Vitamin Shoppe Takes $106 Million Goodwill Write-Down

Nov 17, 2017

The Vitamin Shoppe, the New Jersey-based nutritional supplements retailer, has reported massive loss in its Q3 earnings. Total net sales dropped 8.5% in the same period last year ($314.9 million in Q3 2016 versus $288.2 million in Q3 2017).

According to the company, this is its biggest loss since going public in 2009. Vitamin Shoppe attributed the loss in part to “ongoing challenges with the sports nutrition division,” according to the investor Q3 highlights.

Colin Watts, CEO, Vitamin Shoppe, noted that declining sports nutrition sales further contributed to the company’s disappointing quarter. In a recent earnings call, Watts commented: “It’s the sports nutrition customer, it’s the sports nutrition basket that’s really defining the decline…those customers are characterized by a much higher degree of price sensitivity than our average customer. They really shop prices in part because many times the things that they are going after are very expensive. Whey protein purchases and others is a very expensive thing.” The full transcript of the earnings call is available at seekingalpha.com.

Share prices also suffered significantly. At its peak in February 2013, Vitamin Shoppe share prices were $64.43. Since then, it has lost more than 90% of its value. On November 10, 2017, its stock price closed at $3.51. In Q3 2017, the company said, total sales were 8.5% lower than at the same point last year.

Impairment charges were another factor in the Q3 numbers. Per a press release from the company: “During the third quarter the decline in the Company's market capitalization triggered the need for further interim impairment testing.  Based on this analysis, a non-cash impairment charge to write down the value of goodwill for the retail reporting unit and tradename was recorded in the amount of $105.7 million.”

Another factor contributing to the company’s losses include a changing retail landscape where brick-and-mortar stores (of which Vitamin Shoppe operates 785) are up against online platforms. And, as Nutritional Outlook has previously reported, consumers today have the entire Internet at their fingertips, and thus, have easy access to information and product ratings. 

In spite of the massive losses, the company announced its plans to turn the numbers around. First, it said it will devote more effort to customer acquisition initiatives. In order to keep those new customers, it will enroll them in its SPARK Auto-Delivery program, for which Watts said customer signups “are performing ahead of expectations.” Finally, the company launched its “Shop with Confidence” initiative, which it said will address customers’ price perception concerns.

Of the Q3 results, Watts commented: “The competitive environment remains elevated and challenging. While we are disappointed with overall third quarter financial results, we are seeing progress when compared with the second quarter. During the third quarter, we accelerated the roll-out of several key initiatives focused on customer acquisition, price/value with our new ‘Shop with Confidence’ program and customer retention and replenishment. We are encouraged with the improving trends in customer traffic, new customer acquisition and unit growth.”