Vitamin Shoppe’s Q4: ‘Margins are not yet where we want them to be,’ says outgoing CEO

By Adi Menayang contact

- Last updated on GMT

Vitamin Shoppe’s Q4: ‘Margins are not yet where we want them to be,’ says outgoing CEO

Related tags: Vitamin shoppe, Sales

The Vitamin Shoppe executives reported a decline in total sales and retail store sales, but a two-digit increase in its digital sales.

The company’s CEO Colin F. Watts, who announced that he will be leaving The Vitamin Shoppe by the end of May, said that “looking back on Q4 and 2017, overall, we are seeing progress in our business recovery,” ​according to the earnings call transcript on Seeking Alpha.

“But margins are not yet where we want them to be,”​ he added. The retailer posted a total comparable sales decline of 4.6% in Q4, and retail store comparable sales decline of 7%.

“We're facing the same situation we have for most of 2017, the vast majority, over 80% of our decline sits in the sports and weight management business,”​ Watts said, echoing his sentiments​ during the company’s earnigs calls in 2017, which sports nutrition category experts have disputed​.

However, digital sales, which includes vitaminshoppe.com and the company’s new Auto Delivery service, were up 15.3%.

High retention for SPARK Auto Delivery

Watts attributed growth in the digital sector partly to the company’s new SPARK Auto Delivery service, which it launched in August last year​. He said that the platform has “exceeded expectations.”

“I'm happy to say that the program which was launched in August 2017 had almost 400,000 active subscriptions by yearend. Importantly, the retention rate and incremental sales contributions are running ahead of our expectations as well,”​ he said.

“Additionally, SPARK Auto Delivery continues to be a major source of incremental growth to our company, fueling our digital commerce push as it brings a novel subscription solution to all our customers. In 2018, we will continue to enhance this platform by focused on upgraded technology and offers geared toward driving stronger cross-selling and upselling to our customers,”​ he added.

The Vitamin Shoppe’s analysis of its customers’ behavior revealed that customers that subscribe to SPARK Auto Delivery see $100 annual increase on overall spending with The Vitamin Shoppe above and beyond their subscription purchases.

“Given the propensity of customers shopping on an omni-channel basis, coupled with our strategy to focus more on omni-channel, we believe the most accurate way to judge how our business is progressing is to look at total cost,”​ said Brenda M. Galgano, the company’s CFO.

“We will also continue to report digital commerce comp, as it is a major focus in area of investment going forward,” ​she added.

Increasing in-store innovation and… possible sale of Nutri-Force?

The recently restructured contract manufacturer Nutri-Force, a subsidiary of The Vitamin Shoppe, “still represents a drag on overall profitability,”​ said Watts.

“As we developed our new three-year plan for Vitamin Shoppe, we have done a thorough review of the future prospects of the Nutri-Force business, and have decided to evaluate a range of strategic options for the operations of the business, including a possible change of ownership.”

A possible sale of Nutri-Force falls in line with the company’s 2018 plan to reduce capital expenditures. “This decrease is driven by the completion of the new Arizona [distribution center] in 2017 and a decrease of new stores to only two planned for 2018, partially offset by increases in digital investments,which is planned to be our largest area of investment,” ​Galgano said.

“We plan to close approximately 10 stores during the year,”​ she added. For comparison, the company closed five stores but added 15 new ones by the end of Q4 2017.

“Although we are slowing new store openings, we remain committed to innovation at the store level,”​ Watts said.

“In 2017, we introduced our Kombucha bar on tap and our Fit Freezer/Cooler section to over 80 stores by year-end. We are also starting to see an increase in both overall basket and frequency of visits in these locations.”

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