The medical industry long ago moved to a specialized business
model, where patients see different doctors for different needs
rather than depend on a single physician to check out all of
The health and nutrition industry has followed that lead. It
wasn't that long ago that consumers who wanted vitamins or health
foods were usually stuck with whatever they could find at the
local drug or grocery store.
No more. A rising number of organic groceries and health food
stores now compete with traditional supermarkets for grocery
dollars. Similarly, traditional pharmacies are seeing competition
from the growing number of stores that specialize in vitamins and
Vitamin Shoppe (
) operates more than 500 of those stores nationwide. It might end
up doubling that number before its expansion plans are
Analysts figure there's plenty of demand to justify that
growth strategy, thanks to an ever more discerning class of
"There's been a shift toward specialized retail channels, and
Vitamin Shoppe benefits from that," said Damian Witkowski,
analyst at Gabelli & Co.
"If you work out regularly, watch your diet, care about your
health and want to learn more about vitamins, you want to go get
an expert opinion," he added. "Vitamin Shoppe offers that.
Grocery stores and other retailers don't have that kind of
In addition to vitamins, Vitamin Shoppe sells herbs,
homeopathic drugs, minerals, specialty supplements, sports
nutrition, weight management and other products. It sells through
retail, Internet and mail order catalogue channels.
As of Jan. 28, it had 533 stores in 40 states and Puerto
Vitamin Shoppe mainly competes against Pittsburgh-basedGNC
), a much larger global operation with locations in 48 countries.
GNC boasts more than 4,800 retail locations in the U.S.,
including more than 1,000 franchise and 1,200 Rite Aid
Witkowski estimates the vitamins and supplements market in the
U.S. at about $27 billion and growing.
Vitamin Shoppe and GNC have both benefited from an increased
focus on health and nutrition.
"The market has been growing consistently for many years as
more consumers show an interest in sports nutrition and health,"
Wall Street has taken note. GNC's stock, which debuted in
April 2011, hit a record high of 41.95 on April 27 and currently
trades near 39. Vitamin Shoppe shares touched an all-time high of
55.35 on Friday.
Much of Vitamin Shoppe's attraction to investors is its
consistent financial growth, experts say. The company almost
always delivers double-digit or better revenue and earnings
Its sales have grown an average of 12% a year over the last
five years. EPS have averaged 60% growth over the same
The company posted first-quarter earnings of 61 cents a share,
up 30% from the prior year and 4 cents above consensus views.
Revenue rose 14% to $248.1 million, also above estimates.
Same-store sales climbed 9.6% from a year earlier, while
e-commerce sales grew 15%.
The operating margin rate rose 96 basis points from the prior
year to 12.3%.
"The company was able to leverage space and supply chain costs
(so that) relatively modest gains on the top line were magnified
on the bottom line," Zacks Equity Research noted in a recent
Commenting on Vitamin Shoppe's Q1 results, JPMorgan analyst
Christopher Horvers said in a note that a "stepped-up media
presence" contributed to gains in foot traffic from new and
existing customers during the quarter.
"Vitamin Shoppe saw strong performances in all categories,
including consistently good sales in sports nutrition,
homeopathic and specialty supplements, and strength in weight
management and meal replacement as well as on the go drinks and
natural proteins," Horvers said.
Strength in these categories helped offset deceleration in
commodity products, such as multivitamins, he added.
Vitamin Shoppe's stock price shot up 21% over a two-session
period following its first-quarter results, establishing a
then-record closing high of 54.07 on May 9. Shares have continued
to push higher since then.
Analysts surveyed by Thomson Reuters expect Vitamin Shoppe to
grow annual earnings 17% this year and 18% in 2013.
Despite the company's name, vitamins contribute only 13% of
its overall sales. Sports nutrition and specialty products each
generate a little less than 30% of the total. Herbs and
botanicals provide 20% of sales, with the rest coming from meal
supplements, minerals and other products.
About 25% of Vitamin Shoppe products are higher-margin
proprietary brands, such as Vitamin Shoppe, Body Tech and True
All of Vitamin Shoppe's stores are located in the U.S.
Although the company has plans to move into Canada next year with
a couple of stores, analysts figure it still has plenty of room
to grow in the U.S. before it needs to make a bigger move
"They are exploring a smaller store concept which will expand
their potential in the U.S.," Witkowski said. "They talk about
having about 900 stores over time in the U.S., which I think is
still a little conservative."