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Vitamin Shoppe has Q2 earnings surprise as online sales skyrocket

BY Marianne Wilson

Weeks before its new CEO will take the reins, Vitamin Shoppe reported better-than-expected earnings for its second quarter amid digital growth and better gross margins.

The nutritional supplement company reported net income of $7.2 million for the quarter ended June 30, compared to a net loss of $156.4 million in the year-ago period.

Its adjusted earnings came in at 31 cents per share versus the 5 cents per share analysts had expected.

Total net sales were $293.1 million, down from $296.4 million last year. Same-store sales fell 1.1%. Digital comparable net sales, jumped 36.9% in the quarter.

Alex Smith, the chairman of the Vitamin Shoppe stated, “Our focus on retail fundamentals is starting to deliver improved performance,” said Alex Smith, chairman, Vitamin Shoppe.

In July, Vitamin Shoppe announced the appointment of Sharon Leite as the company’s new CEO, effective Aug. 27. Most recently, she served as president of Godiva Chocolatier in North America

“I am delighted to have a leader of Sharon’s caliber to spearhead the ongoing turnaround and future growth, building on the recent good work of the organization,” said Smith.

Vitamin Shoppe operates more than 775 company-operated retail stores under The Vitamin Shoppe and Super Supplements retail banners.

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Commentary: CVS needs to do better at retailing

As good as CVS’s [second quarter] overall numbers are, the headline from a retail perspective is the 1% decline in front-of-store comparable sales. This reverses last quarter’s uplift which was aided by a shift in the timing of Easter and a particularly bad cold and flu season. In essence, it underlines the point we made last period — namely that when it comes to retail, CVS is a long way from maximizing its potential.

It is particularly notable that many of the categories CVS sells as part of its retail offer saw strong positive growth during the period. Across the U.S., beauty sales were boosted by consumers with more money to spend; snacks and food treats saw good uplifts. And things like greetings cards and stationery witnessed some growth. That CVS did not capitalize on these opportunities says a lot about the state of its retail offer.

Our consumer data show a number of reasons for this and, in our view, the figures are worrying for CVS.

Firstly, CVS is increasingly used out of necessity rather than out of desire, with people coming into the store to buy things that they need to top-up on or have run out of. While there is nothing wrong with trading on convenience, not drawing in customers who want to shop for different reasons means that CVS is missing out on a large slice of trade. Such a position also means CVS Is vulnerable to rivals—both physical stores that open in close proximity and the rise of certain categories online.

Secondly, those shoppers who do visit a CVS store are becoming less likely to browse and shop categories outside of those they came in to buy. This deterioration in cross-shopping is another lost opportunity for CVS and makes it difficult for the company to boost sales of impulse-driven segments like beauty. In our view, it also signals an increasing challenge in getting pharmacy customers to make retail purchases while in store.

Thirdly, the proportion of customers who use CVS for special purchases like small gifts or greetings cards and gift wrap continues to decline. Given that many of the products in this category are high margin and boost basket sizes, this is a worrying trend that has the potential to erode the bottom as well as the top line of the retail operation.

Finally, there are some categories, such as laundry detergent for example, where a shift to online shopping and automatic ordering is starting to impact the number of customers to come in to top-up shop. Relative to other dynamics, this trend is relatively minor, but we still see it as having the potential to erode revenue over the medium to longer term.

If all or any of these things were the result of deep-seated and complex challenges, we would have some sympathy. However, the root cause of most of the trends is because CVS is poor at retailing. Store environments are dingy, inspiration is lacking, merchandising and shop-keeping standards are generally sloppy, and the offer is bitty and fragmented. With a little care and attention, CVS could turn these things around, but the company never seems to bother.

As much as the healthcare and pharmacy side of the business will allow CVS to succeed, we lament the fact it is missing out on a lucrative slice of retail growth.

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CVS Health in Q2 loss but still beats Street

BY Marianne Wilson

CVS Health’s second-quarter revenue and earnings topped the Street amid growth in prescription volume and its pharmacy benefit management business.

The company swung to a net loss of $2.56 billion, or $2.52 a share in the period ended June 30, from a profit of $1.10 billion, or $1.07 a share, in the year-ago period. Excluding non-recurring items, such as a $3.9 billion goodwill impairment charge related to its long-term care business, adjusted earnings per share were $1.69, above analysts’ estimates of $1.61.

Total revenue grew 2.2% to $46.71 billion, above estimates of $46.32 billion. Same-store sales increased 5.9%.

Revenues in the pharmacy services segment increased 2.8% to approximately $33.2 billion. Revenue from CVS’ retail pharmacy segment rose 5.7% to $20.7 billion, with an 8.3% increase in pharmacy revenue amid increased prescription volume. Front-end sales inched up 0.2%. Same-store prescription volume increased 9.5%. Front-store same-store sales fell 1%, which the chain attributed to softer customer traffic and the shift of the Easter holiday to the first quarter as opposed to the second quarter last year.

“Our solid performance both in the quarter and year-to-date demonstrates our ability to drive value. It also builds upon a strong foundation for a seamless integration of CVS and Aetna with one goal: to transform the consumer health care experience and, by doing so, deliver long-term profitable growth for shareholders,” said CVS Health president and CEO Larry Merlo.

CVS expects its roughly $69 billion acquisition of health insurer giant Aetna to close in the late third quarter or early part of the fourth quarter.

“The genuine enthusiasm and the depth of talent throughout the CVS and Aetna organizations will be key assets as we focus on realizing the potential of our combination,” Merlo said.

Analyst Neil Saunders, managing director of GlobalData Retail, commented that while the healthcare and pharmacy side of the CVS business will allow it to succeed, the company is nowhere near maximizing its potential when it comes to retail.

“Store environments are dingy, inspiration is lacking, merchandising and shop-keeping standards are generally sloppy, and the offer is bitty and fragmented,” Saunders said. “With a little care and attention, CVS could turn these things around, but the company never seems to bother.” For more of his comments, click here.

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