Vitacost.com Announces Results For Second Quarter 2011 And Provides Update On Long-term Sales Growth Initiatives

Vitacost.com, Inc. (NASDAQ:VITC), a leading online retailer and direct marketer of health and wellness products, reported financial results for the second quarter of 2011 and provided updates to its long-term sales growth initiatives previously outlined on June 16 ^th, 2011 in conjunction with the conclusion of the Strategic Review. In addition, the Company announced that it has named Robert “Bert” Wegner as Chief Operating Officer. Mr. Wegner has over 20 years of logistical experience and was formerly the Director of Operations, North America at Amazon.com from 2006 through 2010. He served in other senior operational and managerial roles at Amazon from 1999 through 2006. His initial responsibilities include fulfillment, manufacturing and customer service.

"We are making progress on our initiatives to drive the top-line as we look to grow sales at a faster pace in order to leverage our fixed cost structure," said Jeffrey J. Horowitz, the Company's Chief Executive Officer. “We are thrilled that Bert has joined the Vitacost.com team as he will be instrumental in helping manage the business towards long-term profitable growth.”

Sales Growth Initiatives

The Company provided additional details on its long-term sales growth strategy. Key initiatives include:

• Expand Customer Base: New customer additions are a top priority in 2011. The Company believes that due to the high number of repeat purchases made by existing customers, an expanded base will create long-term value. To that end, the Company has extended its reach on the internet beyond its www.vitacost.com website and is now selling products through online marketplaces and testing new marketing vehicles such as daily deal sites and offline magazines. In the second quarter of 2011, the Company added 157,200 new customers, bringing total active customers to 1.2 million at June 30, 2011, up 10.2% year-over-year.
• Expand Product Offerings: The Company has increased the number of new proprietary product launches in 2011 from 100 previously announced to a new goal of 150 by year-end. An estimated 135 of these are scheduled to be launched under the Vitacost VMHS label. Year-to-date, the Company has launched approximately 88 new proprietary products, 40 of which were launched in the second quarter of 2011. On the third-party side, the Company added 2,165 new SKUs in the second quarter of 2011, with 1,056 new products in its core VMHS category. The Company also continues to focus on faster growing categories such as personal care, sports nutrition and food.
• The Vitacost Brand: The process of converting the NSI proprietary product line over to the new Vitacost label continued in the second quarter of 2011 with the majority of products on track to be converted over by year-end.
• Elimination of Virtual Inventory: During the second quarter of 2011, the Company completed the process of bringing more than 12,000 former virtual inventory SKUs in-house. Sales of these products have accelerated, increasing over 170% on a monthly basis since the date of transition.

Second Quarter 2011 Results

For the second quarter of 2011, the Company reported net sales of $65.9 million, a 22.1% increase from net sales of $54.0 million for the second quarter of 2010. Due to the elimination of the loyalty membership program in the fourth quarter of 2010, advertising and fees earned from affiliates was negligible in the second quarter of 2011, compared to $0.2 million in the second quarter of 2010. Excluding these amounts, sales of third party product increased 36.5% year-over-year to $47.8 million. Sales growth of the Company’s proprietary products continued to improve sequentially and turned positive in the quarter with sales increasing 8.1% year-over-year to $16.2 million. This was the first positive growth in proprietary products in four quarters. Revenue billed from freight was down 50.2% compared to the second quarter of 2010 to $1.9 million as the Company offered ‘free shipping’ at an order value of $49 or higher during all three months of the 2011 quarter. Free shipping was not offered in the second quarter of 2010. The increase in net sales was primarily the result of an increase in the customer base and the number of shipped orders as customers responded positively to the Company’s promotional offers and new product offerings in both proprietary and third-party brands.

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