Vitamin Shoppe Inc., a multichannel specialty retailer of nutritional products, announced preliminary results for the three months ended June 28, 2014. Total net sales in the second quarter increased 9.6 percent to $306.2 million compared to $279.5 million in the same period of the prior year. Reported fully-diluted earnings per share in second quarter 2014 were $0.55, compared with $0.60 in second quarter 2013. Excluding non-operating items in both periods, adjusted earnings per share was $0.62 in second quarter 2014 and $0.60 in second quarter 2013.
Commenting on the quarter's results, Tony Truesdale, chief executive officer of the company, stated, "Our products and marketing efforts resonated with consumers and drove traffic to both our stores and website. I am pleased that new customer growth contributed to another quarter of double-digit e-commerce growth for the company. These efforts are being reflected in total comparable sales, which were positive for the 35th consecutive quarter. Additionally, during the quarter we took a significant step to drive future growth with the acquisition of Nutri-Force, a contract manufacturer of vitamins, minerals and supplements. Being vertically integrated is strategically important to the Vitamin Shoppe and the acquisition brings many long-term benefits to the company."
Mr. Truesdale concluded, "Reflecting our solid financial position and sustainable cash generation, the Board recently authorized a $100 million share repurchase program. The buyback enables us to return cash to our shareholders. We still see many exciting opportunities ahead of us and will continue to invest in initiatives to support long-term growth."
Second quarter 2014 results
Sales growth in the quarter was driven by: 1) a 4.0 percent increase in comparable retail store sales, 2) growth from non-comp stores, 3) a 14.9 percent increase in e-commerce sales, and 4) manufacturing revenue of $4.2 million. Total comparable sales were 5.1 percent, including e-commerce sales.
Cost of goods sold, which includes product, warehouse, distribution, manufacturing and store occupancy costs, increased $21.1 million, or 11.6 percent, to $203.3 million for the three months ended June 28, 2014, compared with $182.2 million for the three months ended June 29, 2013. The quarter included an additional $1.2 million charge from adjusting Nutri-Force inventory to fair value as part of purchase accounting.
Gross profit increased $5.7 million, or 5.8 percent, to $102.9 million for 2014 second quarter, compared with $97.3 million for second quarter 2013. Gross profit as a percentage of net sales was 33.6 percent for the quarter ended June 28, 2014, compared to 34.8 percent in second quarter 2013. The decrease was attributable to; the new distribution center, the impact of the Nutri-Force acquisition, shifts in product category sales mix and higher penetration of e-commerce sales.
Selling, general and administrative expenses (SG&A), including operating payroll and related benefits, advertising expense, depreciation and amortization, and other SG&A, increased $8.1 million, or 12.1 percent, to $74.7 million for the quarter ended June 28, 2014, compared with $66.7 million for the quarter ended June 29, 2013. SG&A includes approximately $2.2 million of acquisition-related transaction and integration costs. SG&A in second quarter 2013 included transaction and integration related expenses for the Super Supplements acquisition offset by insurance recoveries from Superstorm Sandy. Reported SG&A as a percentage of net sales was 24.4 percent for second quarter 2014 compared with 23.9 percent in second quarter 2013. Excluding non-operating items for both periods, SG&A as a percent of revenue was 23.7 percent in second quarter 2014 and 23.8 percent in second quarter 2013.
Income from operations in second quarter 2014 of $28.2 million compared to $30.6 million in the same period of the prior year. As a percentage of net sales, income from operations was 9.2 percent for second quarter 2014 compared with 10.9 percent for second quarter 2013. Adjusted for non-operating costs of goods sold and SG&A items in both periods, income from operations as a percentage of sales was 10.3 percent in second quarter 2014 and 11.0 percent in second quarter 2013.
Net income was $16.9 million for second quarter 2014 compared to $18.3 million in the same period of the prior year. Reported earnings per diluted share were $0.55 in second quarter 2014 compared with $0.60 in second quarter 2013. Second quarter 2014 includes an estimated $0.07 per share of acquisition-related expenses. The second quarter 2013 included an estimated $0.02 per share impact related to the Super Supplements acquisition offset by a $0.02 per share insurance recovery from Superstorm Sandy.
Balance sheet and cash flow
Cash and equivalents at June 28, 2014 were $15.0 million and the company has no debt. Capital expenditures, excluding acquisitions, were $10.5 million in the quarter. As previously announced, on June 6, 2014 the Company purchased FDC Vitamins, LLC, doing business as Nutri-Force Nutrition, a contract manufacturer of vitamins, minerals and supplements. The purchase price was approximately $81 million, excluding contingent consideration, and was funded with available cash.
Management expects the following for 2014:
- Total comparable sales growth, including e-commerce, of 4 percent to 5 percent for the year
- Approximately 60 new stores
- Depreciation and amortization of approximately $33 million
- EBIT margin decline of approximately 100 basis points compared to 2013
- Capital expenditures of approximately $40 million