RESEARCH: Market challenges mount for Vitamin Shoppe; equity and bond prices drop

20 September 2017

The Vitamin Shoppe (VSI) is a specialty retailer and manufacturer of vitamins, minerals, herbs, specialty supplements, sports nutrition, and other health and wellness products. In recent quarters, management has witnessed more aggressive competitor pricing and promotional strategies, resulting in lower customer traffic and a reduction in net sales. With immense market pressures to reduce prices and an increasing marketing spend, our confidence that VSI’s turnaround bid will result in increased profitability is limited.

VSI’s capital structure consists of a USD 90m revolving credit facility (USD 3.0m outstanding) due 2022 and 2.25% USD 143.8m convertible notes due 2020. The notes are down 19% YTD, and last traded at 74.5, yielding 12.0%.

Due to low (and decreasing) margins and a relatively high revenue base (USD 1.24bn TTM revenue, USD 109.3m in TTM adjusted EBITDA), VSI may be prone to large changes in profitability, and consequently, liquidity.

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