Supplements giant NBTY significantly outperformed the US market in April, May and June, according to Nielsen data, bosses have claimed.
On a conference call with analysts to discuss its third quarter results, chief executive Jeff Nagel said:
“According to Nielsen data, for the 13 weeks to July 2, overall sales of vitamins, minerals, health and supplement products in the US food, drug and mass merchandise channel excluding Walmart grew 4.6 percent.
“At NBTY we significantly outpaced the industry and had wholesale sales growing at 9.6 percent. Similarly we also continued to gain share in the diet and sports nutrition category in the same period.
"This grew 10.4 percent in food, drug and mass, but our sales at NBTY in food, drug and mass grew 32 percent.”
The firm, which posted a 14.3 percent rise in net income to $75.63m on net sales up 10 percent to $763m in the three months to June 30, said gross margins had also improved as it sold more higher-margin branded products and benefited from favorable pricing and promotional activity in its retail business.
Competitive pressures in private label are denting margins
However, competitive pressures continued to dent profit margins in its private label supplements business. “Due to competitive pressure … we anticipate that cost of sales for our private label business as a percentage of net sales could increase in future quarters. This would adversely affect gross profits during the affected periods.
“To address this, we are in the process of implementing additional improvements in supply chain management and we are also increasing our focus on our branded sales.”
While bosses did not comment on litigation during the call, NBTY’s SEC filings for the quarter reveal it is facing legal action on several fronts.
Discovery was ongoing in one class action (Hamilton and Taylor v. Vitamin World) filed in California against NBTY’s Vitamin World chain claiming “among other things, wage and hour violations”, said the firm.
“The Company challenges the validity of the claims and intends to vigorously defend this action.”
Separately, NBTY is in discussions about settling another class action filed in California last April citing wage and hour violations in other parts of the business (Dirickson v. NBTY Acquisition, LLC, NBTY Manufacturing, LLC, NBTY, Inc., and Volt Management Corporation).
“The NBTY entities have entered into settlement discussions with the plaintiffs, and those discussions are ongoing. Until such settlement is finalized, however, no determination can be made as to the ultimate outcome of the litigation or the amount of liability, if any, on the part of the defendant.”
Finally, it is contesting a class-action filed in New York (John F. Hutchins v. NBTY, Inc., et al) claiming “NBTY and certain current and former officers” made “false material statements, or concealed adverse material facts” in order to persuade members of the class to buy its stock at allegedly artificially inflated prices.
These claims were without merit, said the firm. “The Company moved to dismiss the amended complaint on March 18, 2011 and that motion is pending. We believe the claims to be without merit and intend to vigorously defend this action.”
Q3 results breakdown
Net sales in NBTY’s Wholesale/US Nutrition division (which supplies branded and private label products for leading retailers) increased 5.5 percent to $458.5m in the third quarter, which the firm attributed to higher sales of branded products such as Nature’s Bounty, Pure Protein and Body Fortress.
However, these increases were partially offset by lower net sales from certain contract manufacturing agreements and private label products, which decreased by $14.6m primarily as a result of the highly competitive environment in private label, it said.
Net sales in the European Retail arm (which includes Holland & Barrett and Julian Graves in the UK, De Tuinen in Netherlands and Nature’s Way in Ireland) surged 18.4 percent to $180m on the back of successful promotional activity and favorable currency movements (the British pound gained vs the dollar).
Sales in the direct Response/E-Commerce channel were up 19.7 percent while North American Retail sales (Vitamin World in the US, Le Naturiste in Canada) were up 8.6 percent to $57.1m, said Nagel.
“The [North American retail] business used to be more high-low on pricing but we’ve focused it much more on EDLP (every day low price). We’ve also rationalized the store base and have also really changed the look of the merchandising and bottles considerably. There is a much cleaner look and the product really pops off the shelves.”