Vitamin Shoppe responds to domestic slowdown with overseas expansion

30-Jan-2017 - Last updated on 30-Jan-2017 at 16:00 GMT

As part of its reinvention campaign, The Vitamin Shoppe is accelerating its overseas expansion and is rationalizing domestic distribution with a new facility in Arizona.

Like some other larger supplement retailers, Vitamin Shoppe has struggled in recent years with soft sales and lower margins. The company has responded with a ‘reinvention’ campaign that CEO Colin Watts in an earnings call said was “a commitment to unlock new strategies to drive margin improvement and cost savings; two, a more innovative approach to driving product solutions and value for our customers both through third-party brands and our own private brands; and three, progress towards a significant transformation of our customer experience both online and in-store.”

Overseas expansion accelerates

The company has responded to continuing flat revenue by slowing the rate of domestic growth. In the third quarter the company closed two stores and opened five within the US. But overseas, where the company has just started to operate, the pace of franchise expansion is picking up rapidly. The company recently announced the opening of its first two franchise stores in Paraguay, and two additional franchise outlets opened in both Panama and Guatemala. Including locations in Costa Rica, the company now has 16 franchise stores operating in four countries outside the US. This overseas expansion, which began first in Costa Rica, only got started in mid 2016.

Vitamin Shoppe has struggled in recent quarters with rising costs which have hurt margins. The company has taken steps to streamline and improve distribution with the additional of a new facility in Arizona. Vitamin Shoppe announced the signing of a lease on a 186,000 sq ft warehouse and distribution facility in Avondale that is scheduled to open in May. The lease is set to run through 2029.

“Having a DC on the West Coast would enable us to provide more reliable and quicker service to meet growing customer expectation,” said CFO Brenda Galgano.

The reinvention is necessary because of the retail giant’s continued disappointing results. Analysts are awaiting the release of the company’s year end 2016 results, due out shortly. Third quarter sales featured tepid sales growth of 0.3% and declining comparable store sales, which were down by 2.3% in the third quarter. Profits, though still robust when measured against other industry sectors, were down, too. The company reported $20.3 million income from operations in the third quarter 2016 of $20.3 million compared to $23.4 million in the same period of the prior year. As a percentage of net sales, income from operations was 6.4% for third quarter 2016 compared with 7.4% for third quarter 2015.