3 Scenarios For Vitamin Shoppe Ahead Of Q3 Earnings

Barclays sees three scenarios for Vitamin Shoppe Inc VSI when it announces its third quarter earnings on Tuesday.

The results comes as the stock fell 9 percent when rival GNC reported its third quarter numbers last week. The new pricing and loyalty strategies at GNC will likely intensify the competitive dynamic between the companies.

Barclays expects third quarter EPS of $0.52 total company and retail comps at -0.6 percent and -1.0 percent, respectively, versus consensus at -0.5 percent and -1.2 percent.

“We forecast the gross margin will contract 50 bp and this will be partially offset by 17 bp of SG&A improvement, leading to operating margin contraction of 33 bp vs. consensus at -48 bp,” analyst Karen Short wrote in a note.

Following are the three scenarios, according to Barclays:

1) “upside (low probability): 3Q retail comps are flattish, QTD 4Q comps accelerate vs. 3Q, implied 4Q EPS is better than $0.45 at the midpoint, and investors do not worry that GNC's pricing/loyalty actions will have a meaningful impact on VSI”;

2) “~flat (reasonable probability): 3Q retail comps are down 1%-2%, QTD 4Q comps are in line or slightly better than 3Q, implied 4Q EPS is ~$0.45 at the midpoint or just below, and investors are comfortable that VSI can achieve its cost savings targets and make margin neutral reinvestments back into business, if necessary, to drive comps,"

3) “downside (reasonable probability): 3Q retail comps are down more than ~2%, QTD 4Q comps are decelerating, VSI narrows guidance to low end of range, and investors worry GNC's pricing/loyalty actions will have a meaningful impact on VSI.”

The key issue for the company is tough online competition, mainly from GNC’s new pricing. The company has to re-invest some of its cost savings in to lower prices and brand building efforts.

Vitamin Shoppe unveiled a new loyalty program earlier in 2016, which allows quarterly redemption versus annual previously and has boosted comps by more than 1 percent. The company expects at least this much comp benefit in the second half of 2016.

Barclays has an Equal Weight rating and price target of $29 on the stock.