“Results in the [fourth] quarter were mixed,” said Watts in a release. “We are disappointed with top line performance as industry headwinds and lack of new product innovation impacted comparable sales which, in turn, did not meet our expectations.
“There were also some good results in the quarter including; improvement in e-commerce sales, private brand penetration and continued progress with product margins and cost controls.”
Watts told analysts during its Q4 results earning call that retail store comparable sales declined 0.9%, and manufacturing third party sales decreased 13.4%. On the other hand, total sales increased 1.2% primarily driven by growth from e-commerce of 3.9%. The call was transcribed by www.SeekingAlpha.com.
“We are still seeing weakness in key categories that had a negative impact on our comps,” said Watts. “We were expecting recovery of the weight management category in the back half of 2015. And, although we are seeing the rate of decline moderating, there continues to be a drag on comps.
“We also saw the level of competitive promotion in the sports nutrition category increase in Q4, which had a negative impact on our business. We expect this category will remain very competitive and we're in the midst of reviewing our promotion cadence for the remainder of the year.
“On the other side, we are seeing positive contribution to comps from categories such as: cleansing and detoxification, probiotics and our newly introduced Protein Pantry set in the functional foods category.
“We believe that functional and fortified foods area represents an exciting opportunity for growth going forward.”
The Protein Pantry was rolled out last fall and the success to-date means the retailer will seek to expand this. Aromatherapy was also a successful category for Vitamin Shoppe.
Watts was also questioned on whether the negative media around supplements had affected performance, including a recent Frontline TV segment broadcast on PBS.
“I think there's no question that there is a bit of a industry overhang that's occurring right now, and our research would bear out the fact that for the most committed and most, frankly the heavier users of our category, a lot of the negative publicity and some of the regulatory actions that have occurred aren't really having a substantial impact on their buying behavior,” he said. “But I do think it's the folks that straddle the fence, folks that might consider buying their vitamin/mineral supplement through more mainstream retailers, they are probably at this point somewhat negatively impacted by what's occurring in terms of concerns that are being raised by the media.
“We are actively participating with all of the major trade associations. We have taken on further steps in terms of improving quality and we are going to continue to look at ways that we can provide appropriate oversight. We take compliance very seriously. We also view the cooperation that we've been able to present with regulatory authorities as a real sign of the kind of trust we want to continue to build with customers, as well as with folks that are continuing to try to make sure our industry stays on the right side as we move forward.”
Vitamin Shoppe reported that gross profit declined $3.3 million, or 3.5%, to $91.3 million in fourth quarter 2015, compared with $94.6 million for fourth quarter 2014. Gross profit as a percentage of net sales was 31.1% in fourth quarter 2015, compared to 32.6% in 2014.