VSI
#Sure.
I'll take that question.
As we look at the newer stores in the waterfall we are seeing consistent patterns, whereby in the second year of a store opening we tend to see growth of close to 30%, in the high 20%s to 30%.
And then that goes down to the teens in the second year.
And then third year, fourth year is generally in the mid- to high-single digits.
After four to five years a store typically reaches maturity and trends at the lower rate.
As we look at our mature stores for the quarter, overall they did comp negatively.
I would say as I ---+ as we back out the impact of cannibalization they are actually slightly positive.
Given the cannibalization impact on the newer stores, we are seeing an overall slightly negative comp.
April, as I referenced earlier, had similar trends to March, so that would lead to the conclusion that it was less than we expected.
As we look at the causes of that, it's really some of the same issues that we had in March.
The combination of the continued decline in weight management.
We also continued to have some service level issues with Nutri-Force; and keep in mind the BOGO event is all about our own brands.
So that would have more impact when running a BOGO, and similar trends we saw on the e-commerce side, as well.
<UNK>, first of all I'm glad you picked up that it was a long list because that's the way I'm thinking about it too.
There's a lot of opportunities.
It's a little premature honestly to try to force rank these.
It was a long conversation to make the decision to try to be as specific as I was in this script, because I wanted to make sure that I was able to help you see how many levers there actually are for growth I think within the Company.
I think now the harder work that we need to do is we need to prioritize, we need to sequence.
We need to also spend some time looking at our analytics and looking at the customer and making sure that we're clear about those steps that will get rewarded first and foremost towards our journey back to very significant growth in the future.
There's a lot of companies that have done this very, very successfully.
I've gotten the chance to be in a couple of them.
I'm pretty confident that given a few more months worth of time towards the back half of this year we'll be in a better position to lay out a very clearly articulated plan that will have a road map for growth in the future.
And I'm excited to work with this team to make sure that we can lock those in.
100% and also, <UNK>, trying to bring in some new external resources to combine with an excellent internal team so that we can take a fresh look at some of the areas of the Vitamin Shoppe that we think have been either underleveraged or perhaps undermarketed.
It's a very, very strong platform to start from.
We want to make sure that as we make the bets, we make the strongest bets possible to drive growth for the future.
In terms of seasonality of the Nutri-Force business, it's a little bit different than the seasonality of the Vitamin Shoppe, whereby the Nutri-Force business tends to have a heavy fourth quarter where it's really producing and shipping to support the stronger first quarter for the resellers.
However, for the Vitamin Shoppe there was ---+ you would expect some higher sales in the first quarter given the support of the BOGO.
Having said that, we talked about the service results; it was a bit lower than where we would have liked to see.
Going into the rest of the year, we do expect that the inter-company sales will dip down a little bit, but then ramp back up as we start to get the transition up and accelerated again.
One other thing I'd like to ---+ just one other note for everybody as a reminder of how of the accounting works for the inter-company sales, we do not recognize the gross profit associated with the $8 million in sales I referenced until we actually sell it through to the customer, which is generally a quarter later.
So, the $8 million of sales you see in the first quarter, the profit associated with those sales will be recognized in Q2.
So there's always that one quarter lag of when we actually see the benefit fall to the bottom line.
Absolutely.
As I mentioned, we are actually as we take a step back, yes we have some service level issues.
But as we really take a step back, we are ahead of plan of where we thought we would be.
So I'm still confident that we'll get to that end goal.
So a couple things.
I would say that Management and the Board continue to have discussions around many alternatives including ASRs, including taking on debt.
One thing I would like to point out with respect to debt is just to remind folks that on an adjusted debt to EBITDAR level, we actually ---+ our lever is somewhere in the 3 1/2 times range.
So there is leverage when you think about it that way.
Having said that there's still opportunity for more leverage.
However, before we make any major decisions around capital allocation, it's important that we finalize the strategic plan that <UNK> discussed.
So over the upcoming months we'll be looking at what investments might be needed to support our strategic plan and also evaluate whether there's additional opportunities for additional share buybacks, knowing that there is more room on the balance sheet.
Absolutely.
So I would say starting in the second quarter we will see improving margins.
We won't see year-over-year improvement, but we will not see the decline we had in the first quarter.
And a big reason for that I would start is with the promotional activity, which I mentioned cost us probably in the range of 70 basis points.
So we will not be repeating that.
As we go beyond the second quarter and ---+ I see opportunities to improve margins in a couple of areas.
One, I do expect to see improving sales.
As I mentioned some of the sales impact that we're experiencing currently are short term in nature.
And as we look beyond the second quarter we see the trends should improve.
And then couple that with the Nutri-Force business, we expect that Nutri-Force will be a contributor to margins in the third and fourth quarter.
Some of this is difficult to quantify because as you know in any business there are multiple variables.
But as we look at this we would estimate that the impact of the Google search issue is somewhere in that 3% to 4% range.
Correct.
Thank you.
I think as we look at the March business there were ---+ we start with the industry overall being sluggish.
At the same time the weather in March was worse than we expected.
As much as we hate to blame the weather, it's a reality.
And we put these promotions out there and we just did not get the lift that we expected between the weather, the overall environment, and quite frankly our execution probably wasn't the best that we've experienced.
I think it's important to point out the fact that we had put the website up in the month of February.
We saw good early results from that.
It was stabilizing.
We rushed this promotion.
We put it quickly in.
We were trying to salvage a little bit of our growth for first quarter.
It turned out to be a very, very inefficient spend.
And I think that's why you're hearing <UNK> be as emphatic as she is about the fact that it won't be repeated.
I think we learned our lesson from the execution weakness that we showed.
It's a different ---+ I'm sorry to cut you off, <UNK>.
It's a different dynamic.
The first quarter was a kind of a flash sale attempt.
It was a really quickly conceived of and executed promotion that did not play well because frankly normally on these type of promotions we're much more planful and we make sure that we've got it backed up with all of the right elements to get maximum bang for the buck.
What <UNK> commented about on the BOGO has a lot more to do with the in-stock issues that we've been facing with Nutri-Force.
And we feel comfortable that we're seeing decent execution at the store level behind this.
I just think one of the issues is we're just getting a bit of a drag as we go more vertically integrated.
Now we're executing across the board.
Given my previous employer and current I have a lot of experience in the diet category.
So I'd say there's unquestionable that we're sitting in a very negative media environment and there's a lot of ---+ there's just a lot of noise, most of it negative in the market.
I would also say trends are radically shifting in that category.
You look at areas like fitness trackers and other areas.
It's a ---+ the category that is starting to be satisfied by a very strong shift away from dieting into a much more focus on fitness in general.
And this is one of the things as we do a much more focused attack on customer insights within this company, which frankly we haven't had a big history of doing in the past.
Those types of trends are the trends we've got to stay in front of in order to take advantage of them from a merchandising standpoint.
Sure.
So with respect to buyback, we'll continue to evaluate buybacks on a regular basis.
I would say that our liquidity position is very strong.
We have currently $90 million of availability on our revolver and we do have the ability, solely based on our own control, to increase that to $140 million.
We have assets supporting that.
The only reason why we wouldn't do that today is there's no need to pay for the unused facility fees if we don't need it.
But the way I look at it is our full availability is really closer to the $140 million.
And then the second part of your question on inventory, with the Nutri-Force transition we want to make sure that we stay focused on in-stock position.
And as we transfer manufacturing from outside contract manufacturers to Nutri-Force, we are making sure we have sufficient inventory available so that we don't get out of stock.
And keep in mind also for the increase going into the first quarter at the end of the first quarter, we had to ---+ we typically do increase our levels of inventory to support the BOGO.
So couple things going on there.
This year certainly higher than what you typically would see because of the Nutri-Force transition, as well as I mentioned the third party logistics provider on the west coast.
As we wound down that operations, we did move some inventory out to the stores, so some of the stores held more inventory than they typically would as well.
So a few things going on.
As I look forward I still expect that we'll be, I would say, conservative with respect to our inventory levels for Nutri-Force.
And as we go through that transition I would then expect inventory levels to come back down a bit.
I want to thank everyone again for joining us this morning.
And I also want to personally mention that I'm looking forward to getting out to speak with some of our top shareholders and our covering analysts over the next couple of weeks.
Thanks again for joining us.
