Good day, ladies and gentlemen. Welcome to the Natural Grocers Second Quarter Fiscal Year 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder today’s call is being recorded. I would now like to turn the conference over to Mr. John Bourne, Vice President and General Council of Natural Grocers. Mr. Bourne you may begin.

Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage second quarter and first half fiscal year 2014 earnings conference call. On the call with me today are Kemper Isely, our Co-President and Sandra Buffa, our Chief Financial Officer. Before we start let me remind you that all statements made in this conference call other than statements of historical facts are forward-looking statements. All forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors such as industry, business strategy, goals and expectations concerning our market position, the economy, future operations, margins, profitability, capital expenditures, liquidity and capital resources, other financial and operating information and other risks detailed in the company’s most recently filed Forms 10-Q and10-K. The information we present is accurate as of the date of this call. The company undertakes no obligation to update forward-looking statements. The company’s earnings release was issued and made available this afternoon. The discussion that follows assumes you’ve had the opportunity to read this release. The release along with a transcript of a recording of this call and a reconciliation of the non-GAAP measures used by us will be available at our website at investors.naturalgrocers.com for a minimum of 30 days. If you have not had the opportunity to read the release we recommend that you read it in conjunction with or after this call. Now I will turn the call over to our Co-President, Kemper Isely.

Thank you, John. Good afternoon, everyone. We are pleased with our financial results this quarter. Our sales increases and disciplined approach toward operating expenses have resulted in strong financial results, which allowed us to continue our investments in growth. During the quarter, net sales increased 22.4% to a $130.3 million. We continue to experience positive sales trends across all departments. Gross profit increased to a record $38.8 million and we continued to see leverage store and administrative expenses. Net income increased 24.3% quarter-over-quarter and our diluted earnings per share were $0.18 this quarter compared to $0.14 in the prior comparable quarter. Reflecting healthy gains our daily average comparable store sales increased 5.7% during the quarter. We believe our comparable store sales are lower than our recent trends due to increased localized competition some weather events more cautious consumer spending and to a certain extent changes in advertising that we have been testing over the last quarter. Reflecting our commitment to our five founding principles we are excited to announce that during the quarter we updated our dairy standards, further distinguishing us from our competitors. We plan to sell only pasture-raised, non-confinement dairy products. We intend to substantially complete the implementation of these standards by April of 2015. Our customers have provided positive feedback during this transition, as they appreciate our commitment to quality standards. Additionally, starting this April we have transitioned to selling non-GMO and organic chickens. We are very pleased with these high quality standards we are offering to our customers. We continue to invest in growth, opening five new stores during the quarter and expanding our geographic footprint in Colorado, Idaho, Kansas, New Mexico, and Oregon. Our new stores are performing in line with expectations and we remain on-track with our new store pipeline Now I will turn the call over to Sandra to highlight our financial results.

Thank you, Kemper. Good afternoon everyone. We are pleased to report net sales increased in the second quarter of fiscal 2014 to $130.3 million or 22.4% over the same period in fiscal 2013. Comparable store sales increased 6.9% quarter-over-quarter. Daily average comparable stores sales increased 5.7% quarter-over-quarter driven by a 2% increase in daily average transaction count and a 3.7% increase in average transaction size. Daily average mature store sales increased 3.7% quarter-over-quarter. Gross profit during the second quarter of fiscal 2014 increased 21.8% to $38.8 million driven by comparable store sales and new store growth. Gross margin decreased 20 basis points due to increases in occupancy cost partially offset by increases in product margins across most departments as well as operating efficiencies at the bulk food repackaging facility. The increases in product margins were partially offset by a shift in sales mix. The stores that were accounted for as capital leases rather than being reflected as operating leases increased gross margin as a percent of sales by approximately 60 and 40 basis point in the second-half of fiscal 2014 and 2013 respectively. Our disciplined approach to managing expenses is reflected in our continued leverage from both store and administrative expenses. Store expenses decreased 20 basis points to 20.6% in sales during the quarter. This was driven by a decrease in salary-related expenses as a percent of sales at comparable stores as well as a decrease in advertising expense, primarily due to lower television advertising during the quarter. The decrease in store expenses is partially offset by an increase in depreciation expense and to a lesser extent an increase in utilities all as a percentage of sales. Administrative expenses as a percent of sales decreased 40 basis point quarter-over-quarter as a result of the company’s continued ability to support sales…

Thank you, Sandra. As I mentioned at the beginning of the call we are pleased with the financial results we delivered. We have continue to grow at a steady pace throughout the first half of fiscal 2014 opening nine new stores bringing our total count to 81 stores in 13 states. Since the end of the second quarter on March 31st we have opened two new stores. We have signed leases for the remaining four stores planned to open in fiscal 2014 and have four signed leases for stores planned open on fiscal 2015. During the quarter we completed the first phase of our new human resource information system continuing our strategic initiatives to support future growth. We are consistently focused on managing and controlling our growth and expect to start seeing the initial benefits of this implementation during our third fiscal quarter. We see this is a positive step to support and enhance our ability to onboard, train and communicate with our employees. Based on our second quarter results and expectations for the remainder of the fiscal year we are updating our daily average comparable storage sales outlook for fiscal 2014 to 5.5% to 6.5%. Our fiscal 2014 guidance for net income and EBITDA margins diluted earnings per share and CapEx will remain unchanged. We remain true to our five accounting principles and continue to focus on what differentiates offering unique, national and organic products at affordable prices. We continue to gain trust and loyalty from our customers through our high quality standards and nutrition education. We remain confident in our strategy and our ability to grow our store base while expanding both the top and bottom line. We will allocate the remaining time to questions. Please limit your questions appropriately, so that everyone has an opportunity to participate. Thank you.

We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from David Magee of SunTrust Robinson Humphrey. Please go ahead. David G. Magee – SunTrust Robinson Humphrey: Yeah, hi everybody, good afternoon.

Hi, David. David G. Magee – SunTrust Robinson Humphrey: Hi. Kemper can you talk about a little bit about the cadence of your same store sales during the quarter? And may be any commentary about the more recent trends?

I would say that it was stronger in January and March and a little bit weaker in February on a monthly basis. March on a daily basis was weak because we had 31 days compared to 30 days in March. David G. Magee – SunTrust Robinson Humphrey: You had mentioned some increase regional competition. Can you give us a little more color about what you are seeing there?

Well. Last year approximately -- what is the number -- 15% of our store base had regional competition and this year approximately 51% of our store base had regional competition. So there was quite a bit more new competition. We are talking about new competition on existing competition. So substantially more new competition this year than last year which had an impact on our same store sales. But we have had similar situations happen in other years and we've always bounced back quite well from that. David G. Magee – SunTrust Robinson Humphrey: Could you give a sense of what the ratio might be by year end.

It will drop significantly by the beginning of next by January of next year. September little probably. So by October this year we will call [inaudible] similar that January next year we expect it to be back in the 20% range. David G. Magee – SunTrust Robinson Humphrey: Okay, thank you.

Our next question comes from Sean Naughton of Piper Jaffray. Please go ahead. Sean P. Naughton – Piper Jaffray, Inc.: Good afternoon. Just on the guidance does suggest -- can you slowdown from the most recent quarter in the same store sales trends have been that 2% to 4% range is what I'm getting here looking at the rest of the year. Is anything happening outside of the competitive landscape you did and which you just touched on a little bit. Can you elaborate maybe a little bit on the marketing changes or promotional cadence and maybe any sort of impact that at in the quarter as well.

I think that we are being very, very realistic about our forecast for the rest of the year. We don't want to get ahead of ourselves. As far as the -- I mean one of the statistics we've been looking at is stores that didn't have competition, new competition as we classify it for the quarter, were actually up 13.7% for the quarter on comparable store sales. So those stores are still doing just pretty similar way to what we were doing before. And so it's just a matter of getting through this period if extra competition and important for comparable store so. I mean our sales at stores in new markets are pretty much meeting and beating our expectations so we're pretty happy with that. Sean P. Naughton – Piper Jaffray, Inc.: Okay. And then could you just maybe just talk a little bit more, I am very surprised you guys were able to hold the line like you did on some of those lower comps. I mean obviously that speaks to a lot of flexibility you have with expenses and flexibility in the model the way that it structured and ability for that moving forward. Is that -- could you continue to hold that level for an extended period of time on here at these, some of these higher rates on lower comps. Is the idea that you would like to see those comps obviously start to pull back up towards the mid to high-single digit range overtime?

No if we need to we will. We're very disciplined about our cost controls and we will keep our cost inline and hold our cost down so that we meet our expectations, so that we can continue to grow our store base at 20% per year. So I believe that we believe that we that we will be able to generate similar amount of cash to fund the growth at the lower comp rates for an extended period of timing necessary, but hopefully we will not have to do that for an extended period of time. Sean P. Naughton – Piper Jaffray, Inc.: Okay, group like anything you mentioned on the last call you are worried about on nuts, given the drought, doesn't sound like things turned dramatically better any update there would be helpful. Thank you.

I just was reading Blue Diamond Almond report. And it looks like the crop is going to come their prediction is gone coming at 1.95 million pounds this year compared to 2 million last year. So it's gone be pretty close to last year's crop amount even with the drought. So I think on the almond crop will be pretty good shape for this year anyway. Sean P. Naughton – Piper Jaffray, Inc.: Super, thank you.

Our next question comes from Mark Miller of William Blair. Please go ahead.

Hi everyone and couple of questions I guess towards picking up the other piece of the prior question. Can you talk about what change with advertising in this period versus prior periods?

Well, primarily we did not do we usually run a January February television spots and we didn’t do that this year and it had somewhat of an effect on our customers account in our stores.

Okay. And then coming back on the competition point I am trying understand how that could be so much more impact for this quarter than prior quarters. So presumably that’s been increasing over time so what causes that to be a first order impact here whereas it was not an impact that was even notable in the past periods for example?

We’ve had a substantial number of new store openings near stores of ours that it had not had previous competitions, and that has had a pretty substantial impact on some of those store sales.

I mean this is recent like in the last couple of months that it had that large EBITDA impact Kemper?

That’s correct.

Okay. And the figure that you highlighted by January getting that down, if I heard this right is maybe 20% of the stores with a local competitor. But you are adding, I don’t know 10, 12 stores or something by that point. So even if those stores don’t have a similar type of competitive set how could you get that percent down from 50 plus percent to 20 by that point? Or are you just talking about lapping?

We will cycle it. We are talking about new competition, it will cycle out by January of next year.

Okay. The difference in the comp…

And then our new stores, I think primarily we are opening in March right now that have what we classify as our competitors. So when we open in their markets I am sure it has a similar effect upon their stores.

Okay. So I mean from the current comp trend to I think John’s related question, if you take the back half of the year, something like 4% comp being implied in the numbers. If you are coming across -- if weather is normal and the advertising is comparable year-on-year. I guess what might cause the comps to further decelerate from that recent experience?

As we said we were wanting to take a cautious [lowistic] approach to what the comp will be for the rest of the year.

Thanks. I have more questions but I’ll get back in the queue and let somebody else go next. Thanks.

Our next question comes from Mark Sigal of Canaccord. Please go ahead.

Yeah hey guys it's Mark for Scott. Did you quantify the impact of the Easter shift?

Yeah, I mean it's in our March sales number because…

So gross the number is 6.9% and then with the average comp dates 5.7%.

Okay. And then…

1.2% or so.

Okay 1.2 got it. And then you called out a number of factors on the relatively softer competition, weather, the change in advertising. Anyway to provide a relative weighting? You know it sounds like competition was the most impactful but any sense of whether it was two-thirds competition the remainder, the other factors you cited or just sense of magnitude there?

Weather probably took a percent or so out of our same store sales for the quarter and advertising probably took a percent out. So if you do the math from there probably be 3% from the competition.

Got it, okay. And is there any appetite or is there any plan to increase investment on price in light of what looks like new competition that’s descended pretty quickly or what kind of sense to the strategy to meet the immediate challenge?

Well, first off in regards to price, our price surveys are showing that we are the best priced natural food chain in each of our market by 10% to 25%. So we don’t believe that we need to invest in price. The one area that some of our competition is close to us on prices in produce, but since we are our offering -- the produce has been a huge plus for us and hence we are you know growing that department faster than our actual sales. We don’t believe that we need to invest in price in that area. The other thing that we are doing to improve our competitive position is to improve our -- increase our standards and you know as -- I don't know if any of you are familiar with it but we rolled out this pastured dairy standard starting at the beginning of this month and our customers are liking that new standard significantly and we think that it will be huge plus for our customer loyalty and increasing our customer counts in the upcoming months.

Okay. And then just lastly, on sequential basis it looks like the mature store comp was down more modestly then the overall comp. Is it the non-mature comps stores that are seeing most targeted competition right now? And kind of as a follow-on to that, can you just talk about your new stores that are opening, are they being impacted or are still opening with the same efficiency?

It’s some of our newer stores that had some of the heaviest competition this quarter. Our newest store our newer stores are opening stronger than projected at the moment.

Okay, great. Thank you.

Our next question comes from Kate Wendt of Wells Fargo Securities. Please go ahead. Kate Wendt – Wells Fargo Securities LLC: Yeah, thanks. So just on the competition we were sort of under the impression that you already had competitive opening faster than your guidance? So did they have a bigger impact than expected are those companies being more aggressive perhaps with their grand opening prices or something else?

That would be probably an accurate statement today or somewhat more aggressive than we expected and the impact was higher than we have experienced in the past. Kate Wendt – Wells Fargo Securities LLC: Got it and then it seems like the competition is mainly then on the grocery side. But have you seen in any softening in trends in supplements given that gross margin mix shift that you mentioned?

The supplement sales have not been as -- the increase in supplement sales haven't been as much as in the grocery side of our business but other than no we haven’t seen. Kate Wendt – Wells Fargo Securities LLC: Okay. So just to continuation of kind of what you have been seeing there. And then just a follow-up on advertising. Looking ahead to the rest of this year are you advertising plans different then the same periods last year or what you plan to be the same or ramp that up a little bit?

We are not really planning on a significant change in our advertising strategy for the rest of the year. Kate Wendt – Wells Fargo Securities LLC: Okay, great. And then you did mentioned weather obviously your states are at least a little bit better than what we are facing now on the East Coast but the trends gotten a little better with improved weather April?

You know we don’t really comment on same-stores sales in the current quarter. Kate Wendt – Wells Fargo Securities LLC: Okay, thanks guys.

Our next question comes from Joe Edelstein of Stephens, Inc. Please go ahead Joe Edelstein – Stephens, Inc.: Good afternoon. Thanks for taking my questions.

Yeah. Hi, Joe. Joe Edelstein – Stephens, Inc.: Good afternoon, thanks for taking my questions. Kemper, in the past how long have competitors whether they are existing or new competitors been able to hold some of that competitive pricing that you just spoke about in you know their ability to remain aggressive. I guess, this really what I am trying to get in here.

Usually that’s a one or two months phenomena and then it takes about a year for our stores to start gaining sales again after a new competitor opens in the same market area. Joe Edelstein – Stephens, Inc.: That’s helpful. And you know you continue to enhance…

That's where we're saying January of next year. We expect for this current new competitor intrusion to minimize. Joe Edelstein – Stephens, Inc.: Okay and you just spoke a little bit earlier about the competitive positioning. You do have the instore education as a key component of that the enhanced product standards. I'm curious are there other areas that you're exploring to further improve your offering perhaps that's in more private label delivery options ordering online pickup in store other functionality that you would consider today.

We are always considering all of those options and trying to figure out how they would fit into our business plan. But nothing that you're currently working on with respect any of those options.

We're analyzing several of those types of things right now. Joe Edelstein – Stephens, Inc.: There is no current test just to be clear.

There is no current test, but we are looking at -- there is some intriguing options out there right now particularly on in home delivery and order sent into the store to be packed and delivered to people's homes. Joe Edelstein – Stephens, Inc.: Okay, one last question from me on yield to the rest of the group. You did implement a new HR system. I was hoping if you can us this a little bit about early read from that and whether or not you feel that they may have been disruptive in anyway as you've rolled that out to the stores.

No it hasn't, not been at all disruptive to our employees or to our home office staff. As a matter of fact it's already starting to help us create efficiencies as a company. Joe Edelstein – Stephens, Inc.: Great. Thanks for taking my questions.

This concludes our question-and-answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks.

Thank you everyone for being on the call today. We hope you have a nice afternoon. Thanks goodbye.