Speaking with analysts during the Q1 earnings call, Colin Watts, Vitamin Shoppe’s CEO, said that negative trends were being driven by sports nutrition, on-the-go nutrition and weight management, and the company is already taking steps to address these trends.
On the positive side, the company reported good performance in some of its core and new categories, “including a return to growth of our core vitamin mineral supplement category, continued strong trends in the digestive aid category led by probiotics, and solid contribution by new categories launched in the last couple of years, such as Protein Pantry and Aromatherapy”, said Watts.
On probiotics, Watts said this is not the kind of category that will to spike in one month. “That being said, I think that there's a steady increase in clinical data to support use of probiotics,” he said. “I think we're hearing more and more customers come in who are getting recommendations from a variety of different clinicians in that direction. And there has been a steady flow of new products in that particular area, both third-party brand and some of our private brand that's helped that particular area.”
The transcript of the recording is available at Seeking Alpha.
Specialty losing share to mass?
When asked if specialty stores are losing out to mass, Watts said that the wellness category is cyclical and that the industry is currently in a challenging period.
“There are periods where there is a degree of innovation and new things have happened and there're periods of time where there are less,” he said. “We're in one of those troughs right now. I think it's incumbent on every specialty retailer to make sure that your experience remains special. And I think that one of the challenges that we have right now is over the last few years there have certainly been a lot of mass players and online players that have taken notice of this very strong category and the strong customers that shop this category and have taken steps to try to improve their position in it.”
Online
The company reported a decline in its Q1 total comparable sales of 1.9%, with retail store comparable sales dropping 2.6% but E-commerce comparable sales increasing 3.9%.
In terms of segment sales, retail was flat at $288M, while direct increased 2.9% to $36M. The third-party manufacturing business declined 6% to $21M.
Gross profit increased $1.6 million, or 1.4%, to $116.2 million in first quarter 2016, compared with $114.6 million for first quarter 2015. Gross profit as a percentage of net sales increased to 34.5% in first quarter 2016, compared to 34.0% in 2015.
“First quarter results reflect growth in ecommerce sales and improvement in gross margins partially offset by lower retail comparable sales growth,” said Watts. “During the quarter we made considerable progress with our reinvention plan as we rolled out some key initiatives which include: an improved loyalty program, new customer acquisition tools and buy online/pick up in store capabilities. In order to help fund our initiatives, we engaged a consulting firm to help us identify opportunities to improve margins and reduce costs.
“We are in the early stages of introducing many new and exciting initiatives to enhance our overall customer experience, which we expect will start delivering benefits as the year progresses.”