Negative media and a lack of innovation: Vitamin Shoppe CEO on ’positive’ but ‘lower than expected’ Q3 results
Speaking with analysts during Vitamin Shoppe’s Q3 earnings call, Tony Truesdale highlighted negative media and a lack of product innovation as contributing factors.
“I think in the last 24 months, you've seen more, probably, negative media than we've seen in quite some time,” said Truesdale. “I mean if you look at the fish oil last July, you look at December 15 of this year, we lapped the multivitamins and the rest of the articles. So I think what we've had is some pressure from the outside. You saw we had a TV celebrity that ended up in Washington, D.C.
“On top of that, there's not been a lot of product innovation in the category. So the combination, I think, of those two things has dampened the sales a bit from what I have historically seen from 2006 to the last, say, 24 months or so.”
The industry is not seeing as many new and unique products as it did four or five years ago, he said.
When asked how to counter the lack of innovation, Truesdale replied: “I think manufacturers have got to start to work to develop new ingredients and get those ingredients tested and get the studies done on those ingredients and then bring that to market.”
Fish oil on the up
In previous earnings calls Truesdale talked about declines in fish oil sales, linked to a negative press following a 2012 meta-analysis questioning the efficacy of omega-3s for heart health and 2013’s controversial prostate cancer study. That picture now appears to be improving.
“When I look at fish oil, sequentially, quarter-to-quarter-to-quarter and year-over-year, it continues to get better and we continue to like the answer there. So I think that's a positive momentum both for fish oil and for what's going to happen with multivitamins when we cycle that in December.”
But one category that continues to be ‘soft’ is weight management, he said.
“The one category that probably affects specialty more than it does the mass would be weight management where that category has been down and trending with the changes in Garcinia, Green Coffee Bean Extract, Raspberry Ketones, those types of things that probably people will go to specialty more often than they go to mass for,” said Truesdale.
“The combination of [Coffee Bean Extract, Garcinia and Raspberry Ketones] were a drag in the quarter, and we expect Garcinia to continue to decline over the next couple of quarters, so there'll be some challenges in weight. So I think those are 2 positive signs that we're going to cycle those.”
Financials
The company reported that total net sales in Q3 increased 13.4% to $308.9 million compared to $272.5 million in the same period of the prior year. Retail revenue increased 6.7% to $260 million, while e-commerce sales increased 10.5%. However, the profitability of the e-commerce business was “below expectations”, said Truesdale, which was attributable to an increase in advertising spend not resulting in the desired increase in sales and profitability. The company's share price declined sharply on the earnings news, dropping from $45.87 to $41.30 within minutes of the market's open on Tuesday. But the price climbed through the rest of the day on Tuesday and into Wednesday, standing at $44.80 after almost three hours of trading.
This article was made possible using a transcript from Seeking Alpha.
