Vitacost.com, Inc. (NASDAQ:VITC), a leading online retailer and
direct marketer of health and wellness products, reported financial
results for the second quarter of 2011 and provided updates to its
long-term sales growth initiatives previously outlined on June
16th, 2011 in conjunction with the conclusion of the Strategic
Review. In addition, the Company announced that it has named Robert
“Bert” Wegner as Chief Operating Officer. Mr. Wegner has over 20
years of logistical experience and was formerly the Director of
Operations, North America at Amazon.com from 2006 through 2010. He
served in other senior operational and managerial roles at Amazon
from 1999 through 2006. His initial responsibilities include
fulfillment, manufacturing and customer service.
"We are making progress on our initiatives to drive the top-line
as we look to grow sales at a faster pace in order to leverage our
fixed cost structure," said Jeffrey J. Horowitz, the Company's
Chief Executive Officer. “We are thrilled that Bert has joined the
Vitacost.com team as he will be instrumental in helping manage the
business towards long-term profitable growth.”
Sales Growth Initiatives
The Company provided additional details on its long-term sales
growth strategy. Key initiatives include:
- Expand Customer Base: New customer
additions are a top priority in 2011. The Company believes that due
to the high number of repeat purchases made by existing customers,
an expanded base will create long-term value. To that end, the
Company has extended its reach on the internet beyond its
www.vitacost.com website and is now selling products through online
marketplaces and testing new marketing vehicles such as daily deal
sites and offline magazines. In the second quarter of 2011, the
Company added 157,200 new customers, bringing total active
customers to 1.2 million at June 30, 2011, up 10.2%
year-over-year.
- Expand Product Offerings: The Company
has increased the number of new proprietary product launches in
2011 from 100 previously announced to a new goal of 150 by
year-end. An estimated 135 of these are scheduled to be launched
under the Vitacost VMHS label. Year-to-date, the Company has
launched approximately 88 new proprietary products, 40 of which
were launched in the second quarter of 2011. On the third-party
side, the Company added 2,165 new SKUs in the second quarter of
2011, with 1,056 new products in its core VMHS category. The
Company also continues to focus on faster growing categories such
as personal care, sports nutrition and food.
- The Vitacost Brand: The process of
converting the NSI proprietary product line over to the new
Vitacost label continued in the second quarter of 2011 with the
majority of products on track to be converted over by
year-end.
- Elimination of Virtual Inventory:
During the second quarter of 2011, the Company completed the
process of bringing more than 12,000 former virtual inventory SKUs
in-house. Sales of these products have accelerated, increasing over
170% on a monthly basis since the date of transition.
Second Quarter 2011 Results
For the second quarter of 2011, the Company reported net sales
of $65.9 million, a 22.1% increase from net sales of $54.0 million
for the second quarter of 2010. Due to the elimination of the
loyalty membership program in the fourth quarter of 2010,
advertising and fees earned from affiliates was negligible in the
second quarter of 2011, compared to $0.2 million in the second
quarter of 2010. Excluding these amounts, sales of third party
product increased 36.5% year-over-year to $47.8 million. Sales
growth of the Company’s proprietary products continued to improve
sequentially and turned positive in the quarter with sales
increasing 8.1% year-over-year to $16.2 million. This was the first
positive growth in proprietary products in four quarters. Revenue
billed from freight was down 50.2% compared to the second quarter
of 2010 to $1.9 million as the Company offered ‘free shipping’ at
an order value of $49 or higher during all three months of the 2011
quarter. Free shipping was not offered in the second quarter of
2010. The increase in net sales was primarily the result of an
increase in the customer base and the number of shipped orders as
customers responded positively to the Company’s promotional offers
and new product offerings in both proprietary and third-party
brands.
Reported gross profit was $14.5 million, in the second quarter
of 2011, up 3.6% year-over-year. Included in the second quarter of
2011 was a $0.5 million credit from the Company’s shipping
provider. Excluding this amount, gross profit increased 0.4%
year-over-year, with gross margin of 21.3% in the second quarter of
2011 compared to 25.9% in the second quarter of 2010. Third-party
sales accounted for 74.7% of total product sales in the second
quarter of 2011 compared to 70.0% in the second quarter of 2010.
Gross margin declined sequentially from the 24.1% reported in the
first quarter of 2011 due to increased product promotions and
decreased margins on freight as ‘free shipping’ was offered for two
months in the first quarter of 2011 compared to a full three month
period in the second quarter. Product mix remained relatively
consistent with the first quarter and did not have a material
impact on the sequential change in gross margin. Going forward, the
Company expects to see a similar product mix, as third-party
product offerings continue to outpace new proprietary product
launches and due to a continuation of higher third-party product
growth rates. ‘Free shipping’ and other promotional offers are
expected to continue for the remainder of 2011.
Fulfillment expense was $5.1 million in the second quarter of
2011 compared to $4.4 million in the same period last year. As a
percent of sales, fulfillment expense decreased 40 basis points
year-over-year to 7.7% compared to 8.1% in the same period last
year. The year-over-year decrease on a percentage basis was due to
operating duplicate distribution centers in Las Vegas in the early
part of the year ago quarter to ensure there were no disruptions to
service levels as the Company transitioned over to its new Las
Vegas facility. Fulfillment expense as a percentage of sales was
flat sequentially with the first quarter of 2011. The Company
continues to focus on reducing special handling and packaging costs
and is improving efficiencies at its distribution centers with
total labor costs flat with first quarter levels despite increased
sales volume. The Company expects to see improvement in fulfillment
expense by the end of the year.
For the second quarter of 2011, sales and marketing expense
increased to $5.2 million from $5.1 million for the second quarter
of 2010. While driving a 22.1% year-over-year increase in sales,
sales and marketing expense as a percentage of sales decreased to
7.9% for the second quarter of 2011 from 9.5% in the second quarter
of 2010 due to improved advertising efficiency. Savings from
decreased spending on catalogs more than offset increases in
internet advertising and decreased levels of co-op revenue. Sales
and marketing expense also increased $0.1 million from the first
quarter of 2011 but decreased as a percentage of sales from the
8.1% reported in the March quarter. The Company expects spending on
catalogs to continue to be down for the remainder of 2011 as
savings are reinvested in online and other media to further
increase the focus of the business around serving online
customers.
Total reported general and administrative expense was $7.8
million, up $1.4 million from the $6.4 million reported in the
second quarter of 2010. Included in the second quarter of 2011 were
$1.1 million in expenses primarily related to the Strategic Review
and the Company’s Equity Capitalization issue. Included in the year
ago quarter were $1.4 million in expenses associated with the proxy
solicitation. The Company expects these charges to decrease going
forward as the Board of Directors concluded the Strategic Review in
June 2011 and the Company has made significant progress in
rectifying its Equity Capitalization issue.
Excluding the expenses mentioned above in both quarters, general
and administrative expense was $6.7 million in the second quarter
of 2011, up $1.6 million compared to $5.1 million in the second
quarter of 2010. The year-over-year increase was primarily due to
increased employee expenses of $1.3 million and increased credit
card fees of $0.2 million due to higher sales. Increased payroll
expenses were due to additional hires in critical areas such as IT,
Finance and Business Intelligence. However, general and
administrative expenses declined $0.2 million sequentially from the
$6.9 million reported in the first quarter of 2011, excluding $0.6
million in expenses in the first quarter associated with the Equity
Capitalization issue and the Strategic Review. The sequential
decline was primarily attributable to decreased bad debt expense
and credit card charge backs.
The Company reported an operating loss of $3.7 million for the
second quarter of 2011 compared to an operating loss of $2.0
million in the same period a year ago. For the second quarter of
2011, the Company reported $44,048 in tax expense, compared to a
tax benefit of $692,060 in the second quarter of 2010. During the
second quarter of 2011, the Company recorded an additional $1.4
million valuation allowance on its deferred tax assets.
For the second quarter of 2011, the Company reported a net loss
of $3.7 million or ($0.13) per share calculated on a weighted
average basic share count of 27.8 million shares compared to a net
loss of $1.4 million or ($0.05) per share for the second quarter of
2010 calculated on a weighted average basic share count of 27.7
million shares outstanding. The Company is using basic shares
outstanding in the second quarter of 2011 and second quarter of
2010 calculations as the inclusion of common stock equivalents in
the calculation during both quarters was anti-dilutive. Excluding
the expenses previously mentioned in the discussion on gross profit
and general and administrative expense, earnings per share were
($0.11) in the second quarter of 2011 compared to ($0.02) per share
in the second quarter of 2010.
Excluding the expenses previously mentioned in the discussion on
gross profit and general and administrative expenses, adjusted
EBITDA (earnings before interest, taxes, depreciation, amortization
and related non-cash compensation expense) for the second quarter
of 2011 was ($1.2) million, compared to $0.9 million in the
previous year.
Balance Sheet/Cash Flow Highlights
The Company had cash, cash equivalents, and securities available
for sale of $16.3 million as of June 30, 2011 compared to $19.7
million as of March 31, 2011 and compared to $22.9 million as of
December 31, 2010. The Company has revised its December 31, 2010
and its March 31, 2011 cash and cash equivalents balances to
include outstanding checks as opposed to classifying them as a
component of accounts payable. The effect of this revision on the
Company's consolidated balance sheets was to decrease cash and cash
equivalents and accounts payable at December 31, 2010 and March 31,
2011 by approximately $2.6 million and $3.6 million, respectively.
The effect of the revision on the Company’s consolidated statements
of cash flows was to decrease (increase) net cash provided by (used
in) operating activities by $2.6 million and ($0.9 million) for the
year ended December 31, 2010 and the three months ended March 31,
2011, respectively. This revision, which the Company has concluded
is not material, and which will be made prospectively, does not
impact the Company’s operating (loss) income, net (loss) income, or
working capital for any prior period.
Cash balances declined in the quarter primarily as a result of
the $3.5 million Derivative Settlement payment previously disclosed
in a press release dated May 27, 2011. The Company reported
accounts receivable of $1.5 million and inventory of $31.9 million
compared to balances of $1.3 million and $28.5 million,
respectively as of March 31, 2011 and compared to balances of $0.4
million and $29.8 million, respectively as of December 31, 2010.
Cash flow from operations for the six months ended June 30, 2011
was a use of $4.4 million compared to a source of $7.4 million in
the prior year six month period. The current year period reflects
the $3.5 million Derivative Settlement payment mentioned above.
E-Commerce Metrics
A copy of historical e-commerce metrics is available on the
Company's website at http://investor.vitacost.com/events.cfm.
Conference Call Information
The Company will host a conference call to discuss these results
and will provide additional comments and details at that time.
Participating on the call will be Jeff Horowitz, the Company’s
Chief Executive Officer, and Steve Markert, interim Chief Financial
Officer.
The conference call is scheduled to begin at 10:00 a.m. EDT on
August 9, 2011. The call will be broadcast live over the internet
hosted on the Investor Relations section of Vitacost.com's website
at http://investor.vitacost.com/events.cfm, and will be archived
online through August 31, 2011. In addition, you may dial
877-407-0784 to listen to the live broadcast.
A telephonic playback will be available from 1:00 p.m. EDT,
August 9, 2011, through August 31, 2011. Participants can dial
877-870-5176 to hear the playback. The pass code is 376432.
About Vitacost.com, Inc.
Vitacost.com, Inc. (NASDAQ:VITC) is a leading online retailer
and direct marketer of health and wellness products, including
dietary supplements such as vitamins, minerals, herbs or other
botanicals, amino acids and metabolites, as well as cosmetics,
organic body and personal care products, sports nutrition and
health foods. Vitacost.com, Inc. sells these products directly to
consumers through its website, www.vitacost.com. Vitacost.com, Inc.
strives to offer its customers the broadest product selection of
healthy living products, while providing superior customer service
and timely and accurate delivery.
Forward-Looking Statements
Except for historical information contained herein, the
statements in this release are forward looking and made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements made herein, which
include statements regarding the Company’s future growth prospects,
future financial performance, expectations regarding improvements
in fulfillment expenses, promotional and product introduction
plans, plans to increase brand awareness, sales expectations,
international expansion plans, expectations regarding advertising
expenditures, customer acquisition strategy and expectations
regarding the pace of customer growth, plans to launch new SKUs and
plans to move virtual inventory in-house to accelerate order
fulfillment and delivery time, involve known and unknown risks and
uncertainties, which may cause the Company’s actual results in
current or future periods to differ materially from those
anticipated or projected herein. Those risks and uncertainties
include, among other things, the current global economic downturn
or recession; difficulty expanding the Company’s manufacturing and
distribution facilities; significant competition in the Company’s
industry; unfavorable publicity or consumer perception of the
Company’s products on the internet; the incurrence of material
product liability and product recall costs; inability to defend
intellectual property claims; costs of compliance and the Company’s
failure to comply with government regulations; the Company’s
failure to keep pace with the demands of customers for new
products; disruptions in the Company’s manufacturing system,
including information technology systems, or losses of
manufacturing certifications; or the lack of long-term experience
with human consumption of some of the Company’s products with
innovative ingredients. Those and other risks are more fully
described in the Company’s filings with the Securities and Exchange
Commission, including the Company’s Form 10-K for the full year
ended December 31, 2010 and the Company’s Form 10-Q for the quarter
ended March 31, 2011.
Non-GAAP Measures
To supplement the consolidated financial statements presented in
accordance with GAAP, Vitacost.com uses the non-GAAP measure of
adjusted EBITDA, defined as earnings before interest, taxes,
depreciation, and amortization of intangible assets. To adjust for
the impact of certain matters in 2010 and 2011, the Company has
further adjusted the EBITDA calculation to exclude the impact of
stock-based compensation expense and expenses from certain legal
actions, settlements and related costs, severance costs, and
certain other charges and credits. These non-GAAP measures are
provided to enhance the user’s overall understanding of the
Company’s current financial performance. Management believes that
adjusted EBITDA provides useful information to the Company and to
investors by excluding certain items that may not be indicative of
the Company’s core operating results. However, adjusted EBITDA
should not be considered in isolation, or as a substitute for, or
as superior to, net income/loss, cash flows, or other consolidated
income/loss or cash flow data prepared in accordance with GAAP, or
as a measure of the Company’s profitability or liquidity. Although
adjusted EBITDA is frequently used as a measure of operating
performance, it is not necessarily comparable to other similarly
titled captions of other companies due to differences in methods of
calculation. Operating income (loss) is the closest financial
measure prepared by the Company in accordance with GAAP in terms of
comparability to adjusted EBITDA. Attached at the end of this
release is a reconciliation of reported operating income (loss)
determined under GAAP to the presentation of adjusted EBITDA.
VITACOST.COM, INC. BALANCE SHEET
Vitacost.com, Inc. Consolidated Balance Sheets
June 30, 2011 and December 31, 2010 June 30, 2011
Assets (unaudited)
December 31, 2010 Current Assets Cash
and cash equivalents $ 16,282,051 $ 11,951,643 Securities available
for sale - 10,912,392 Accounts receivable 1,467,237 440,033 Other
receivables 243,413 1,087,311 Inventory, net 31,922,727 29,827,929
Prepaid expenses 1,941,907 1,361,230 Deferred income taxes - -
Other assets 2,661,045
3,553,089
Total current assets
54,518,380 59,133,627 Property and equipment, net 36,922,325
38,011,314 Goodwill 2,200,000 2,200,000 Intangible assets,
net 2,698 4,946 Deposits 271,254 114,308 Deferred tax asset
- -
2,473,952 2,319,254
Total assets $ 93,914,657
$ 99,464,195
Liability and Stockholders' Equity Current Liabilities Line
of credit $ - $ - Current maturities of notes payable - 58,888
Current maturities of capital lease obligations - - Accounts
payable 26,278,433 23,892,044 Deferred revenue 2,907,032 2,134,305
Accrued expenses 7,531,698 10,671,865 Income taxes payable -
-
Total
current liabilities 36,717,163 36,757,102 Notes payable,
less current maturities - - Interest rate swap liability - -
Deferred tax liability 547,678 521,389
Total liabilities $
37,264,841 $ 37,278,491
Commitments and Contingencies Stockholders'
Equity
Preferred stock, par value $.00001 per
share; authorized 25,000,000; no shares issued and outstanding at
June 30, 2011, and December 31, 2010, respectively
Common stock, par value $.00001 per share;
authorized 100,000,000; 27,790,953, and 27,780,453 shares issued
and outstanding at June 30, 2011, and December 31, 2010,
respectively
278 278 Additional paid-in capital 75,196,017 74,829,972
Accumulated other comprehensive loss - (20,207 ) Retained
earnings/(Accumulated Deficit) (18,546,479 )
(12,624,339 )
Total stockholders'
equity 56,649,816
62,185,704
Total liabilities and
stockholders' equity $ 93,914,657
$ 99,464,195 Source: Vitacost.com
VITACOST.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS – For the Three Months Ended June 30, 2011 and June 30,
2010
Vitacost.com, Inc. Income Statement ($ in
000s) (Unaudited) Quarter Ended June
30, 2011 June 30, 2010 As Excluding
As Excluding
Reported
Adjustments
Adjustments
Reported
Adjustments
Adjustments
Net Sales $ 65,891.2 $ 65,891.2 $ 53,951.9 $ 53,951.9
Cost of Goods Sold 51,418.6
(454.0 ) 51,872.6
39,983.1
39,983.1 Gross Profit 14,472.6 14,018.6 13,968.8
13,968.8 Fulfillment 5,094.7 5,094.7 4,394.8 4,394.8 Sales
& Marketing 5,236.9 5,236.9 5,131.0 5,131.0 General &
Administrative 7,807.5 1,116.7
6,690.8 6,443.0
1,358.5
5,084.4 Total Operating Expenses 18,139.2 17,022.5 15,968.8
14,610.3 Operating Income (3,666.5 ) (3,003.8 ) (2,000.0 )
(641.5 ) Interest Income 7.7 7.7 32.4 32.4 Interest Expense
(0.2 ) (0.2 ) (150.1 ) (150.1 ) Other Income (Expense) 3.5
3.5
4.5
4.5 Income (loss) before taxes (3,655.6
) (2,992.9 ) (2,113.3 ) (754.8 ) Income tax (expense) benefit (44.0
) - (44.0 ) 692.1 444.9 247.2 Net Income (loss)
($3,699.6 )
($3,037.0 ) ($1,421.3 )
($507.6 ) EPS Basic ($0.13 ) ($0.11 )
($0.05 ) ($0.02 ) Fully Diluted* ($0.13 ) ($0.11 ) ($0.05 ) ($0.02
) Basic Shares Outstanding 27,790.5 27,790.5 27,730.7
27,730.7 Fully Diluted Shares Outstanding* 27,790.5 27,790.5
27,730.7 27,730.7
*The inclusion of common stock equivalents
in the calculation of diluted earnings per share during the periods
was anti-dilutive.
Source: Vitacost.com
QUARTERLY NET SALES BY PRODUCT LINE – For the Three and Six
Months Ended June 30, 2011 and June 30, 2010
Vitacost.com -
Revenue by Product Line ($ in 000s) Three Months Ended
June 30, 2011 (unaudited) $ % 2011
2010 Increase Increase Third-party product (1) $
47,807 $ 35,203 $ 12,604 35.8 % Proprietary products 16,221 15,007
1,214 8.1 % Freight 1,863 3,742 (1,879 ) -50.2
% Net sales 65,891 53,952 11,939 22.1 %
(1)
Third-party product sales include
advertising and fees earned from affiliate programs of $99 in 2Q11
and $186,181 in 2Q10.
Six Months Ended June 30, 2011 (unaudited) $ % 2011 2010
Increase Increase Third-party product (1) $ 93,101 $ 72,351 $
20,750 28.7 % Proprietary products 31,971 30,896 1,075 3.5 %
Freight 4,581 7,881 (3,300 ) -41.9 % Net sales
129,653 111,128 18,525 16.7 %
(1)
Third-party product sales include
advertising and fees earned from affiliate programs of $724 for the
six months ended June 30, 2011 and were $529,326 for the six months
ended June 30, 2010.
VITACOST.COM, INC. RECONCILIATION OF GAAP OPERATING INCOME TO
ADJUSTED EBITDA
To supplement the consolidated financial statements presented in
accordance with GAAP, Vitacost.com uses the non-GAAP measure of
adjusted EBITDA, defined as earnings before interest, taxes,
depreciation, and amortization of intangible assets. To adjust for
the impact of certain matters in 2010 and 2011, the Company has
further adjusted the EBITDA calculation to exclude the impact of
stock-based compensation expense and expenses from certain legal
actions, settlements and related costs, severance costs, and
certain other charges and credits. These non-GAAP measures are
provided to enhance the user’s overall understanding of the
Company’s current financial performance. Management believes that
adjusted EBITDA provides useful information to the Company and to
investors by excluding certain items that may not be indicative of
the Company’s core operating results. However, adjusted EBITDA
should not be considered in isolation, or as a substitute for, or
as superior to, net income/loss, cash flows, or other consolidated
income/loss or cash flow data prepared in accordance with GAAP, or
as a measure of the Company’s profitability or liquidity. Although
adjusted EBITDA is frequently used as a measure of operating
performance, it is not necessarily comparable to other similarly
titled captions of other companies due to differences in methods of
calculation. Operating income (loss) is the closest financial
measure prepared by the Company in accordance with GAAP in terms of
comparability to adjusted EBITDA. Below is a reconciliation of
reported operating income (loss) determined under GAAP to the
presentation of adjusted EBITDA.
Adjusted EBITDA
Calculation ($ in 000s) (Unaudited) 2Q11
2Q10 Reported operating (loss) income (3,666.5 ) (2,000.0 )
Depreciation and amortization 1,533.2 1,322.8
Stock-Based Compensation Expense
243.3 193.0 Adjusted
EBITDA (1,890.0 ) (484.2 ) Adjustments: - Credit from
shipping provider (454.0 ) - Additional proxy/legal/consulting
expenses
1,116.7 1,358.5
Total 662.7 1,358.5
Adjusted EBITDA
($1,227.4 ) $ 874.3 Source:
Vitacost.com
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