Vitamin Shoppe (NYSE:VSI), one of the largest nutritional products retailers in North America, has just released its first-quarter report. The shares reacted by making a sharp move higher before turning to the downside after the first few hours of trading. Let's take a thorough look at the results and the company's outlook on the rest of the year to determine if this is our opportunity to buy or if we should avoid it and go with a competitor, like GNC (NYSE:GNC), instead.

Source: Wikipedia

The quarterly beat in review
Vitamin Shoppe released its first-quarter report before the market opened on May 7 and the results exceeded analysts' expectations; here's a breakdown:

Earnings Per Share $0.70 $0.68
Revenue $307.84 million $302.52 million

Source: Estimize

Excluding acquisition-related expenses in the first quarters of both 2013 and 2014, Vitamin Shoppe's earnings per share decreased 2.8% and revenue increased 10.3% year-over-year. Total comparable-store sales increased a strong 3.6% for the quarter, which included 2.3% growth at the company's retail locations and a 17% increase in e-commerce sales.

Source: Vitamin Shoppe's Instagram

Gross profit increased 7.7% to $109.47 million and the gross margin took a slight hit, contracting 80 basis points to 35.6%; the company primarily attributed this to the opening of its new distribution center in October 2013 and a higher penetration of e-commerce sales.

In terms of expansion, nine new stores opened up during the quarter including one in Canada, which brought Vitamin Shoppe's total store count to 667. It is also worth noting that Vitamin Shoppe reported $87.8 million in cash and cash equivalents and zero debt at the end of the quarter; this cash will play an instrumental role in the company's continued expansion efforts and other capital expenditures to drive growth.  

Overall, it was a phenomenal quarter for Vitamin Shoppe and its shares opened up 6% in the trading session that followed; however, weakness in the market brought it down quickly and the shares ultimately ended the day down 3.8%. This appears to be a tailor-made buying opportunity, but before we draw this conclusion, let's see what the company expects the rest of the year to hold...

A year of growth and expansion in 2014
In the report, Vitamin Shoppe also reaffirmed its full-year outlook for fiscal 2014; here's what the company expects to accomplish:

Source: Vitamin Shoppe's Facebook

  • Retail comparable-store sales growth in the low to mid-single digits
  • Total comparable-store sales growth including e-commerce in the mid-single digits
  • The openings of 60 new stores
  • Slight decline in its margin

After the results in the first quarter, I believe Vitamin Shoppe is on pace to achieve its full-year guidance, but it will need to ramp up its expansion in the next three quarters to reach 60 new stores. Also, for the second quarter, analysts currently expect earnings per share of $0.66 and revenue of $304.66 million, which represent year-over-year increases of 10% and 9%, respectively, and I believe the company has momentum on its side for achieving these results as well.

With both the earnings results and outlook in hand, I can finally opine that the decline in Vitamin Shoppe's stock is a buying opportunity. 

GNC: the struggling giant
GNC, the world's leading specialty retailer of nutritional products and Vitamin Shoppe's largest competitor, released first-quarter results of its own on May 6. The results fell short of analysts' expectations on both the top and bottom lines and caused a major sell-off in its stock; here's a summary of the quarter:

Earnings Per Share $0.75 $0.76
Revenue $677.28 million $700.31 million

Source: Estimize

GNC's earnings per share increased 2.7% and revenue increased just 1.9% compared to the same period a year ago; these weak results directly reflected a comparable-store sales decrease of 0.7% at company-owned locations in the United States and Canada. Also, gross profit declined 0.1% to $255.99 million and the gross margin contracted 70 basis points to 37.8%, as the company faced a 3.1% increase in costs of goods sold.

Source: GNC Investor Presentation

GNC blamed "severe weather patterns" for these disappointing results, but this is a very weak excuse when you consider the great results out of Vitamin Shoppe. To make things worse, GNC went on to lower its full-year outlook; it now expects earnings per share to be in the range of $3.05-$3.10 versus its previous expectations of $3.18-$3.24, which represents growth of just 7%-9% from fiscal 2013.

In summary, it was a horrible quarter for GNC and its stock reacted accordingly by falling more than 13.5% in the next trading session. This is the third consecutive quarter in which the company has fallen short of analysts' expectations and its shares now sit more than 35% below their 52-week high. I believe investors should avoid GNC because it is not worth the risk, especially when you could go with a proven performer like Vitamin Shoppe instead.

The bottom line
Vitamin Shoppe has just reported great first-quarter results and pointed toward more success over the remainder of the year. Its stock has reacted by moving lower and I believe this is a picturesque buying opportunity. Investors should strongly consider initiating long-term positions right now and adding to them on any further weakness provided by the market. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.