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08/13/2018

Can Vitamin Shoppe Keep Its Momentum Going?

Jamie Grill-Goodman
Senior Editor
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Just weeks before The Vitamin Shoppe's new CEO Sharon Leite takes over, the retailer reported better-than-expected earnings for its second 2018, due in part to soaring digital sales. Shares soared 32.1% on Wednesday after the company reported the news.

Vitamin Shoppe's digital commerce sales increased 36.9%, primarily driven by the success of auto delivery.  However the gross profit rate was offset by increased shipping costs as a result of the digital business growth.

The retailer has been making enhancements to its website, including a new landing page, improved navigation and more content. It also has plans to re-launch buy online pickup in-store (BOPIS).

"Our focus on retail fundamentals is starting to deliver improved performance," said president and CEO Alexander Smith. "In the second quarter we saw improvement across all key metrics including: comp sales, customer acquisition and product margin."

New customer growth was 14% in the quarter, thanks to initiatives to refine media mix, seasonality, incentives, new online capabilities and in-store grassroots marketing programs. Margins also improved across key categories due to tighter control over promotion, product mix shifts and a better cost structure as Vitamin Shoppe works more closely with its vendors.

Vendor Collaboration

"By working both more collaboratively with our vendor partners on pricing as well as joint business planning, we have better insight into which promos and brands are most successful," said chief merchandizing and marketing officer David Mock. "We, along with our partners are now realizing more efficient promotions."

"We have been working closely with our vendor partners to introduce newness into our assortments, the result of this collaboration along with our own efforts on the private brand side, were evident in the quarter as we launched more than 100 unique items in the quarter and in Q3 we will launch more new products than we have launched all year," he continued.

The Vitamin Shoppe recently announced a new vendor incubation program, Launchpad, designed to introduce emerging brands and innovative products.

"We strive to bring only the best products to market and pride ourselves on our ability to identify brands that have the potential to become market leaders," said Mock.

Digital Investment

Capital expenditures for the recent quarter were $9 million, with funds primarily utilized for IT individual investments. Going forward, total capital expenditures for the retailer are expected to be around $30 million, which includes the opening of two new stores and increases in digital investments, which will be the company's largest area of investment.

"We expect steady progress and improvements in comp sales trends," said EVP and CFO Bill Wafford, "driven mainly from continued growth of digital programs and growth in new customer acquisition."

Smith cautioned, "a better quarter and improving trends does not mean we are satisfied or believe that we have things fixed. I do believe however that it indicates that our strategy is directionally correct."

The retailer's next CEO Sharon Leite will take the reins on August 27 and become a member of the board of directors.

"[Leite] has an innate ability to coach and couch high levels of performance from a store fleet, a strong customer first focus and the deep understanding of what it takes to build success in today's retail environment," said Smith. "I'm thrilled she is joining us."