In 2014 the company notched $3.20 billion in net sales, meaning the 2015 figure represented only a 0.6% gain. However, CEO Steve Callihane, who has been at the helm of NBTY for about five quarters at this point, characterized the previous year’s results at that time as “very disappointing.”
NBTY is a leading manufacturer of dietary supplements in the US which it sells under the Pure Protein, Nature’s Bounty, Solgar brands and others. It also operates dietary supplement retail locations under the Holland & Barrett International, which has significant operations in Europe and is the largest vitamin retailer in the UK, and under the Vitamin World name in the US and Puerto Rico. The company also has a significant direct to consumer business under the Puritan Pride name and has contract manufacturing operations.
De-emphasis on contract manufacturing
Like some others in the hybrid contract manufacturing/retailing game, NBTY has announced plans to significantly cut back in both contract manufacturing and private label operations. The company was unwilling to put specific numbers around the cutback, but said the reductions would represent a “continued but managed decline of contract manufacturing and private label.”
On the retail side a weak spot was disappointing sales in the company’s Vitamin World retail stores. The company cut has the number of stores from 421 at the beginning of fiscal 2014 to 385 at the end of the current period. Callihane said the company has a plan to reinvigorate the chain using approaches gleaned from successful practices at Holland & Barrett, which was a bright spot for the company.
Holland & Barrett now has more than 1,000 company owned and franchise stores and Callihane said NBTY plans to open more stores in fiscal 2016. Again, he was unwilling to say exactly how many, but in responding to an analyst’s question on the company’s year end earnings call on Wednesday he said the number would be more or less in line with what it did in 2015, when the company opened 51 directly owned H&B stores and 27 additional franchise outlets.
Holland & Barrett bright spot
Of the company’s four major business groups, two showed sales declines while the others rose. Holland & Barrett led the way in terms of sales growth with $851 million in sales, a 14.4% rise over 2014 figures. H&B contributed 26.5% of NBTY’s overall revenue. The company’s biggest division accounting for 58.6% of revenue is the Consumer Products Group, which notched $1.9 billion in net sales, a 3.1% decline over 2014 figures.
E-commerce division Puritan Pride treaded water, bringing in $250 million in revenue in 2015, a 1.4% rise over 2014 levels. This division contributed 7.8% of overall revenue. The company’s smallest division, Vitamin World, brought in $225 million, or 7% of the total. This represented a 3.5% decline from the previous year, which was chalked up to tepid performance in existing stores and fewer stores overall.
Cutting back on number of skus
Callihane said NBTY is embarking on a major plan to revamp the number of skus the company offers. Shelf space at the company’s retail partners is limited, and the company wants to take what he called a “design to value” approach to find the products the customers most want to see and devote more space to those at the expense of under-performing skus. Doing so will help the company return to a point where it is outperforming the category, which Callihane said was expected to grow at a mid-single digit rate for the coming year.
“The focal point of ‘design to value’ is around finding a shopper-preferred assortment to eliminate sku complexity,” Callihane said. “It’s material and represents a terrific opportunity for us to simply our shelf set. It will simply things for the consumer as to what they have to deal with when they walk down the vitamin aisle. And it is taking the complexity out of the supply chain. It both improves customer experience and cuts costs.”
No need for additional regulation
NBTY has had some official dealings with the New York Attorney General on its products in recent months. In response to a question from an analyst about the sweeping indictments and other actions announced by US federal regulators on Tuesday, Callihane had this to say:
“I do think on balance this is beneficial for our company and those companies within the industry that are devoted to quality. We applaud any move to protect consumers and to protect the good companies within our industry. In general we think it will bring the reputation of the industry up,” Callihane said.
The move by regulators had another facet, he said, and that is to reinforce the idea that current US regulations, when properly applied, are ample to maintain a credible industry.
“The calls for new regulations are interesting, but (Wednesday’s) activity shows the focal point should be to use existing regulations to root out bad actors,” Callihane said.