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Actionable news in VSI: VITAMIN SHOPPE Inc,

Vitamin Shoppe, Inc. Announces Second Quarter 2017 Results

Second Quarter 2017 Highlights:

  • Total Comparable Sales Down 8.3%
    • Sports-related categories primary drivers of decline
  • Company Launches Sales Driving Initiatives to Improve Competitiveness
    • New pricing strategy
    • SPARK™ Auto-Delivery subscriptions

Vitamin Shoppe, Inc. (NYSE: VSI), an omni-channel, specialty retailer and manufacturer of nutritional products, today announced preliminary results for the three months ended July 1, 2017. Total net sales in the second quarter were $304.8 million compared to $332.7 million in the same period of the prior year. Reported basic and fully diluted loss per share in second quarter 2017 was $6.73, compared to fully diluted earnings per share of $0.44 in second quarter 2016. Results in second quarter 2017 include the following pre-tax expenses; $168.1 million for impairments and $13.7 million charge associated with the Nutri-Force turnaround, while second quarter 2016 results include approximately $3.4 million of costs related to strategic initiatives. Excluding these items in both periods, adjusted EPS was $0.23 and $0.55, in second quarter 2017 and second quarter 2016, respectively. Second quarter 2017 was also negatively impacted by $1.2 million from discrete tax charges related to changes in accounting for stock compensation and other permanent tax differences. (Refer to Table 4 at the end of this press release.)

Commenting on the quarter's results, Colin Watts, Chief Executive Officer of the Vitamin Shoppe stated, "The results during the quarter were disappointing and the challenges are clear. The market environment evolved more quickly than we anticipated particularly in the Sports categories. We have taken decisive actions to improve our performance directly focused on customer acquisition, price/value and customer retention with programs rolled out across the chain. Additionally, we continue to make progress on our reinvention initiatives and further cost restructuring programs that will help improve results well into 2018."

Second Quarter 2017 Results
Total sales of $304.8 million in the quarter were 8.4% lower than the same period of the prior year. Total comparable sales were down 8.3% in the quarter reflecting a 7.6% decline in retail store comparable sales and a 20.2% decrease in vitaminshoppe.com comparable sales. The decrease in comparable sales was partially impacted by a sales promotion last year that was not repeated, as well as ongoing challenges with the sports customer. The Company opened three stores in the quarter, and transformed seven into the new brand defining store [BDS] format. Manufacturing sales to Vitamin Shoppe increased 63.6%, while third party sales decreased 27.8% from the same period of the prior year as the Company continues to right-size this business.

Cost of goods sold, which includes product, distribution, manufacturing and store occupancy costs, decreased $6.7 million, or 3.0%, to $218.2 million for the three months ended July 1, 2017, compared with $224.9 million for the three months ended June 25, 2016. During the quarter, the Company reported a $10.7 million restructuring expense for Nutri-Force related to inventory obsolescence and equipment impairment charges.

Gross profit of $86.6 million was 19.7% lower than $107.8 million in second quarter 2016. Reported gross profit as a percentage of net sales was 28.4% in second quarter 2017, compared to 32.4% in the same period of 2016. Excluding the inventory charge mentioned above, gross profit was $97.3 million in the quarter and the adjusted gross profit as a percentage of sales was 31.9%. The second quarter 2017 year over year decrease was primarily due to deleverage in occupancy and supply chain from lower sales. This was partially offset by improvements in margin from favorable category and private brands mix shifts and lower costs through new vendor partnerships.

Reported selling, general and administrative expenses (SG&A), including operating payroll and related benefits and advertising expense, was $86.8 million for the quarter ended July 1, 2017, compared with $87.1 million for the quarter ended June 25, 2016. SG&A in second quarter 2017 included $3.0 million in turnaround expenses for Nutri-Force. SG&A in second quarter 2016 included $3.4 million related to strategic initiatives. Excluding these items for both periods, SG&A as a percent of revenue was 27.5% in second quarter 2017 and 25.2% in second quarter 2016. (For further information on adjustments see Table 4 at the end of this release.) The increase in the SG&A rate in second quarter 2017 was primarily driven by deleverage due to lower sales.

During the second quarter, impairment indicators were identified, including a significant decline in both the quarter's performance and the Company's market capitalization. An interim test on the valuation of intangible assets was performed, including revised expectations on future performance which resulted in a goodwill impairment charge of $164.3 million for the retail reporting unit. In addition, a $3.8 million impairment charge for the fixed asset balances for 24 retail store locations was recorded.

Reported operating loss in second quarter 2017 of $168.3 million compared to operating income of $20.7 million in the same period of the prior year. Adjusted for the items noted in the preceding paragraphs, income from operations as a percentage of sales was 4.4% in second quarter 2017 and 7.2% in second quarter 2016. (See Table 4.)

The overall effective income tax rate for the quarter was impacted by partial non-deductibility of the goodwill impairment charge and other permanent tax differences. Of the $164.3 million goodwill impairment charge, $130.9 million was not deductible for tax purposes. Additionally, during the second quarter, $1.2 million of discrete tax charges were recorded in income tax expense. These adjustments relate primarily to the effect of the new accounting guidance. The Company adopted in fiscal 2017, ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, requiring excess tax benefits and deficiencies from stock-based compensation to be recorded in tax expense in the period in which they occur.

Reported net loss was $156.4 million for second quarter 2017 compared to net income of $10.4 million in the same period of the prior year. Reported loss per share was $6.73 in second quarter 2017, compared to earnings per share of $0.44 in second quarter 2016. Earnings per share, on an adjusted basis (for the items described in Table 4), was $0.23 and $0.55 for the second quarters of 2017 and 2016, respectively.

Balance Sheet and Cash Flow
Cash and equivalents at July 1, 2017 were $2.0 million. At quarter end, the Company had $3.0 million borrowed on its revolving line of credit and a convertible notes liability of $123.6 million.

Capital expenditures were $18.2 million in the quarter. Funds were primarily expended on the new distribution center, new and remodeled stores, supply chain, digital and other IT investments.

Additional Information
The Company plans to close the North Bergen, New Jersey distribution center prior to, or by, the August 31, 2018 lease expiration. Distribution...


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