Vitacost.com, Inc. Reports 25% Increase in Net Sales

Vitacost.com, Inc., a leading online retailer and direct marketer of health and wellness products, has reported financial results for the first quarter ended March 31, 2010.

-- Net Sales increased 25% year-over-year to $57.2 million, compared to $45.9 million for the first quarter of 2009
-- The Number of New Customers in the first quarter of 2010 increased 13% year-over-year to 215,950
-- The Number of Back Orders continues to improve - down more than 50% since the end of the first quarter of 2010

First Quarter 2010 Results
For the first quarter of 2010, net sales increased 25% to $57.2 million from net sales of $45.9 million for the first quarter of the prior year. First quarter reported revenue results were in-line with the Company's updated guidance for revenue in the range of $57.0 to $57.5 million. As the Company previously reported, in the latter half of the first quarter, back orders temporarily increased on select NSI proprietary products primarily due to a manufacturing logistics issue at its Lexington, NC plant. As a result, the Company estimates that $1.0 to $1.2 million of revenue shifted from the first quarter to the second quarter. In addition, the Company identified roughly $1.2 million in cancelled orders during the first quarter. However, despite these issues, both of the Company's primary sales categories, propriety and third party products, contributed to the 25% year-over-year revenue increase. Excluding advertising and fees earned from affiliate programs, sales of third party products increased 32.2% year-over-year in the first quarter of 2010. Sales of the Company's proprietary brands increased 13.5% year-over-year.

Gross profit for the first quarter of 2010 increased 9% to $16.4 million, compared to $15.0 million in the first quarter of the prior year. The Company's gross profit margin decreased 410 basis points to 28.6% in the first quarter versus 32.7% in the first quarter of 2009. Despite the negative impact that the manufacturing issue had on sales of proprietary brands, gross margin for the proprietary products increased 400 basis points year-over-year to 60.4% compared to 56.4% last year. Gross margin for third party products declined 10 basis points year-over-year to 26.2%.

Operating income for the first quarter of 2010 was $3.8 million compared to $6.1 million in the same period a year ago. The Company's operating margin decreased to 6.6% from 13.3% for the same period last year. The decrease was primarily due to a lower gross margin and increased operating expenses associated with running duplicate distribution centers in Las Vegas to ensure there were no customer service disruptions while the new distribution center was officially opened.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and related non-cash compensation expense) for the first quarter of 2010 was $5.0 million, compared to $7.0 million in the previous year.

The Company reported a 32.3% tax rate in its first quarter, slightly lower than expected primarily due to the impact of disqualifying dispositions of incentive stock options exercised during the quarter. The lower-than-expected tax rate contributed $0.01 to earnings in the quarter.

Net income for the first quarter of 2010 was $2.5 million, or $0.09 per diluted share, calculated on a weighted average fully diluted share count of 28.5 million shares, versus net income of $3.7 million or $0.15 per share for the comparable period last year calculated on a share count of 23.9 million. The first quarter 2010 earnings per diluted share results were in-line with the Company's updated guidance range of $0.08 to $0.09 per share.

"As we have stated previously, 2010 is a year of investment as we expand and upgrade our distribution centers, and broaden our product offerings. While we are disappointed in our first quarter reported results, our management team has taken the necessary steps to correct the short-term manufacturing logistics situation and we remain on target to eliminate the production bottleneck by the end of the second quarter," said Ira Kerker, Vitacost.com's Chief Executive Officer. "Our management team remains intensely focused on managing the controllable aspects of our business, improving profitability, generating positive cash flow, and gaining long-term market share. Vitacost.com will continue to expand its online health and wellness leadership position by offering our customers superior value and quality on the best selection of products."

Balance Sheet/Cash Flow Highlights
The Company ended the first quarter of 2010 with cash, cash equivalents, and short-term investments, of $44.3 million as of March 31, 2010. Vitacost.com generated $5.4 million in operating cash flow in the quarter, an increase of $991,648 year-over-year.

Outlook
For the second quarter of 2010, the Company expects revenue to be in the range of $57.2 to $58.2 million. Earnings per diluted share for the second quarter are expected to be in the range of $0.09 to $0.10 per diluted share calculated with fully diluted shares outstanding of 29.4 million and using a 38.0% tax rate.

For the full year ending December 31, 2010 the Company reaffirms their updated guidance provided on April 20, 2010. The Company expects revenue to be in the range of $235 to $245 million. The Company expects net income to be in the range of $11.8 to $14.8 million compared to the full year 2009 net income of $12.9 million which excludes the one-time, non-cash stock compensation expense. The Company expects earnings per diluted share to be in the range of $0.40 to $0.50 calculated with fully diluted shares outstanding of 29.5 million.

The Company expects its adjusted EBITDA for the full year of 2010 to be in the range of $24.3 to $28.6 million with approximately $4 million of depreciation and amortization for the full year.

E-Commerce Metrics
A copy of historical e-commerce metrics is available on the Company's website at http://investor.vitacost.com/events.cfm.

Conference Call Information
The Company will also host a conference call to discuss these results and will provide additional comments and details at that time. Participating on the call will be Ira Kerker, Chief Executive Officer, and Richard Smith, Chief Financial and Accounting Officer.

The conference call is scheduled to begin at 5:00 p.m. EDT on May 6, 2010. The call will be broadcast live over the Internet hosted on the Investor Relations section of Vitacost.com's website at www.vitacost.com, and will be archived online through May 20, 2010. In addition, you may dial (877) 407-0789 to listen to the live broadcast.

A telephonic playback will be available from 8:00 p.m. EDT, May 6, 2010, through May 20, 2010. Participants can dial (877) 660-6853 to hear the playback. The account number is 3055 and the passcode is 349388.

About Vitacost.com, Inc.
Vitacost.com, Inc. (Symbol: VITC) is a leading online retailer and direct marketer of health and wellness products, including dietary supplements such as vitamins, minerals, herbs or other botanicals, amino acids and metabolites, as well as cosmetics, organic body and personal care products, sports nutrition and health foods. Vitacost.com, Inc. sells these products directly to consumers through its website, www.vitacost.com, as well as through its catalogs. Vitacost.com, Inc. strives to offer its customers the broadest product selection of healthy living products, while providing superior customer service and timely and accurate delivery.

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