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The Vitamin Shoppe advances 'reinvention' amid sales struggles

The Vitamin Shoppe expects mid-single digit sales losses through 2017. Here's what the company is doing to ease the falling sales it has already experienced this year.

Store improvements, competitive pricing, cost reductions and a new supplement subscription program could stem losses at The Vitamin Shoppe, CEO Colin Watts reported during the supplement chain’s second-quarter earnings call Aug. 9.

Vitamin Shoppe sales fell 8.4 percent in the second quarter of 2017 with $304.8 million compared to $332.7 during the same period in 2016. The drop crossed the supplement chain’s channels, with comparable brick-and-mortar store sales declining 7.6 percent and vitaminshoppe.com sales dropping 20.2 percent.

"The results during the quarter were disappointing and the challenges are clear,” Watts said via press release. “The market environment evolved more quickly than we anticipated, particularly in the sports categories. We have taken decisive actions to improve our performance directly focused on customer acquisition, price/value and customer retention with programs rolled out across the chain. Additionally, we continue to make progress on our reinvention initiatives and further cost restructuring programs that will help improve results well into 2018."

Watts announced refocused energy on:

  • Increasing traffic through a newly launched “shop with confidence” campaign.
  • Improving price perception with better pricing on key SKUs, instituting competitive price matching and introducing a hassle-free return guarantee.
  • Continuing cost-reduction efforts.

Meanwhile, The Vitamin Shoppe is launching its SPARK auto-delivery program. The subscription supplement fulfillment program offers a 10 percent discount off the best price offered, double points, a quarterly sample box, and flexible signup and adjustment via smartphone, on the web or in store.

In addition to sales losses, second-quarter 2017 earnings highlights include:

  • Gross profit as a percentage of net sales was 28.4 percent in second quarter 2017, compared with 32.4 percent in the same period of 2016. 
  • Basic and fully diluted loss per share in the second quarter 2017 was $6.73, compared to fully diluted earnings per share of 44 cents in the second quarter 2016. 
  • Adjusted EPS was 23 cents and 55 cents, in second quarter 2017 and second quarter 2016, respectively. 
  • Manufacturing sales to Vitamin Shoppe increased 63.6 percent, while third-party sales decreased 27.8 percent compared with the same period 2016.

The Vitamin Shoppe opened three stores in the quarter and transformed seven into the new brand defining store format. The company plans to introduce the new format to more than 80 stores by year-end. Brand defining stores include improved product assortment, kombucha bars, “fit freezer and cooler” sets, SPARK workshops and nutritionist consultations.

Watts said test stores have improved performance compared with the rest of the chain.

Revised 2017 outlook

The company also announced revised 2017 guidance while modifying its approach by providing guidance around key business levers instead of specific EPS guidance.

Highlights include:

  • An estimated full-year comparable sales decline rate of mid-single digits. This assumes a sales trend improvement.
  • Gross margin rate of 30.2 percent to 30.7 percent. This includes charges associated with the Nutri-Force restructuring and North Bergen closure this year. Excluding these charges, full-year gross margins are estimated from 31.3 percent to 31.8 percent.
  • SG&A expense of $342 million to $347 million, including charges associated with the Nutri-Force restructuring. Excluding these charges, full year SG&A expense could range from $335 million to $340 million.
  • Capital expenditures of $45 million, including build out of a distribution center in Arizona, IT investments, approximately 15 new stores and 10 to 15 brand defining store transformations.

The Vitamin Shoppe trades on the New York Stock Exchange as VSI.

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