Vitamin Shoppe: Will First-Quarter Earnings Fuel Another Rally?

Vitamin Shoppe (VSI), the North American retailer of nutritional products, has just announced that it will be releasing first-quarter results on May 7. The last time the company reported earnings, its stock soared more than 8%; investors are hoping for a similar performance this time around. Let's take a look at the most recent earnings report and the expectations for the upcoming release, then take a quick look at one of its largest competitors, Herbalife (HLF 2.83%), to determine if we should be buying a long-term position right now or if we should wait to see what the report holds.

Source: Vitamin Shoppe's Instagram

The last time out
On Feb. 25, Vitamin Shoppe released its fourth-quarter report to finish off fiscal 2013. The results more than satisfied expectations. Here's a breakdown:

Source: Benzinga

Earnings per share increased 15.6% and revenue increased 17.2% year-over-year, driven by a strong 4.6% growth in same-store sales. This marked the 33rd consecutive quarter of positive same-store sales, showing the immense strength of the Vitamin Shoppe brand.

Source: Vitamin Shoppe's Twitter

Gross profit increased 12.2% to $85.7 million and the gross margin took a slight hit, declining 150 basis points to 33.4%. However, it is very important to note that this decline in the gross margin was largely due to the opening of the company's new distribution center in Virginia. In addition, 19 new stores were opened during the quarter, bringing Vitamin Shoppe's total count to 659.

Overall, it was a fantastic quarter for Vitamin Shoppe. The market reacted accordingly by sending shares more than 8% higher in the trading session that followed. Shares have continued higher in the months since and strong first-quarter results could keep the rally alive.

Expectations & what to watch for
First-quarter results are due out before the market opens on May 7 and the current estimates call for mixed growth. Here's an overview:

Source: Estimize

These expectations call for earnings per share to decrease 5.6% and revenue to increase 8.4% compared to the first-quarter of 2013. These seem quite conservative following the strong fourth-quarter, but key metrics aside, there will be two other important statistics and updates to watch for:

Source: Vitamin Shoppe

1. It will be crucial for Vitamin Shoppe to provide guidance for the second-quarter that is within analyst expectations. Currently, the consensus estimates call for earnings per share of $0.66 and revenue of $304.94 million, representing year-over-year increases of 10% and 9.1%, respectively.
2. Watch for the number of new stores opened during the quarter and make sure Vitamin Shoppe is on pace to meet its yearly expectations of 60 net new locations. Expansion will be key to the company's long-term success and I believe it could easily grow its store count over 1,000 by 2020.

A positive indicator for Vitamin Shoppe?
Herbalife, one of the largest suppliers of nutritional products in the world, recently released first-quarter results of its own and it gave us a strong feel for the condition of the industry and the consumer. Here's a brief summary of the results:

Source: Benzinga

Earnings per share increased 18.1% and revenue increased 12.4% year-over-year, resulting in the best first quarter in Herbalife's history.

Source: Herbalife

Worldwide volume rose 9% and this was led by 91% growth in China, 25% growth in Europe, the Middle East, and Africa, and 9% growth in North America. Herbalife's gross profit increased 12.7% to $1.01 billion and the gross margin showed strength, expanding 20 basis points to 80.1%.

These strong results allowed the company to raise its full-year outlook. The company is now calling for earnings per share in the range of $6.10-$6.30, revenue growth of 10%-12%, and volume growth of 8%-10%. If these expectations were to come true, it would result in a record-setting yearly performance.

Although Herbalife is under investigation for potentially being a pyramid scheme, its earnings results indicate that demand for nutritional products was strong during the first three months of 2014. Its outlook on the rest of the year also paints a positive picture for the industry. These are both positive indicators for Vitamin Shoppe and further support the idea of placing an investment today.

The Foolish bottom line
Vitamin Shoppe is a great American brand in the growing nutritional products industry. The company's stock has been on a tear ever since it released fourth-quarter results in February, and I believe a similar performance will follow its first-quarter earnings. Foolish investors should strongly consider initiating a position right now, as I believe it will outperform the overall market for the remainder of 2014 and for next several years.