SecProbe.io

CORRESP
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filename1.htm

12612 West Alameda Parkway

Lakewood, Colorado 80228

May 31, 2012

Mara
L. Ransom

Assistant Director

United States Securities and Exchange Commission

100 F. Street, N.E.

Washington, D.C. 20549

Re:Natural Grocers by Vitamin Cottage, Inc.

Registration Statement on Form S-1

Confidential Draft Submission Number 2

Submitted May 31, 2012

CIK No. 1547459

Dear
Ms. Ransom:

        Set
forth below are the responses of Natural Grocers by Vitamin Cottage, Inc., a Delaware corporation (the "Company,"
"we," "us" or "our"), to comments received from the
staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") by letter dated May 22, 2012, with respect to the review of the Company's draft Registration Statement on
Form S-1 initially confidentially submitted to the Commission on April 25, 2012, CIK No. 1547459 (the "Registration
Statement"). For your convenience, each response is prefaced by the exact text of the Staff's corresponding comment in bold text.

        We
have submitted today our first amended draft registration statement in a text searchable PDF file using the Commission's secure website (referred to herein as our
"Amendment No. 1").

 Confidential Draft Registration Statement on Form S-1

        1.     Since you appear to qualify as an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, please revise your
registration statement to:

•Describe how and when a company may lose emerging growth company status;
and

•Briefly describe the various exemptions that are available to you, such as exemptions from
Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934.

 Response:

        We
have revised the disclosure on pages 28 and 29 of Amendment No. 1 to address this comment.

        2.     Please provide us with any gatefold information such as pictures, graphics or artwork that will be used in the prospectus. In this regard, we note
your bracketed statement on the inside cover page of the prospectus that references "Art to Come."

 Response:

        We
acknowledge the Staff's comment and have included the artwork to be included on the inside front and back cover pages of the prospectus in Amendment
No. 1. Other than the pictures, graphics,

or
artwork currently included in Amendment No. 1, we do not plan to include additional pictures, graphics, or artwork in the prospectus.

        3.     We note that you have excluded information that you are not entitled to omit under Rule 430A. Please add this information to your
registration statement and note that we will require sufficient time to review your complete disclosure prior to any distribution of preliminary prospectuses.

 Response:

        We
have revised Amendment No.1 to include the omitted information, where the information is known as of the date of this letter, other than the information
that Rule 430A permits us to omit. We acknowledge that the Staff will need sufficient time to review any future amendment including information required by Rule 430A, which could require
us to resolve further comments from the Staff prior to a request for effectiveness.

        4.     Prior to the effectiveness of your registration statement, please arrange to have FINRA call us or provide us with a letter indicating that FINRA
has cleared the underwriting arrangements for your offering.

 Response:

        We
acknowledge the Staff's comment and, prior to the effectiveness of the Registration Statement, we will arrange to have FINRA provide the Staff with a copy
of the FINRA "no objections" letter or have a representative of FINRA call the Staff to confirm that FINRA has cleared the underwriting arrangements for our offering.

 Prospectus Cover Page

        5.     Please delete the reference to "Joint Book-Running Managers." This designation is not required by Item 501 of
Regulation S-K, conflicts with plain English principles and is not material to an investment decision. If you wish to continue to use this designation, please limit its use to the
underwriting section of the prospectus.

 Response:

        We
have revised the cover page of the prospectus contained in Amendment No. 1 to address this comment.

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 Natural Grocers by Vitamin Cottage, Inc.

 Summary Historical Consolidated Financial and Other Data, page 10

 Note (3). EBITDA, page 12

        6.     We note your disclosure here and on page 44 that EBITDA provides additional information about your ability to meet future debt services,
capital expenditures and working capital requirements and expand your business. As such, it appears that you present EBITDA as a performance and a liquidity measure. Please tell us your consideration
of providing a reconciliation of EBITDA to cash provided by operating activities and prominently presenting amounts of cash flows from operating, investing and financing activities for each period
presented. Refer to Item 10(e)(1)(i) and Question 102.06 of the Division's Compliance and Disclosure Interpretations: Non-GAAP Financial Measures at
http://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm.

 Response:

        We
acknowledge the Staff's comment and advise the Staff that our presentation of EBITDA is intended as a performance measure only, and not as a liquidity
measure. In response to the Staff's comment, we have revised Amendment No. 1 on pages 12 and 13 (FN 3), and page 45 (FN 3) to clarify that EBITDA is being presented only as
a performance measure by deleting statements that might suggest we are presenting EBITDA as a liquidity measure, including the statement that EBITDA provides additional information about our ability
to meet our future debt services, capital expenditures and working capital requirements and expand our business.

 Business, page 68

 Our Competitive Strengths, page 70

 Experienced and committed team with proven track record, page 71

        7.     Please provide us with supplemental data that supports your statements that your store and department managers have long tenures with you and that
you have a track record of promoting store management personnel from within. In this regard, you may wish to provide or disclose information about the average length of manager tenure and the
percentage of managers promoted from within. If you cannot provide data supporting any of these statements, please either delete the statement or revise the disclosure to clarify that this is your
belief and supplementally tell us the basis of your belief. Please make conforming revisions, as necessary, to the prospectus summary.

 Response:

        The
Company supplementally infoms the Staff that, as of the date hereof, the Company's personnel employed in the positions of "Store Manager," "Assistant Store
Manager" and "Department Manager" have the following average tenures of employment with the Company:

Position

Average Tenure*

Percentage

Hired from

Within*

 Store Manager

over 4 years

71
%

 Assistant Store Manager

over 3 years

76
%

 Department Manager

over 3 years

63
%

*Excludes
stores open less than 13 months.

 3

        8.     We note your statement that your "executive management team has demonstrated its ability to grow [y]our business,
generating cumulative store growth of 81.5% from the beginning of fiscal year 2009 to the end of fiscal year 2011." Please tell us why you have selected this period and why you have not provided
information about other periods. In addition, please balance this disclosure, or otherwise place it in context, by providing comparative information about other periods, such that investors can better
evaluate whether the 81.5% growth rate is representative of your business and potentially predictive of future growth rates. Please make conforming revisions, as necessary, to the prospectus
summary.

 Response:

        The
Company notes for the Staff that the period from the beginning of fiscal year 2009 to the end of fiscal year 2011 was selected in order to provide data to
match the period for which financial statements have been provided in the Registration Statement. The Company has, however, removed the statement from both the Business Section and the Summary in the
prospectus in Amendment No. 1.

 Our Growth Strategies, page 72

 Improve operating margins, page 73

        9.     Please expand your disclosure in the first paragraph on page 73 to provide a brief description of the "SAP enterprise resource planning
system."

 Response:

        We
have revised our disclosure on page 83 of Amendment No. 1 to provide a more detailed description of the "SAP enterprise resource planning
system." We respectfully advise the Staff that we believe the discussion on page 83 under the caption "Business—Information Technology Systems" is the appropriate section in the
Registration Statement to include a more complete description of the SAP enterprise resource planning system.

 Executive Compensation, page 90

        10.   Please revise your disclosure to include a description of the material terms and conditions of your employment agreement with your chief
financial officer.

 Response:

        We
have revised our disclosure on page 97 of Amendment No. 1 to include a description of the material terms and conditions of our employment
agreement with our chief financial officer.

 Underwriting, page 112

 Directed Share Program, page 114

        11.   Please describe for us how your directed share program will work. Also, please provide us with any materials given to potential purchasers of the
reserved shares.

 Response:

        We
acknowledge the Staff's comment and supplementally advise the Staff that Fidelity Brokerage Services LLC, a Fidelity Investments company ("Fidelity")
will be administering the directed share program for us. We will allocate shares to investors, and Fidelity will handle the mechanics for

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distributing
the shares. Fidelity has advised us that the procedures for the directed share program are as follows:

        Names
and email addresses of prospective participants in the directed share program are submitted by us to Fidelity. Fidelity will then email prospective participants to inform them that
they have been identified as potential directed share participants and that to remain eligible they will need to open a Fidelity account. A link is provided to such prospective participants to open an
account online through Fidelity.com. No directed share program materials are sent until a preliminary prospectus containing a price range is available. As soon as a preliminary prospectus containing a
price range is available, Fidelity will email, at our direction, a notice to the prospective participants. Such notice includes a link to the Directed Share Program web site, which includes the
preliminary prospectus, How to Participate Guide, Answers to Frequently Asked Questions and FINRA Qualification Questions, and provides prospective participants the ability to enter, change, delete
and confirm an indication of interest. The written and electronic materials contain only the statements required or permitted to be included therein by the provisions of Rule 134 and the Staff
and, accordingly, comply with the requirements of Rule 134.

        Prospective
recipients of reserved shares are determined after reviewing the account application and other responses contained in such documentation. Prospective purchasers are
instructed that payment is due only if they are allocated shares and must be received by settlement. In addition, prospective purchasers are not committed to buy shares when they enter their
indications of interest. The indication of interest specifically states that entering an indication of interest does not guarantee an allocation of shares and that customers may cancel an indication
of interest without penalty at any time before shares are allocated. Purchasers become committed only after the registration statement is declared effective and participants confirm their indications
of interest and Fidelity accepts the offer. Shares and money are not transferred until after such confirmation is received.

        The
exact number of reserved shares available to prospective purchasers is generally determined prior to, but not later than, the time of the pricing and is a function of (i) the
number of prospective purchasers who have indicated an interest, (ii) the limit indicated by the participant, (iii) the number of prospective purchasers who have properly completed
client questionnaires and account opening documents meeting applicable regulatory requirements and (iv) the ultimate size of the offering, which is determined at the time of pricing. When the
registration statement is declared effective and the offering is priced, we will determine the final allocation of shares among those prospective purchasers who submitted timely and proper indications
of interest in participating in the directed share program. Fidelity will then email each such purchaser to request that they confirm their indication of interest based on the purchase price, the
number of shares in the offering, the purchaser's continued desire to participate and the number of shares they would like to purchase in the directed share program.

        In
order to receive reserved shares, an account must be opened with Fidelity. Participants in the directed share program will not be charged a fee by Fidelity to open an account with
Fidelity and/or to buy shares at the initial public offering price.

        We
and the underwriters have not yet determined whether all recipients of reserved shares will be required to furnish to the underwriters a lock-up agreement, but we expect
that any participant that purchases shares in the program in excess of a to be determined purchase price will be required to sign a 25 day lock-up agreement as discussed in
Amendment No. 1. In addition, consistent with FINRA Rule 5131(d)(2)(A), the lock-up agreements signed by our directors and officers will apply to any shares that such
individuals purchase in our directed share program.

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        In
addition, we will supplementally provide the Staff with the materials to be given to prospective purchasers when such materials have been finalized.

 Financial Statements, page F-1

        12.   Please update your financial statements to include financial statements for an interim period ending within 135 days of the effective date
of the registration statement. Refer to Rule 8-08 of Regulation S-X.

 Response:

        We
have revised our disclosure in Amendment No. 1 to include updated financial statements and related disclosures as required by
Rule 8-08 of Regulation S-X.

 Note 2. Basis of Presentation and Summary of Significant Accounting Policies, page F-7

        13.   We note your disclosure on page F-12 that you receive advertising expense reimbursements from vendors, which are accounted for
as a reduction of advertising and marketing expense. Please tell us whether your vendors provide other consideration, such as buydowns, slotting fees and rebates and, if so, your accounting policies
in regard to such consideration. In addition, please tell us your consideration of disclosing your accounting policies for consideration received from vendors.

 Response:

        The
Company respectfully advises the Staff that the Company does not participate in vendor consideration in the form of buydowns or slotting fees. The
Company's accounting
policies for rebates and consideration received from vendors is included on page F-11 within the accounting policy disclosure for Cost of Goods Sold and
Occupancy Costs.

 Note 17. Selected Quarterly Financial Data, page F-24

        14.   Please provide earnings per share data for all periods presented. Refer to Item 302 of
Regulation S-K.

 Response:

        We
have revised our disclosure in Amendment No