What Vitamin Shoppe’s Recent Earnings Really Mean for Investors

Several weeks ago, GNC (NYSE: GNC  ) disappointed the market with its fourth-quarter 2013 earnings. In doing so, the release also brought down Vitamin Shoppe's (NYSE: VSI  ) stock price by nearly 8% the following day. However, this past week, Vitamin Shoppe released earnings that were positive overall and the stock has rebounded since then.

The supplement industry is extremely fragmented and top retailers like GNC and Vitamin Shoppe only have 6% and 3% share of the market, respectively. Big retailers like Wal-Mart (NYSE: WMT  ) , online retailers like Amazon.com (NASDAQ: AMZN  ) , and even grocery store chains continue to be growing threats as they continue to expand their own supplement offerings.

What do Vitamin Shoppe's recent earnings really mean for investors?

Credit: Michael Carter

Vitamin Shoppe's 2013  performance
Vitamin Shoppe continues to gain momentum as revenue for 2013 increased 14.4% to hit $1.1 billion. Revenue for the fourth quarter surged 17.2%, while net income climbed nearly 16% to $11.2 million. As a result, earnings-per-share, or EPS, was $0.37 for the quarter, which compares favorably to the 2012 quarter's $0.32.

The bigger headline from Vitamin Shoppe's earnings release was that the company reported its 20th consecutive year of positive same-store sales growth, as the statistic came in at 3.5%.

GNC's earnings were actually positive for the most part as revenue for the year rose 8.2% to $2.6 billion while net income hit $265 million. Some of the backlash received by the stock came because the fourth quarter was nearly flat in comparison with 2012's fourth quarter. Additionally, management lowered their 2014 outlook by calling for EPS of $3.18-$3.24. This was well below the $3.46 expected by analysts.

Vitamin Shoppe's edge over GNC
GNC is much larger than Vitamin Shoppe in unit count and scope. Vitamin Shoppe opened 52 new stores in 2013 and even acquired 31 Super Supplements stores. However, the company's current store count of 659 pales in comparison with GNC's 8,593 stores. Furthermore, Vitamin Shoppe's stores are nearly all located in the U.S., while GNC stores are in over 50 countries.

Although it has 13 times as many locations as its peer, GNC's 2013 revenue was just 2.4 times greater than that of Vitamin Shoppe. This suggests that Vitamin Shoppe is more efficient on a square footage basis. The fact that Vitamin Shoppe's online orders were up over 25% in the fourth quarter also suggests that the company is slowly becoming the go-to retailer online when it comes to supplements.

Credit: Vitamin Shoppe January 2014 Presentation

A recent study revealed that 23% of consumers would only buy online if the online retailer provided free shipping. Additionally, another study showed that almost nine out of 10 online shoppers abandon their online shopping carts, and shipping costs were one of the primary reasons for this.

For these reasons, Vitamin Shoppe's free shipping policy on orders over $25 looks much more favorable than GNC's current $2.99 flat-rate shipping policy.

Nevertheless, Vitamin Shoppe's biggest edge may simply be its membership program. GNC has recently modified its Gold Card program to allow customers to use their cards on any day of the year. However, the program still costs $15 per year.

In contrast, Vitamin Shoppe's Healthy Awards program is free and it is based on points that are built up over the course of the year through purchases. At the end of the year, the customer is able to convert those points to dollar amounts, up to a maximum of $540.

The popularity of Vitamin Shoppe's Healthy Awards program has resulted in a more predictable recurring revenue stream for the company. In 2013, 89% of all Vitamin Shoppe sales came from Healthy Awards program members, while GNC Gold Card members were responsible for 75% of GNC sales.

Amazon.com, Wal-Mart, and everybody else
Recently, Amazon.com has lost some of its pricing advantage against supplement retailers like GNC and Vitamin Shoppe. The latest pricing research showed that prices for comparable supplement products rose 1.9% and 0.7% at GNC and Vitamin Shoppe, respectively. However, Amazon.com prices increased 4.9% in the same period.

Big-box retailers continue to expand their supplement offerings as a search for sports nutrition products on the Wal-Mart website brings up over 1,050 results. Most grocery store chains' vitamin aisles have evolved to also include protein powders and other sports supplements.

On the recent news that vitamins are unnecessary
The $23.4 billion global vitamin industry was shaken a few months ago when a study in the Annals of Internal Medicine showed that multivitamins have little benefit. However, the study tried to correlate multivitamin use with the prevention of heart attacks, cancer, and genetic predisposition to diseases. Multivitamins have long been used instead to address nutritional deficiencies.

Furthermore, history favors supplement retailers. For a long time it was a mystery why scurvy occurred in sailors aboard ships. It was later discovered that the disease was due to a vitamin C deficiency. Pellagra became an epidemic in the early 20th century in the American South and it was believed to be contagious. Years later Dr. Joseph Goldberger discovered that the lack of the B vitamin, niacin, was the problem.

Bottom line
Future studies about whether multivitamins are necessary or unnecessary should not impact Vitamin Shoppe. Despite its name, just 11% of its overall sales are related to vitamins. When compared to its chief competitor, GNC, Vitamin Shoppe offers several advantages that include its growth potential, membership program, and online growth.

Credit: RayNata, via Wikimedia Commons

Going forward, management stated that they will include online sales figures in future earnings releases. Because companies usually volunteer to reveal positive earnings data, Vitamin Shoppe may be making a bigger impact online than the market originally thought.

Is Vitamin Shoppe's online growth changing how brick-and-mortar retailers do business?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2863951, ~/Articles/ArticleHandler.aspx, 8/22/2014 5:49:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement