Vitamin Shoppe (VSI) Is Cheap For A Reason - PiperJaffray

PiperJaffray analyst, Sean Naughton, weighed in on Vitamin Shoppe (NYSE: VSI) after recently completed his 10th semi-annual report on health and wellness and continues to see strong participation in the vitamin and supplement trend, particularly with consumers above the age of 45.

The survey of 500 consumers suggests participation is strong with 60+ year olds. Since starting this survey, participation rates in the 60+ age segment of the population have ranged from 77% to 88%, which he initially believed would prove positive for the Vitamin Shoppe. However, after 3 years of decelerating comp trends (and now negative comps), the lack of product innovation, negative media attention and increased competition has put the company in a precarious strategic position.

The analyst is not seeing an acceleration in a shift to online. The respondents have consistently stated between 17% and 21% of their purchases are completed online, indicating that brick & mortar stores in this category can play a material role. That said, competition is increasing rapidly and pricing work suggests Vitamin Shoppe is priced at a discount to SFM, WFM and GNC and a premium to NGVC, Kroger, AMZN and Vitacost.

Valuation is attractive, but competitive dynamics do not appear to be abating: The company has strong cash flow and a favorable valuation (12.5x NTM P/E) but there is no catalyst to get more constructive. The lack of a product cycle and continued growth by new participants like Sprouts, Natural Grocers, Whole Foods, Fresh Thyme, Kroger and other more traditional players keep the analyst on the sidelines.

No change to Neutral rating or $30 PT.

For an analyst ratings summary and ratings history on Vitamin Shoppe click here. For more ratings news on Vitamin Shoppe click here.

Shares of Vitamin Shoppe closed at $29.55 yesterday.

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