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Is Vitamin Shoppe Still A Strong Buy?

By Daniel Jones – Mar 6, 2014 at 5:00PM

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After reporting earnings for the fourth quarter of its 2013 fiscal year, are shares of Vitamin Shoppe still an attractive investment or should shareholders consider looking at GNC Holdings instead?

Source: Vitamin Shoppe

Feb. 25 was a strong day for Vitamin Shoppe (VSI). After reporting fourth quarter earnings per share that matched analyst expectations and revenue that surpassed estimates, shares of the nutritional supplements retailer rose 8%, followed by another 2% gain a day later. At this point, shareholders of the company are likely asking themselves what to do. Is now an opportune moment to take some cash and find something better, or is the company still destined for great things?

Earnings were strong!
For the quarter, Vitamin Shoppe reported revenue of $256.4 million. This is slightly higher than the $253.3 million that Mr. Market anticipated and 17% higher than the $218.9 million the company reported the same quarter a year earlier. In its earnings release, management attributed the rise in revenue to four factors: improved comparable store sales, higher store count, greater e-commerce sales, and the impact from its Super Supplements acquisition.

Throughout the quarter, Vitamin Shoppe saw its comparable-store sales rise 4.6%. Including the company's e-commerce operations, which saw revenue rise by 25.5%, the business's comparable sales jumped an impressive 6.2%. On top of this, the company was allocated $16.8 million in sales for the quarter thanks to its acquisition of Super Supplements. Without this, the company's top line would have only risen by 9.5%.

On top of these factors, the company benefited from a rise in store count. During the quarter, Vitamin Shoppe added 19 stores to its roster, bringing its 2013 additions to 52 (excluding the 31 stores acquired as a result of its Super Supplements acquisition.) In total, this represents a nearly 14% jump in the company's number of locations in operation for the year.

In terms of profitability, the company did well but not great. In its release, management said that the company's earnings per share came out to $0.37. This represents a 16% jump in earnings for the quarter and was driven by its rise in sales and its ability to prevent costs from rising in relation to revenue.

Is Vitamin Shoppe the best candidate?
Despite the company's strong earnings release for the quarter, shareholders should look at the bigger picture to see if an investment in the company makes sense. Doing so would show a company that has, historically, demonstrated fantastic growth in terms of both revenue and net income.

Between 2009 and 2013, for instance, Vitamin Shoppe saw its revenue skyrocket 61% from $674.5 million to $1.1 billion. In part, this was due to a 50% jump in its number of stores in operation from 438 to 659, but was also attributable to an increase in comparable store sales and higher e-commerce business. The improvement in these factors can be seen in the table below:

Source: Vitamin Shoppe

As we can see, Vitamin Shoppe has grown its revenue per store all while increasing its store count. As of the end of the company's 2013 fiscal year, its revenue per store stood at $1.65 million, 7% higher than the $1.54 million the company reported for 2009.

But Vitamin Shoppe isn't the only impressive growth story in town. Over the same timeframe, GNC Holdings (GNC) saw its revenue rise 54% from $1.7 billion to $2.6 billion. While this doesn't look as attractive as Vitamin Shoppe's performance, it's certainly nothing to balk at.

Source: GNC Holdings

Based on the table above, which excludes the company's store-within-a-store concepts run by Rite Aid, we see that GNC is far larger than Vitamin Shoppe in terms of revenue and store count, but it's nowhere near as capable of generating revenue as its smaller peer.

On a square foot basis, it's difficult to tell how both companies fare because GNC only states that its stores average between 1,000 and 2,000 square feet, whereas Vitamin Shoppe gives a straightforward 3,600 square foot estimate. Because of the limited data, we can't say for sure whether or not GNC, which posts revenue of $327 to $653 per square foot, is more profitable than Vitamin Shoppe, which brings in revenue of $455 per square foot.

Foolish takeaway
As we can see, Vitamin Shoppe posted strong results for its most recent fiscal quarter. This, combined with the strong five-year revenue growth experienced by the company, suggests that it could be an attractive investment prospect for the Foolish investor. However, shareholders should not forget that GNC, which has a larger footprint and has a key partnership with Rite Aid, has seen revenue growth that is comparable with Vitamin Shoppe's.

Daniel Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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