Vitamin Shoppe, Inc., direct retailer of nutritional products through 450 stores, mail-order catalogs and three websites, reported quarterly results on April 21 with net sales of $191.6 million, up 11% year-over-year, and a 7.8% increase specific to its direct sales channel. The company attributes this growth to strong comparable sales in existing stores, strong sales at new stores, and growth in its online business. With gross margins increasing by almost a full point, from 33.0% to 33.9%, the growth comes despite a decrease in Vitamin Shoppe’s promotional expenses. As further evidence of the strong quarter, the company redeemed $20 million in senior debt and expanded its revolving credit facility by $20 million. Vitamin Shoppe plans to open 42 additional stores in 2010, fully funded by excess cash flow.
During the company’s conference call, President Tony Truesdale addressed the direct business in detail: “Our strength in the web business continues to be offset by a decline in the catalog business, and we continue to modify our catalog business as needed and evaluate its impact to our total direct business. The Internet remains an important sales channel for us. We find that many of our customers desire the convenience to shop for their needs online and we don’t expect that to change. Our Internet channel remains a complement to our retail stores. We find that many of our customers come to us online to research products and then come to a store to get the benefit of a live person and the personal knowledge of one of our store associates.” Customers seemed to be buying the multi-channel approach, as both the retail channel and direct channel grew during the quarter. Each maintained their relative share of overall sales, so evidence of online sales cannibalizing retail remains slight.
Vitacost.com also reported earnings on May 6, revising its full-year sales and earnings estimates downward. The online retailer of health and wellness products increased sales to $57.2 million, a 25% increase from the first quarter of 2009, but this falls short of some analysts expectations. New customer accounts grew 13% year-over-year, and the company saw 13.5% growth year-over-year in its proprietary brands.
Those proprietary brands were the problem. Sales of less profitable third-party products contributed to a larger share of sales as manufacturing and logistics disruptions hit the company’s Lexington, North Carolina plant. Back orders of the company’s Nutraceutical Sciences Institute line of supplements increased during the quarter and Vitacost identified $1.2 million in associated lost sales. Duplicate distribution centers running in Las Vegas did not help the matter, as the company sought to maintain uninterrupted service as it brought a new center online.
NBJ Bottom Line
Both Vitamin Shoppe and Vitacost went public last year, two of the first nutritional supplements IPOs in years, and their sales growth stands as testament to the continued financial strength of the supplement category. The trend toward supplements and away from pharmaceuticals in a challenging health care environment is here to stay, especially with an ageing population interested in a better quality of life. Vitamin Shoppe’s results were certainly met with a warmer reception, but the problems at Vitacost seem company-specific and less related to demand than internal production oversights.
At Vitamin Shoppe, direct sales through print catalogs continue to suffer, and online sales continue to grow. Perhaps this is evidence of the ongoing shift to website sales of trusted, branded merchandise, and evidence of a multi-channel approach to retailing—from website to store and back—that works.
For more complete analysis of the major players in marketing online supplements, make sure to check out NBJ’s 2010 Direct Selling in the Nutrition Industry issue, published at the end of the month.