Schiff Nutrition International (WNI) Q3 2012 Earnings Call March 22, 2012 11:00 am ET Executives Rebecca Herrick - Assistant Vice President of San Francisco Office Tarang P. Amin - Chief Executive Officer, President, Director and Member of Executive Committee Joseph W. Baty - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Analysts Damian Witkowski - Gabelli & Company, Inc. Michael W. Gallo - CL King & Associates, Inc. Unknown Analyst Madeline Miller - D.A. Davidson & Co., Research Division Presentation Operator
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In addition, the company's presentation today includes information presented on a non-GAAP basis. The company believes these non-GAAP financial measures provide meaningful supplemental information regarding its operations. We refer you to the press release the company issued this morning, which is available on the company's website, for a reconciliation of the differences between the non-GAAP presentations and the most directly comparable GAAP measures.With us from management today are Tarang Amin, President and Chief Executive Officer; and Joe Baty, Executive Vice President and Chief Financial Officer. It's now my pleasure to turn the call over to Tarang. Please go ahead, sir. Tarang P. Amin Thank you, Becky, and good morning, everyone. We're pleased with our fiscal 2012 third quarter results. Net sales grew 25% over the same period last year, driven by a 53% increase in branded sales. Importantly, all key brands grew with contributions from our probiotic business acquired in June, new product introductions and benefits from a significant increase in advertising. Historically, the third quarter is our strongest quarter, given key customer merchandising events in January, and our results are further aided by this year by the strong investment we continue to make in our strategy to build premium brands and lead innovations. Gross margins increased to 46% from 36% a year ago, reflecting the sales shift from private label to our branded business. Based on our third quarter performance, we're adjusting our fiscal 2012 outlook, including increasing net sales, gross margins and operating expenses. Here's an update on our 5 key strategies for growth. Our first strategy is to build premium brands. We posted growth across all key brands this quarter reflecting progress from our brand-building efforts. In the beginning of the fiscal year, we discussed our intent to increase selling and marketing expense as a way to drive our premium brands.
During the fiscal third quarter, selling and marketing expense as a percent of net sales was 24% versus 14% last year. We've put this increased investment toward Schiff Move Free, Schiff MegaRed, Schiff Sustenex and Digestive Advantage. All our brands responded well to these efforts. A great example is Schiff MegaRed, which continued its rapid growth even at a 60% price premium relative to fish oil. Our MegaRed efforts also included gaining over 75,000 likes on Facebook and product sampling on the Dr. Oz show. We plan to continue this investment to increase awareness and trial of our premium brands.Our second strategy is to lead innovation. Earlier this fiscal year, we launched new items, including Schiff Move Free Ultra, which offers consumers joint relief in one small pill and MegaRed Extra Strength, which offers 500 milligrams of MSC certified krill oil. Both products contributed to the overall strong brand results. In fact, in part due to the traction of Move Free Ultra, our overall joint business grew 25% in the third quarter versus last year. We remain committed to leading innovation in our categories. During the quarter, we tested MegaRed Joint, which uses a proprietary formula of our MSC certified krill oil and Asasantin to promote joint health. We also developed several promising new items on Move Free. In the fourth quarter, we'll be testing a new Move Free item, which maintains and repairs cartilage, and Move Free Lean, which provides joint relief and support to leaner bodies. We're also working on several promising innovations involving our proprietary BC30 probiotics technology. The third strategy is to expand the channel and geographic footprint of our company. Our primary focus remains on building sales by strengthening our long-standing relationships with leading retailers, such as Wal-Mart, Costco, Sam's and Walgreens. In the third quarter, we executed our sales strategy well, resulting in strong consumption in each of our core customers.
We also hired a vice president for our Wal-Mart and Sam's team to further advance our business with these important customers. Additionally, we continue to enable online sales for more of our products. While still very small, we like the ability to directly engage consumers through the digital channel.Read the rest of this transcript for free on seekingalpha.com