On February 2, 2015 New York Attorney General Eric Schneiderman sent cease and desist letters to GNC, Target, Walgreens and Walmart following a study using DNA barcoding of botanical supplements that found that almost 80% of the supplements tested did not contain DNA of the plants labeled on the product. The response from the industry was swift: Many botanical extracts do not contain DNA because the process is about extracting and standardizing phytochemicals while leaving the mulch behind.
The Attorney General has since moved his focus to demand documents to substantiate the structure function claims on the products, while also expanding his investigation to target four leading manufacturers, including NBTY, Pharmavite, Nature’s Way, and Nutraceutical Corp.
Despite not being involved in any of the actions, Vitamin Shoppe has experienced an impact on its herbal supplement sales, said Truesdale.
“We’ve seen a slight impact, but not a dramatic impact,” he told analysts during the company’s Q4 earnings call.
When asked to compare the recent NY AG’s actions on the herbal and botanical sector with the effects of negative press on multivitamins and fish oil, Truesdale said: “If you look at the size of the herbal category it’s very different from multi’s or fish oils. So the impact is much less significant to the supplement category in total.”
Soft categories
Truesdale told listeners to the earnings call that the category with the most ‘softness’ was weight management.
“You are cycling through a year ago when there was a lot of television around Garcinia cambogia and Raspberry Ketones, those two items in particular, are particularly soft year-over-year. So weight management is going to be a drag through the weight season which is March, April, May,” he said.
Financials
The company announced that total revenue in Q4 increased 13.1%, e-commerce increased 5.6%, and total comparable sales grew 2.1%.
Vitamin Shoppe opened 17 stores in Q4, taking the total new stores in 2014 to 61, and 717 in total.
“We still will be opening new stores as one of the best uses of our capital, as new stores are generating [internal rates of return] significantly above our cost of capital,” said Truesdale.
Significant investments in its online infrastructure also helped it report e-commerce sales growth of 5.6%.
Gross profit increased 10.4% to $94.6 million for Q4 2014, compared with $85.7 million for fourth quarter 2013. On the other hand, gross profit as a percentage of net sales was 32.6% for Q4 2014, compared with 33.4% in Q4 2013, which was attributed to the Nutri-Force acquisition and deleverage on store occupancy costs, said the company.
“Throughout the year, the vitamin, mineral and supplements industry faced many headwinds,” said Truesdale. “Although our comparable sales were not as robust as we had become accustomed to, our broad product selection and attractive value proposition enabled us to deliver our 37th consecutive quarter and 21st consecutive year of positive comparable sales.”
The company also continues to build its loyalty program, called Healthy Awards, and now ended the year with 6.1 million active members.