Vitamin Shoppe Sales, Profit Growth Seen Running Low

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TheVitamin Shoppe ( VSI ) store on Manhattan's Upper East Side was offering plenty of deals last Wednesday.

But Arthur Risk wasn't there for the sales. With list and cart in hand, he was there to do some serious shopping. The health and fitness buff was stocking up on the vitamins, supplements, protein and other nutritional products he buys on his once-a-week visits to a Vitamin Shoppe store.

Risk has been a Vitamin Shoppe customer for 10 years. He's impressed with the good service and perks he gets for being a loyal customer.

"They have a great rewards program," said Risk, of New York City. "And if they don't carry a product, they'll get it for you quickly."

Judging from Vitamin Shoppe's winning track record, the specialty retailer of nutritional products has plenty of loyal customers.

Vitamin Shoppe has seen sales grow by double digits every quarter since going public in October 2009. Profits have grown by at least 30% over that same time frame.

Challenging comps

But if followers are on target, challenging comparisons caused a slowdown in fourth-quarter results, which Vitamin Shoppe will report before the bell Tuesday. Analysts polled by Thomson Reuters expect earnings to rise 5% to 40 cents a share. They see a 4% gain in sales to $223.88 million.

Vitamin Shoppe was affected by a few one-time factors in the fourth quarter. The company had 53 weeks in its 2011 calendar year vs. 52 weeks in 2012.

The extra week added $15.6 million to the 2011 fourth quarter, says Piper Jaffray analyst Sean Naughton. Excluding that extra week's sales, Vitamin Shoppe's fourth-quarter sales will be up 11% to 12%, he estimates, which is consistent with the growth it saw in the first three quarters. Excluding the impact of the extra week in 2011, which accounted for 7 cents a share, fourth-quarter 2012 earnings should be up 30% vs. a year earlier, he says.

Vitamin Shoppe's fourth-quarter results were also hurt by a shift in it BOGO promotion to the third quarter last year from the fourth quarter in 2011. The promotion added roughly 1% to Vitamin Shoppe's 2012 third quarter's same-store sales growth, while reducing comps in the fourth quarter by about the same amount, the company said on its third-quarter conference call.

Vitamin Shoppe was also hurt by Hurricane Sandy. The superstorm affected nearly 30% of its stores and led to the closure of one, says Wedbush Securities analyst Kurt Frederick.

Still, Naughton says the hurricane's effect was offset by a much stronger flu season in 2012, which likely drove a pickup in sales for vitamin C and other remedies in the last four weeks of the year.

He estimates fourth-quarter same-store sales rose 6% vs. a year earlier.

"They still will have a good fourth quarter," said Frederick. "But I'm not expecting a lot of upside, given the challenges impacting them."

That would follow a strong third quarter. Earnings rose 35% to 54 cents a share. Sales grew 14% to $239 million. Same-store sales rose 9.6%.

Overall, analysts expect Vitamin Shoppe to deliver solid results for all of 2012 with earnings forecast to be up 26% to $2.10 a share. They see a 15% rise in 2013 and a 19% increase in 2014.

With the drags behind, Vitamin Shoppe's sales should be up in the double-digits in the first quarter, Frederick estimates.

The North Bergen, N.J.-based Vitamin Shoppe sells nutritional products such as vitamins, minerals, nutritional supplements, herbs and sports nutrition formulas through more than 580 company-operated Vitamin Shoppe retail stores, national mail order catalogs, and its VitaminShoppe.com website.

The company just gained more muscle on the retail store front. This month, it closed on the purchase of Super Supplements, a specialty retailer of vitamins, minerals and supplements for $50 million. The Seattle-based Super Supplements runs 31 stores in Washington, Oregon and Idaho, and expands Vitamin Shoppe's presence in the Pacific Northwest, where it has 17 stores.

Vitamin Shoppe expects Super Supplements to contribute approximately $75 million in revenue in 2013 and be "neutral to slightly positive" to earnings per share as the operating income contribution is offset by integration costs, the company said in a press release announcing the deal in December.

Gaining Scale

"Super Supplements is a great way for Vitamin Shoppe to gain scale quickly in a geography where they were underpenetrated," said Naughton.

Frederick says $75 million in sales will be a nice contribution to 2013. Profitwise, he adds, it probably won't be a big contributor this year, but it will be as time goes on.

Vitamin Shoppe is boosting its presence on another front.

In January, the company's Vitapath subsidiary opened its first two stores in Canada in the Greater Toronto Area in Newmarket and Leaside. Vitamin Shoppe plans to expand its retail stores under the Vitapath banner across Canada, with additional locations to open later in 2013.

Vitamin Shoppe expects the Canadian business to run at a net loss of roughly $1 million this year as it invests heavily in advertising and promotional programs to grow brand awareness, and continues to build the infrastructure to support future store growth.

Naughton says the Canadian business could be "meaningful" over time.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

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