Vitamin Shoppe Inc (VSI) Falls…Is the New GNC Holdings Inc (GNC) Gold Card Program to Blame?

Page 1 of 2

GNC Holdings Inc(NYSE:GNC)Health supplement retailer Vitamin Shoppe Inc (NYSE:VSI) announced fourth quarter results recently. Revenue grew only 2% on a reported basis to $218 million, but the company was lapping a 14 week quarter in the prior year. Therefore, on a comparable basis, we think sales grew closer to 10% year-over-year, though the number was still slightly below expectations. Earnings, excluding certain items including the integration costs of Super Supplements and the impact of Sandy, were $0.40 per share, in line with consensus expectations and 29% higher than the same period a year ago.

Same-store sales growth was fairly solid, in our view, up 5.2% year-over-year in spite of a 1.6 percentage point drag from Hurricane Sandy. This lagged competitor GNC Holdings Inc (NYSE:GNC), which reported same-store sales growth of 7.1% during the fourth quarter. Many seem to think that GNC’s new Gold Card program that provides consumers with discounts every day is eating into Vitamin Shoppe Inc (NYSE:VSI)’s sales growth. To some extent, we agree. GNC Holdings Inc (NYSE:GNC) has proven to have a sticky customer base, and it has a larger network of supplement stores.

However, we at Valuentum think the real game changer for GNC Holdings Inc (NYSE:GNC) and Vitamin Shoppe is online competition. As regular supplement users become more educated on the supplements themselves, we believe they tend to search online for the lowest cost rather than looking for in-store convenience and expertise. Not surprisingly, Amazon.com, Inc. (NASDAQ:AMZN) has vendors selling supplements in its marketplace. Again, it’s no surprise that Amazon also has among the lowest prices. Upstart Bodybuilding.com, which has several millions of loyal fans, also provides strong competition in the space. The company has consistently low prices, and it rarely increases product prices out-of-step with market price inflation.

A price comparison on Optimum Nutrition’s Gold Standard Whey Protein reveals the following:

5 LB 100% Whey Protein from ON Price “List” Price Shipping? Total Cost
Bodybuidling.com $52.99 $     74.95 $   7.94 $    60.93
Amazon.com $52.99 $     82.45 $     - $    52.99
GNC.com $54.99 $     92.99 $   1.00 $    55.99
VitaminShoppe.com $52.99 $     99.49 $     - $    52.99

Source: Valuentum, company websites

To compete, GNC Holdings Inc (NYSE:GNC) and Vitamin Shoppe Inc (NYSE:VSI) will have to continue to charge lower prices to match those of Amazon. Although Bodybuilding.com is slightly costlier than competitors, buyers also get several free supplement samples and other free items when ordering (so the above may not be apples-to-apples in terms of complete value add). Bodybuilding.com also has about 300,000 more “likes” on Facebook Inc (NASDAQ:FB) , indicating its popularity with younger consumers that are highly likely to spend a significant amount of money on supplements now and in the future. Still, price transparency and Amazon’s presence will keep margins in check for the industry, in our view.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!