The company’s Q2 2017 earnings report was the weakest one in recent memory. Total net sales in the second quarter were $304.8 million compared to $332.7 million in the same period of the prior year. Reported basic and fully diluted loss per share in second quarter 2017 was $6.73, compared to fully diluted earnings per share of $0.44 in second quarter 2016. Total comparable sales were down 8.3%.
The big driver of the decline was poor results in the company’s sports nutrition categories, said CEO Colin Watts. He attributed this to more promotional spending on the part of competitors, and more competitors getting into the field. Competitors in food, drug, mass channel are adding shelf space for sports nutrition products, he said, and online competition continues apace. And he said certain aspects of the category are unique and differ from the company’s core VMS (vitamin and mineral supplements) category, which by contrast performed much better in the quarter than did sports nutrition. VMS accounts for about two-thirds of the company’s overall revenues, he said.
Sports consumers are price sensitive
“The sports customer tends to be less channel loyal and more price sensitive than our core VMS consumer,” Watts said in an earnings call with analysts yesterday. “There has been a low level of innovation in the sports nutrition category, and as it becomes more commoditized, price and convenience have become bigger drivers of consumption behaviors.”
Watts said that the nature of the category is changing. The sector has now started to resemble more mature straight food categories such as breakfast cereals, in which heavy promotional activity is necessary to shore up sales and brand loyalty.
“We have seen a significant increase in advertising and promotional spending in the market and that caught us by surprise, frankly,” Watts said.
"The results during the quarter were disappointing and the challenges are clear. The market environment evolved more quickly than we anticipated particularly in the Sports categories. We have taken decisive actions to improve our performance directly focused on customer acquisition, price/value and customer retention with programs rolled out across the chain. Additionally, we continue to make progress on our reinvention initiatives and further cost restructuring programs that will help improve results well into 2018,” Watts said.
Stock price plunges
The company has struggled for a number of quarters now with tepid sales and ongoing problems in integrating its Nutriforce contract manufacturing arm, which was supposed to offer vertical integration benefits. Stock traders seem to be losing patience, as the company’s share price plunge by more than 30% yesterday, from about $9.50 a share to about $6.25 today. The company’s share price is off from a 52-week high of $28.56 and an all-time high of $64.13 in early 2013.