Integrated strategy helps Vitamin Shoppe power through soft patch

05-Aug-2014 - Last updated on 07-Aug-2014 at 15:23 GMT

Vitamin Shoppe, Inc. posted increased sales in the second quarter of its 2014 fiscal year, in line with analysts’ expectations. The company fell slightly short of earnings expectations as the company dealt with softness that has affected the supplement market in general.

Negative publicity

The company performed well despite some of the headwinds that have help back the vitamins and supplement sectors overall. Tony Truesdale, CEO of Vitmain Shoppe, attributed some of teh softening of the sector to negative publicity.

“I think we'll continue to do well through the softness. And then as the business turns around, the market turns around, we'll benefit from that positive momentum. Like I said, two of the biggest categories had negative articles last year, fish oil in July and multivitamins in December. And I think you cycle those at the beginning of next year, and those two big categories should see some growth returned to them. And I think that will be good for the overall industry,” Truesdale said in an earnings call with analysts that was transcribed by the site seekingalpha.com.

New customer strategy

The company also had success attracting new customers, especially through its e-commerce activity, and had success transitioning those customers into steadier consumers of Vitamin Shoppe’s offerings.

“Our marketing plan combines both retention strategies for current customers and acquisition strategies to ensure that we always have new customers. And during the quarter, we did see a significant number of new customers. This, in turn, resulted in our e-commerce sales increasing 14.9% in the quarter and represented our 12th consecutive quarter of double-digit growth,” Truesdale said.

It’s necessary to continually find new customers, both because of expected erosion and also because with customer loyalty comes a curve of diminishing returns, Truesdale said. That curve is part of what drives the company’s product mix, he said.

“If you look at heavy users of supplements, people that are really committed to the category, when they get to the point that they're taking 8 to 10 supplements a day, it's really hard to get them to take the 11th or 12th. And one of the strategies that we've had is to think about our broad assortment. Because of the size of our stores, we've had the ability to leverage other categories that are adjacent to that customer's supplement needs, things like aromatherapy and natural bath and beauty, which are additive to that customer's basket,” he said.

Earnings details

The company also performed well on other measures, such as same-store comparables, in which the company was in positive territory for the 35th consecutive quarter posting a 4% rise. Total net sales in the second quarter increased 9.6% 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. Earnings were depressed primarily because of higher costs in the period relating to the integration of Nutri-Force, a Florida-based dietary supplement manufacturer that Vitamin Shoppe acquired in June for $85 million. The company also announced the opening of 12 new stores in the period with a goal of 60 in all of 2014. Truesdale said the overall target for Vitamin Shoppe stores remains at about 900, with 678 open so far. The company also announced a $100 million share buy back program.