This week Durig Capital reviews a supplements company who is combining the best of traditional and online retailing. The Vitamin Shoppe (NYSE:VSI) has combined the convenience of online retail with the personal service of in-store shopping. The results look impressive for its Q1 results.
- Q1 digital commerce increased 20.7%.
- New customer growth in Q1 was up 10.3%.
- The company’s Spark Auto Delivery program now has 600,000 active subscriptions.
Customers are able to shop online and still receive the personal attention of the company’s Health Enthusiasts (store associates) when needed as well as the ability to do returns / exchanges either in-store or online. Also, in Q1, VSI repurchased $45 million of these convertible bonds reducing the amount outstanding. With online sales in the supplements industry projected to grow an average of 12% annually for the next few years, the Vitamin Shoppe is definitely positioning to capture some of this growth. The company’s 2020 convertible bonds, currently discounted with a yield-to-maturity of more than 11.5%, make an ideal addition to Durig Capital’s Fixed Income 2 (FX2) Managed Income Portfolio.
Highlights From First Quarter 2018 Results
The Vitamin Shoppe recently released its results for the three months ending March 31, 2018. Here are selected highlights from those results:
- First quarter digital commerce increased by 20.7%.
- New customer growth increased 10.3% in the first quarter.
- Since the unveiling of the company’s Spark Auto Delivery program in the third quarter 2017, in-store Health Enthusiasts have been instrumental in signing up new customers, resulting in nearly 600,000 active subscriptions. For VSI, these active subscriptions represent recurring revenue.
- In the first quarter, VSI repurchased $45 million face value of the company’s 2020 convertible bonds at a discount. Total spend for the company was $34 million.
- On May 7, 2018, VSI completed the sale of Nutri-Force, its manufacturing business, to Arizona Nutritional Supplements. Net proceeds realized by VSI were approximately $15 million.
Colin Watts, Vitamin Shoppe CEO shared his view of the company’s first quarter performance. “We’re encouraged with our performance for the quarter as we continue to make progress and delivered results that were in line with our expectations.”
About the Issuer
Vitamin Shoppe is an omni-channel, specialty retailer of nutritional products based in Secaucus, New Jersey. In its stores and on its website, the Company carries a comprehensive retail assortment including: vitamins, minerals, specialty supplements, herbs, sports nutrition, homeopathic remedies, green living products, and beauty aids. Another issuer involved in health supplements we have reviewed is GNC, in “Earn a Robust 13.5% YTM with GNC..”. The Vitamin Shoppe conducts business through more than 775 company-operated retail stores under The Vitamin Shoppe and Super Supplements retail banners, and through its website.
Summary And Conclusion
The health and wellness industry continues to grow in this country, spurred on by an aging population and busier lifestyles. As consumers look for products to keep them healthy and / or treat illnesses without pharmaceutical drugs, they will continue to look to vitamin and mineral supplements for options. The Vitamin Shoppe has encompassed and combined the convenience of online retailing that the consumer craves, with the personal attention normally associated with an in-store experience. This has resulted in healthy gains in its digital sales for its most recent quarter and company management has stated that it expects this digital growth to continue. Given these developments, VSI’s 2020 convertible bonds, currently selling at a discount with over 11.5% yield-to-maturity make an ideal addition to Durig Capital’s Fixed Income 2 (FX2) Managed Income Portfolio.
Issuer: Vitamin Shoppe Inc.
Ticker: (NYSE:VSI)
Price: $4.95 (as of 5/22/2018)
Conversion Price: $39.74/share
Coupon: 2.25%
Ratings: - / -
Maturity: 12/01/2020
Pays: Semi-Annually
Price: ~80.32
Yield to Maturity: ~11.54%
Disclosure: Durig Capital and certain clients may hold positions in VSI’s December 2020 bonds.