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Comp sales down, but Vitamin Shoppe looks ahead with confidence

vitamin shoppe
The retailer says it faced a more difficult external environment than it expected in 2016 but is making significant progress with its reinvention strategy, particularly in reducing costs and enhancing margins.

Announcing mixed results for the fourth quarter of 2016, Vitamin Shoppe Inc. expressed disappointment with its comparable store sales but optimism in both its web sales and its company-wide reinvention strategy. Overall comps for the three months ending on Dec. 31, 2016, were down 2.2 percent over the previous year, and retail comps down 1.8 percent. But while three particular categories—sports nutrition, weight management and on-the-go nutrition (mainly protein powders)—drove a significant amount of the comps decline, other categories, led by vitamins, probiotics and specialty equipment, were positive. Total net sales, meanwhile, at $304.9 million, were up 3.9 percent over the same period in 2015.

"Our top-line growth is not yet where we want it to be as fourth quarter comparable sales were disappointing, but generally in line with our expectations," said CEO Colin Watts. "Although the external environment was more difficult than we planned coming into 2016, we made significant progress in rolling out initiatives tied to our reinvention strategy." He said the company is particularly pleased with its progress in reducing costs and enhancing margins, but there’s still a ways to go in implementing the company’s full reinvention vision.

The biggest source of disappointment in the quarter was Nutri-Force, the contract manufacturing business Vitamin Shoppe acquired in 2014. Total Nutri-Force sales were down 8 percent, driven by a 29 percent decline in third-party business, said CFO Brenda Galgano, who added that on the positive side, sales to Vitamin Shoppe increased 36 percent in the quarter. Nutri-Force incurred an operating loss of $2.2 million in the fourth quarter, compared to a $.5 million loss in the same quarter the previous year.

Private brands, however, showed promise. After investing in innovation and marketing, Vitamin Shoppe has seen growth and improved profit in its private brands, for which penetration increased more than 100 basis points, and comps were up 5.4 percent for the quarter and 6.5 percent for the year.

Watts said the company invested $9 million last year in programs to drive its reinvention strategy forward, which he expects, based on early results, to help stabilize both top and bottom line results later in 2017. The company has been focused above all else on upgrading its customer experience in order to become the health and wellness retailer of choice, both in-store and online—while also focusing on differentiating its inventory through partnerships with key national brands and by expanding its private brand portfolio. It's also been working on competing more effectively on value by, for example, renegotiating supply agreements and creating deeper partnerships with its vendor community.

The company has also been making use of data analytics to inform strategies moving forward, looking at profit performance, the vendor community, stores, and an in-depth price and promotion analysis. Vitamin Shoppe’s loyalty program, which captures almost 90 percent of its total revenue, provides a valuable window for analyzing more than 3 billion transactions from the past three years.

Vitamin Shoppe’s web presence and sales are also cause for confidence and optimism, Watts said, adding that the option to buy online and pick up in-store now accounts for nearly 8 percent of online transactions. "It is a clear winner with our best customers," he said, adding that the new site launch included an upgrade to the company’s auto-delivery capabilities—subscriptions for which have been growing steadily. Vitamin Shoppe is also testing a new mobile app and in-store tablet experience—the "V book"— designed to facilitate access to customer loyalty information, product information and purchase history.

These steps, combined with efforts to transform the brand and the in-store format, including adding a rotating nutritionist and sponsoring one-on-one consultations for customers, give the company confidence for the years ahead. "Our goal is to expand these transformations, beginning no later than early 2018, which have a meaningful impact on customer acquisition, retention and overall business growth for years to come," said Watts, adding that new store openings will slow down—with only 15 planned for 2017 and even fewer expected in 2018.

"We remain bullish about our long-term prospects for sustainable, profitable growth," he said.

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