less accumulated amortization (8,929 ) (7,034 )
Amortizable intangible assets, net 6,132 7,832
Internal-use software in process (1) 21 50
Deferred financing costs, net 3 – 5 15 19
Total goodwill and other intangibles, net $ 11,755 13,488
(1)Internal-use software at September 30, 2024 has been reclassified from other intangibles to be consistent with the current year presentation.
Amortization expense was $1.9 million, $1.7 million and $1.5 million for the years ended September 30, 2025, 2024 and 2023, respectively.
Future aggregate amortization expense associated with intangible assets for the fiscal years subsequent to 2025 is estimated to be approximately as follows, dollars in thousands:
Fiscal year Amortization expense
Thereafter 12
Total amortization expense $ 6,168
Capitalized costs for internal-use software implementation and development were $0.2 million, $1.1 million and $1.1 million for the years ended September 30, 2025, 2024 and 2023, respectively, primarily due to capitalization of costs incurred related to external consultants.
10. Accrued Expenses
The composition of accrued expenses as of September 30, 2025 and 2024 is summarized as follows, dollars in thousands:
As of September 30,
Payroll and employee-related expenses $ 23,208 21,874
Accrued property, sales and use tax payable 10,028 9,607
Accrued marketing expenses 428 413
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11. Debt
Credit Facility
The Company is party to a credit facility originally entered into on January 28, 2016, as subsequently amended, consisting of a revolving loan facility and, prior to its repayment in September 2024, a $35.0 million term loan (the Term Loan and, collectively, the Credit Facility). As of September 30, 2024, the Company had fully repaid all remaining amounts outstanding under the Term Loan. The operating company is the borrower under the Credit Facility and its obligations under the Credit Facility are guaranteed by the holding company. The Credit Facility is secured by a lien on substantially all of the Company’s assets. At September 30, 2025, the aggregate revolving commitment amount available under the Credit Facility was $72.5 million, including a $5.0 million sublimit for standby letters of credit. The Company has the right to borrow, prepay and re-borrow revolving amounts under the Credit Facility at any time prior to its maturity date without premium or penalty. The aggregate revolving commitment amount will be automatically and permanently reduced by $2.5 million on each anniversary date until the Credit Facility matures on November 16, 2028, unless the Company has previously exercised its option to reduce the aggregate revolving commitments to a lower amount.
Base rate loans under the Credit Facility bear interest at a fluctuating base rate, as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of: (i) the federal funds rate plus 0.50%; (ii) the prime rate; and (iii) Term SOFR plus 1.00%, subject to the applicable interest rate floor, less the lender spread based upon the Company’s consolidated leverage ratio. Term SOFR borrowings under the Credit Facility bear interest based on Term SOFR for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is based upon the Company’s consolidated leverage ratio.
The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated 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, provided that so long as no default or event of default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on the Company’s common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
On November 16, 2023, the Company amended the Credit Facility to: (i) increase its aggregate revolving commitments from $50.0 million to $75.0 million; (ii) extend the maturity date of the revolving commitments under the Credit Facility to November 16, 2028; (iii) permit payment of a one-time cash dividend of up to $25.0 million no later than December 31, 2023; and (iv) increase the Company’s restricted payment capacity by $2.5 million, allowing the Company to repurchase shares of common stock and pay dividends on its common stock in an aggregate amount not to exceed $15.0 million during any fiscal year.
The Company had no revolving loan amounts outstanding under the Credit Facility as of September 30, 2025 and 2024. The Company had undrawn, issued and outstanding letters of credit of $2.4 million and $2.2 million as of September 30, 2025 and 2024, respectively, which were reserved against the amount available for borrowing under the terms of the Credit Facility. The Company had $70.1 million and $72.8 million available for borrowing under the Credit Facility as of September 30, 2025 and 2024, respectively.
As of September 30, 2025 and 2024, the Company was in compliance with all covenants under the Credit Facility.
Lease Obligations
The Company had 25 and 24 leases that were classified as finance leases as of September 30, 2025 and 2024, respectively. No rent expense is recorded for these finance leases; rather, rental payments under such leases are recognized as a reduction of the lease obligation and as interest expense. The interest rate on finance lease obligations is determined at the commencement of the lease.
Interest
The Company incurred gross interest expense of $3.3 million, $4.5 million and $3.6 million for the years ended September 30, 2025, 2024 and 2023, respectively. Interest expense relates primarily to interest on finance lease obligations and the Credit Facility. The Company capitalized interest of $0.3 million for each of the years ended September 30, 2025, 2024 and 2023.
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12. Leases
The Company leases most of its stores, a bulk food repackaging facility and distribution center and its administrative offices. The Company determines if an arrangement is a lease or contains a lease at inception. Lease terms generally range from 10 to 25 years, with scheduled increases in minimum rent payments.
Operating and finance lease liabilities represent the present value of lease payments not yet paid. Operating and finance lease assets represent the Company’s right to use an underlying asset and are based upon the operating and finance lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of operating and finance lease assets.
Most leases include one or more options to renew, with renewal terms normally expressed in periods of five-to-ten year increments. The exercise of lease renewal options is at the Company’s sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option.
Variable payments related to pass-through costs for maintenance, taxes and insurance or adjustments based on an index such as Consumer Price Index are not included in the measurement of the lease liability or asset and are expensed as incurred.
Because the rate implicit in the Company’s lease agreements is typically not readily determinable, the Company uses an estimated incremental borrowing rate, which is derived from third-party lenders, to determine the present value of lease payments. The Company uses other observable market data to evaluate the appropriateness of the rate derived from the lenders. The estimated incremental borrowing rate is based on the borrowing rate for a secured loan with a term similar to the expected term of the lease.
Leases are recorded at the commencement date (the date the underlying asset becomes available for use) for the present value of lease payments, less tenant improvement allowances received or receivable. Leases with a term of 12 months or less (short-term leases) are not presented on the balance sheet. The Company has elected to account for the lease and non-lease components as a single lease component for all current classes of leases.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company subleases certain real estate or portions thereof to third parties. Such subleases have all been classified as operating leases. Remaining sublease terms extend through fiscal year 2031. Although some sublease arrangements provide renewal options, the exercise of sublease renewal options is at the sole discretion of the subtenant. The Company recognizes sublease income on a straight-line basis.
The Company has five operating leases with Chalet Properties, LLC (Chalet), one operating lease with the Isely Family Land Trust LLC (Land Trust) and one operating lease with FTVC, LLC (FTVC), each of which is a related party (see Note 15). The leases began at various times, with the earliest commencing in November 1999, continue for various terms through May 2042 and include various options to renew. The terms and rental rates of these leases have been approved by our audit committee in accordance with our related party transaction policy. As of September 30, 2025, these leases accounted for $10.1 million of operating lease assets and $10.2 million of operating lease liabilities, of which $0.7 million was current, and are included in the disclosures below. Lease expense is recognized on a straight-line basis and was $1.2 million for each of the years ended September 30, 2025, 2024 and 2023.
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The components of total lease cost for the years ended September 30, 2025, 2024 and 2023 were as follows, dollars in thousands:
Year ended September 30,
Operating lease cost:
Finance lease cost:
Depreciation of lease assets: Store expenses 4,284 4,128 3,746
Interest on lease liabilities:
Variable lease cost Cost of goods sold and occupancy costs (1) 7,149 6,658 6,429
Sublease income Store expenses (443 ) (308 ) (323 )
(1)Immaterial balances related to corporate headquarters and distribution center are included in administrative expenses and store expenses, respectively.
Additional information related to the Company’s leases for the years ended September 30, 2025, 2024 and 2023 was as follows, dollars in thousands:
Year ended September 30,
Cash paid for amounts included in the measurement of lease liabilities:
Lease assets obtained in exchange for new lease liabilities:
Additional information related to the Company’s leases as of September 30, 2025 and 2024 was as follows:
As of September 30,
Weighted-average remaining lease term (in years):
Operating leases 9.3 9.9
Weighted-average discount rate:
Operating leases 4.2 % 4.1
Finance leases 5.1 % 4.8
During the year ended September 30, 2025, the Company early terminated a lease due to a store relocation, and, as a result, the Company wrote off operating lease assets and liabilities of less than $0.1 million each and recorded a gain of less than $0.1 million. During the years ended September 30, 2024 and 2023, the Company paid $0.3 million and $0.2 million in lease termination costs, respectively, to early terminate the leases associated with stores that closed in prior fiscal years, and, as a result, the Company wrote off $0.4 million and $0.1 million in operating lease assets and $0.6 million and $0.2 million in operating lease liabilities and recorded losses of $0.2 million and $0.1 million during the years ended September 30, 2024 and 2023, respectively.
In addition, during the year ended September 30, 2025, the Company purchased a store’s previously leased land and building. This resulted in reductions of $0.2 million and $1.0 million in operating and finance lease liabilities with the offset to their related lease assets, respectively, and the reclassification of less than $(0.1) million and $(0.1) million of operating and finance lease assets, as adjusted by the reduction of their related lease liabilities, respectively, to property and equipment.
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Future lease payments under non-cancellable leases as of September 30, 2025 were as follows, dollars in thousands:
Fiscal year Operating leases Finance leases Total
The table above excludes $12.8 million of legally binding minimum lease payments for leases that had been executed as of September 30, 2025 but whose terms had not yet commenced.
Future minimum rental commitments and sublease rental income under the terms of the Company’s operating and finance leases were as follows as of September 30, 2025, dollars in thousands:
Fiscal year Third parties Related parties Sublease rental income Total leases
Total rent expense, including common area expenses and warehouse rent, totaled $60.3 million, $58.4 million and $58.4 million for the years ended September 30, 2025, 2024 and 2023, respectively. In addition, $0.3 million, $0.4 million and $0.3 million is included in pre-opening expense associated with rent expense for stores prior to their opening date for the years ended September 30, 2025, 2024 and 2023, respectively.
13. Share-Based Compensation
The Company adopted the 2012 Omnibus Incentive Plan (as amended, the Plan) on July 17, 2012. Restricted stock unit awards granted pursuant to the Plan, if they vest, are settled in new shares of the Company’s common stock or shares of common stock held in treasury. At the adoption of the Plan, there were 1,090,151 shares of common stock available for issuance or delivery under the Plan. In March 2019, the Company’s stockholders approved a proposal to amend the Plan to: (i) increase the number of shares of common stock reserved for issuance thereunder by 600,000 shares and (ii) extend its term by five years. In March 2024, the Company’s stockholders approved a proposal to amend the Plan to: (i) increase the number of shares of common stock reserved for issuance thereunder by 600,000 shares and (ii) extend its term by five years. As of September 30, 2025, 452,390 shares of common stock remain available for grants under the Plan. The Plan provides for awards of options, stock appreciation rights, stock grants, restricted stock units, other share-based awards and cash-based incentive awards to officers, members of the Board, certain employees who are not named executive officers and consultants. As of September 30, 2025, restricted stock units had been granted under the Plan, at no out-of-pocket cost to officers, Board members and key employees. These restricted stock units generally vest, subject to requisite service requirements, annually in installments over a five-year period or in full following a three-year or five-year period. The award recipients are not entitled to cash dividends or to vote with regard to non-vested restricted stock units, and the units are subject to forfeiture during the vesting period. Restricted stock units are granted at the market price of the Company’s stock on the date of grant and are expensed on a straight-line basis over the vesting period.
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The shares of non-vested restricted stock units as of September 30, 2025 and 2024 were as follows:
Shares Weighted average grant date fair value
During the years ended September 30, 2025 and 2024, the Company accelerated the vesting of certain restricted stock units upon the retirement of the Company’s former Chief Financial Officer and for two grantees, making them fully vested, resulting in incremental share-based compensation expense of $0.5 million and $0.4 million, respectively.
In addition, during the year ended September 30, 2025, the Company awarded fully vested stock grants totaling 2,400 shares of the Company’s common stock to 24 employees who were not named executive officers.
Share-based compensation expense for restricted stock unit awards to certain employees who are not named executive officers was $2.0 million, $2.1 million and $0.9 million for the years ended September 30, 2025, 2024 and 2023, respectively. Share-based compensation expense for restricted stock unit awards to named executive officers was $1.7 million, $0.5 million and $0.3 million for the years ended September 30, 2025, 2024 and 2023, respectively.
Each independent member of the Board receives an annual grant of restricted stock units equal to $60,000 (based on the closing price of common stock on the New York Stock Exchange on the date of grant). Such grants are made each year on the date of the Company’s annual meeting of stockholders, or on a pro rata basis in the case of a mid-year appointment. Share-based compensation expense for the Company’s awards to its Board members was $0.2 million for each of the years ended September 30, 2025, 2024 and 2023.
The Company recorded total share-based compensation expense before income taxes of $4.0 million, $2.8 million and $1.4 million for the years ended September 30, 2025, 2024 and 2023, respectively. The share-based compensation expense is included in cost of goods sold and occupancy costs, store expenses or administrative expenses in the consolidated statements of income consistent with the manner in which the applicable officer, Board member or key employee’s compensation expense is presented. The Company realized a tax benefit from share-based compensation of $0.5 million, $0.6 million and less than $0.1 million for the years ended September 30, 2025, 2024 and 2023, respectively.
As of September 30, 2025, there was $7.5 million of unrecognized share-based compensation expense related to non-vested restricted stock units, net of estimated forfeitures, which the Company anticipates will be recognized over a weighted average period of approximately 2.3 years.
14. Stockholders’ Equity
As of September 30, 2025, the Company had 50,000,000 shares of common stock authorized, of which 22,954,712 shares were issued and outstanding, as well as 10,000,000 shares of preferred common stock authorized, of which none was issued and outstanding.
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Share Repurchases
In May 2016, 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. The Board subsequently extended the share repurchase program – most recently in May 2024 – and the current program will terminate on May 31, 2026. Repurchases under the Company’s share repurchase program may be 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 permits 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. Between October 1, 2025 and December 8, 2025 (the latest practical date for making the determination), the Company has not repurchased any additional shares of the Company’s common stock. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.1 million.
The following table summarizes share repurchase activity for the years ended September 30, 2025, 2024 and 2023, dollars in thousands, except average price per common share acquired:
Year Ended September 30,
Number of common shares acquired — — 17,998
Average price per common share acquired (including commissions) $ — — 10.07
Total cost of common shares acquired $ — — 181
During fiscal years 2024 and 2023, the Company reissued 6,497 and 11,501 treasury shares, respectively, each at a cost of $0.1 million, to satisfy the issuance of common stock pursuant to the vesting of certain restricted stock unit awards and the award of stock grants. At September 30, 2025 and 2024, the Company held no shares in treasury.
Dividends
The Company paid a quarterly cash dividend of $0.12, $0.10, and $0.10 per share of common stock in each quarter of fiscal years 2025, 2024 and 2023, respectively, and a special cash dividend of $1.00 per share of common stock in the first quarter of fiscal year 2024.
15. Related Party Transactions
The Company has ongoing relationships with related entities as noted below:
Chalet Properties, LLC: The Company has five operating leases (see Note 12) with 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 $0.9 million for each of the years ended September 30, 2025, 2024 and 2023.
Isely Family Land Trust LLC: The Company has one operating lease (see Note 12) with 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 $0.3 million for each of the years ended September 30, 2025, 2024 and 2023.
FTVC LLC: The Company has one operating lease (see Note 12) with FTVC, which is owned by the Company’s four non-independent Board members and other related family members. Rent paid to FTVC was less than $0.1 million for each of the years ended September 30, 2025, 2024 and 2023.
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16. Income Taxes
The following are the components of the provision for income taxes for the years ended September 30, 2025, 2024 and 2023, respectively, dollars in thousands:
Year ended September 30,
Deferred federal income tax benefit (2,246 ) (3,283 ) (1,334 )
Deferred state income tax benefit (362 ) (672 ) (141 )
The differences between the United States federal statutory income tax rate and the Company’s effective tax rate are as follows:
Year ended September 30,
State income taxes, net of federal income tax expense 2.9 2.9 3.1
Enhanced food deduction (1.3 ) (1.9 ) (3.1 )
Deferred tax liability adjustment 0.3 0.8 —
Other, net (1.7 ) (2.1 ) (2.9 )
Deferred taxes have been classified on the consolidated balance sheets as follows, dollars in thousands:
As of September 30,
Long-term assets $ — —
Net deferred tax liabilities $ (7,863 ) (10,471 )
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The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows, dollars in thousands:
As of September 30,
Deferred tax assets:
Research and experimental expenditures 855 955
Deferred tax liabilities:
Net deferred tax liabilities $ (7,863 ) (10,471 )
(1)Equity compensation, prepaid expenses and goodwill at September 30, 2024 have been reclassified from other to be consistent with the current period presentation.
The Company believes that it is more likely than not that it will fully realize all deferred tax assets in the form of future deductions based on the nature of the deductible temporary differences and expected future taxable income.
The Company did not utilize any federal income tax loss or tax credit carryforwards for the years ended September 30, 2025, 2024 and 2023. The Company did not utilize any tax effected state income tax loss carryforwards for the years ended September 30, 2025, 2024 and 2023.
The Company did not have any uncertain tax positions as of September 30, 2025 and 2024.
The Company files income tax returns with federal, state and local tax authorities. With limited exceptions, the Company is no longer subject to federal income tax examinations for fiscal years 2021 and prior and is no longer subject to state and local income tax examinations for fiscal years 2020 and prior.
17. Defined Contribution Plan
The Company has a defined contribution retirement plan (the Retirement Plan) covering substantially all employees who meet certain eligibility requirements as to age and length of service. The Retirement Plan incorporates the salary deferral provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code). Employees may defer up to the annual maximum limit prescribed by the Code. The Company, on a discretionary basis, may match up to 25% of participant contributions up to a maximum annual employer match of $2,500. As of September 30, 2025, the Company had accrued $1.1 million for matching contributions to be paid out after the plan year ending December 31, 2025. Subsequent to plan years ended December 31, 2024 and 2023, the Company funded matching contributions to participants’ accounts of $1.4 million and $1.3 million, respectively.
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18. Segment Reporting
The Company has one operating segment, and therefore, a single reportable segment: natural and organic retail stores. This segment derives all of its revenue from the sale of grocery, dietary supplements, body care and other products at the Company’s stores located in the United States. The accounting policies of this segment are the same as those described in the Company's summary of significant accounting policies. The Company's chief operating decision maker (CODM) is its Co-President and Chairman of the Board. The CODM uses the segment's net income to assess performance against budget, make key operating decisions, and allocate capital resources, including the rate at which to invest in new or relocated stores. The measure of the segment’s assets is reported on the consolidated balance sheet as total assets and its depreciation and amortization expense is reported in Note 6, Property and Equipment.
The following table represents the significant categories and amounts that are regularly reviewed by the CODM and included in the segment's net income, dollars in thousands:
Year ended September 30,
Less:
(1)Other segment items include other general and administrative expenses, selling expenses, asset impairment and disposal net losses, amortization expense, store closure costs, sublease income, and other miscellaneous income and expense.
19. Commitments and Contingencies
Self-Insurance
The Company is self-insured for certain losses, liabilities and employee benefit costs, subject to a stop loss policy or deductible limits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering an analysis of actual claims, historical claims experience, demographic factors and other actuarial assumptions. While the Company believes that its assumptions are appropriate, the estimated accrual for these liabilities could be significantly affected if future occurrences and claims materially differ from these assumptions and historical trends.
Legal Proceedings
The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to labor and employment-related claims, customer 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, 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 financial statements.
20. Subsequent Events
On November 19, 2025, the Board approved the payment of a quarterly cash dividend of $0.15 per share of common stock, which was paid on December 10, 2025 to stockholders of record as of the close of business on December 1, 2025.
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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have assessed the effectiveness of our internal control over financial reporting as of September 30, 2025 using the criteria described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment of the design and related testing of the internal control over financial reporting, management concluded that, as of September 30, 2025, we maintained effective internal control over financial reporting.
Our independent registered public accounting firm, KPMG LLP, audited the effectiveness of our internal control over financial reporting. KPMG LLP’s attestation report is included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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-K. 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.