“As expected, Q2 sales continued to be impacted by ongoing industry softness. As a result, total comps were down 1.1% in the quarter . . . The actions we undertook to improve overall profitability did not entirely mitigate the slower revenue trends,” Watts said in an earnings call with analysts. The call was posted in transcript form on the site seekingalpha.com.
Watts said the company has been engaged in a strategy to revamp the company’s marketing approach, which had become somewhat stale. This includes a plan to better integrate online and in store marketing models, and to refocus on higher margin and more in-demand product categories, such as on-the-go nutrition and personal care.
New product mix
“This past June, we commissioned a team of internal leaders here at the Vitamin Shoppe to collaborate with one of the most respected retail reinvention firms in the industry to begin what will be about a year long project to research, test, design, and develop a bold new direction for the Vitamin Shoppe to return our business to strong future growth to truly get us back to where we once belonged,” Watts said.
“Over the past year our fastest growing category has been on-the-go nutrition. As our customers have begun to seek their nutritional fortification from product forms that are increasingly food-based like bars and beverages, we have capitalized on the opportunity to begin to devote increasing shelf space to both functional foods and personal care,” he said.
Watts said the above categories were the best targets for rapid sales growth. The new product pipeline in the company’s core VMS segment is more of an opportunity for incremental growth at this point, he said.
“I think that across sports nutrition, vitamin and mineral supplements we’re seeing a pretty steady stream of new opportunities and new areas of growth. But, as I mentioned, nothing that I would say would be blockbusters on the horizon,” Watts said.
No franchising at moment
Chief financial officer Brenda Galgano said the reinvention work would impact the company’s rate of opening new stores, meaning fewer would come online that was previously forecast. She did say that the company still adheres to its long-term goal of 900 stores. Watts said that unlike rival GNC, which recently announced that it was planning to open more franchise-owned outlets, Vitamin Shoppe plans to have only company stores in the immediate future, though he kept franchising open as a future option.
Earnings details
Total net sales in the second quarter increased 5.3% to $322.3 million compared to $306.2 million in the same period of the prior year. Reported fully-diluted earnings per share in second quarter 2015 were $0.48, compared with $0.55 in second quarter 2014. Excluding non-operating items in both periods, adjusted EPS was $0.57 and $0.62, respectively.