VSI: The New Place to 'Shoppe'
This story really has nothing to do with why I like Vitamin Shoppe as a stock, besides its above-and-beyond customer service. But I figured it'd be a decent 'hook' to my first post on this site. I guess you'll be the judge.
Anecdotes aside, I think it's about time to revisit the GNC/VSI dynamic. Just over a month ago, both companies reported, with GNC (GNC - Get Report) coming on May 6th and VSI the following day. Judging by the performance of these two stocks, you would think that they both struck out, given that GNC tumbled a fresh 15% after it reported and Vitamin Shoppe dropped 5%. You might even draw the conclusion that the entire vitamins, minerals and supplements (VMS) space is broken.
But that conclusion is mistaken. What we're seeing is not a testament to any fundamental weakness in the VMS landscape. Rather, we're seeing a tale of two cities, a divergence of trends from two companies competing for growth. The reality is that while GNC was a loser in the quarter, VSI was a real winner, crushing expectations and speaking with great confidence around the traction they're seeing in their business. And although VSI has historically traded in line with GNC - to be fair, for a long time their results mimicked each other - there seems to be a paradigm shift in the trajectory of these two companies. While GNC is struggling to execute on its strategic vision, VSI is firing on all cylinders.
This begs the question - how could GNC, the much-loved darling of the health & wellness industry, fail so miserably in the quarter? Once delivering comps well in excess of 5%, GNC's 1Q comps came in at -70bps, an atrocious number that they shrugged away as the result of 'transitory' circumstances; you know, bad weather exacerbated by negative media coverage. But the moment VSI reported - walloping estimates with comps coming in at 3.6% - GNC's defense lost its footing.
So something's amiss at GNC. Almost everyone - including myself - was bulled up on the name after seeing the fabulous Gold Card test market results in Kansas. But we're not in Kansas anymore. The resignation of their CFO, Mike Nuzzo, last week certainly didn't help their cause. To say the least, Nuzzo's departure comes at an inconvenient time; with slow sales trends domestically and internationally, one would want the close financial stewardship of an experienced CFO. In Icarus-like fashion, GNC flew too close to the sun and is now plummeting back to earth.
So why hasn't Vitamin Shoppe been getting more love? Not only did its same store sales numbers come in hot last quarter, but its revenues grew by over 10% and its booming internet business was up 17%. Even more, Vitamin Shoppe's business is far more diversified than GNC's, with a broader array of offerings. I think Vitamin Shoppe is heading higher as more people realize that this company has its own story and that story is going very well. When the company came public in 2009 it was all about rapid new store growth. These days, Vitamin Shoppe still has plenty of room to put up new locations - they expect to open 60 new stores this year, a 9% increase - but it's also got that fast-growing e-commerce business, it's expanding internationally, and best of all, the company's developing its own proprietarylabel brands, which can carry much higher margins than the big national brands. Its move towards vertical integration is exciting as well, and its acquisition of Nutri-Force Nutrition a couple weeks back is a telling sign that this company is zeroed in on getting there.
How about the stock? VSI's trading at a mere 15 times forward earnings, which is pretty darn cheap considering it boasts a long-term growth rate of nearly 14%. I think it's a buy. Don't let weakness at GNC confuse you into selling its superior competitor. One year and 20 pounds later, I'm heading back to Vitamin Shoppe. Yet this time I should probably be strolling down the diet pill aisle.
--Written by Jack Mohr in New York