Vitamin Shoppe, Inc. (NYSE: VSI), a multi-channel, specialty retailer and manufacturer of nutritional products, today announced preliminary results for the three months ended June 25, 2016. Total net sales in the second quarter were $332.7 million, 3.2% higher than the same period of the prior year. Reported fully-diluted earnings per share in second quarter 2016 were $0.44, compared with $0.48 in second quarter 2015. Results in second quarter 2016 include approximately $3.4 million (pre-tax), or $0.12 per diluted share, of costs related to certain strategic initiatives. Excluding these items in both periods, adjusted EPS was $0.55 and $0.57, in second quarter 2016 and second quarter 2015, respectively. (The items affecting comparability of results are detailed and reconciled in Table 4 at the end of this press release.)

Commenting on the quarter's results, Colin Watts, Chief Executive Officer of the Vitamin Shoppe stated, "The external environment was more promotional and volatile than we had anticipated and we responded by increasing our promotional activity. As a result, our performance for the quarter was mixed, with improved comps offset by lower margins. The positive comps in the quarter reflect the benefits of some of our new initiatives as well as stepped up promotional activity. In addition, our manufacturing business is performing below expectations with lower sales and margins, which also contributed to our overall weaker performance in the quarter."

"On the positive side, we continue to make progress with implementing our reinvention plan and are seeing solid results with our new loyalty program and focus on private brands. Given the current operating environment with variability from day to day, we have put in place a dedicated effort behind more aggressive cost controls and margin realization. Our goal will be to achieve the appropriate balance between revenue growth and profitability," concluded Mr. Watts.

Second Quarter 2016 Results

Total sales of $332.7 million in the quarter increased 3.2% over the same period of the prior year primarily due to an increase in retail and direct sales offset by lower manufacturing revenue. Total comparable sales were 1.6% in the quarter reflecting a 0.8% increase in retail store comparable sales and a 9.4% increase in ecommerce sales. Manufacturing third party sales decreased 15.5% from the same period of the prior year. The Company opened nine stores in the quarter and closed four.

Cost of goods sold, which includes product, distribution, manufacturing and store occupancy costs, increased$10.8 million, or 5.1%, to $224.9 million for the three months ended June 25, 2016, compared with $214.1 million for the three months ended June 27, 2015.

Gross profit of $107.8 million was down 0.4% from $108.3 million in second quarter 2015. Gross profit as a percentage of net sales was 32.4% in second quarter 2016, compared to 33.6% in 2015. The decrease was primarily due to lower product margins as a result of greater promotional activity and loyalty redemptions, occupancy deleverage and weaker performance at Nutri-Force.

Selling, general and administrative expenses (SG&A), including operating payroll and related benefits, advertising expense and depreciation and amortization increased
$2.4 million, or 2.8%, to $87.1 million for the quarter ended June 25, 2016, compared with $84.7 million for the quarter ended June 27, 2015. SG&A includes approximately $1.5 million of professional fees related to implementation of the Company's cost reduction initiatives as well as $1.9 million related to the closure of the Canadian stores. SG&A for second quarter 2015 included total costs of $4.0 million related to management realignment, bad debt reserve and integration related expenses. Excluding these items for both periods, SG&A as a percent of revenue was 25.2% in second quarter 2016 and 25.0% in second quarter 2015. This increase in SG&A rate was mainly driven by higher store payroll & benefits and marketing expenditures partially offset by lower corporate costs. (For further information on adjustments see Table 4 at the end of this release.)

Second quarter results also includes benefits from the company's cost reduction project of approximately $2.5 million. The company has been implementing various cost initiatives since 2015 focused on reducing costs of goods sold and SG&A across the organization. In 2016, outside consultants were engaged to help identify and drive additional opportunities. During the quarter, the company identified additional savings potential with an estimated value of at least $10 million annualized, and is now targeting total annualized savings of $22.5 millionwith the majority being realized in 2017.

Income from operations in second quarter 2016 of $20.7 million compared to $23.6 million in the same period of the prior year. As a percentage of net sales, income from operations was 6.2% for second quarter 2016 compared with 7.3% for second quarter 2015. Adjusted for the items noted in the preceding paragraph, income from operations as a percentage of sales was 7.2% in second quarter 2016 and 8.5% in second quarter 2015 (See Table 4).

Net income was $10.4 million for second quarter 2016 compared to $14.2 million in the same period of the prior year. Reported earnings per diluted share were $0.44 in second quarter 2016 compared with $0.48 in second quarter 2015. EPS, on an adjusted basis (for the items described in Table 4) was $0.55 for second quarter 2016 and $0.57 for second quarter 2015.

Balance Sheet and Cash Flow

Cash and equivalents at June 25, 2016 were $2.0 million. At quarter end, the Company had $15.0 milliondrawn on the revolving line of credit and a convertible notes liability of $118.1 million.

Capital expenditures were $9.3 million in the quarter. Funds were primarily expended on new stores, supply chain, digital and other IT investments.

During the quarter, the Company repurchased 0.3 million shares of its common stock, or 1.3% of the shares outstanding, for a total purchase price of $8.7 million.

2016 Outlook

Management expects the following for 2016, on a 53-week basis, reflecting both second quarter 2016 results and a more volatile competitive environment.

• Total comparable sales growth expected to be flat to slightly negative;
• Approximately 30 new stores;
• Adjusted Earnings per diluted share in the range of $2.10 to $2.30 for the full-year of 2016. This excludes the impact of certain costs associated with the Company's strategic initiatives, and GAAP fully diluted earnings per share in the range of $1.83 - $2.03. (See Table 5).
• Capital expenditures of approximately $40 million.

About the Vitamin Shoppe, Inc. (NYSE:VSI)

Vitamin Shoppe is a multi-channel, specialty retailer and contract manufacturer of nutritional products based inSecaucus, New Jersey. In its stores and on its website, the Company carries a comprehensive retail assortment including: vitamins, minerals, specialty supplements, herbs, sports nutrition, homeopathic remedies, green living products, and beauty aids. In addition to offering products from approximately 850 national brands, the Vitamin Shoppe also carries products under The Vitamin Shoppe®, BodyTech®, True Athlete®, MyTrition®, plnt®, ProBioCare®, Next Step® and Betancourt Nutrition® brands. The Vitamin Shoppe conducts business through more than 750 company-operated retail stores under The Vitamin Shoppe and Super Supplements retail banners, and primarily through its website, www.vitaminshoppe.com. Follow the Vitamin Shoppe on Facebook at http://www.facebook.com/THEVITAMINSHOPPE and on Twitter athttp://twitter.com/VitaminShoppe.