Question:
I’m looking at some vitamin/nutritional supplement retailers: Vitamin Shoppe, GNC and Vitacost.com. Of the three, do you like any of them? If not, what company would be good in health/nutrition?
Answer:
We first suggest you not consider Vitacost.com (NASDAQ: VITC), because it has posted losses in each of the past two years. The company has burned through some of its cash, forcing the company to raise additional capital, which has further diluted existing shareholders’ value.
As for GNC Holdings (NYSE: GNC) and Vitamin Shoppe (NYSE: VSI), GNC is the bigger player with about 7,500 locations worldwide, versus Vitamin Shoppe’s 500 or so domestic locations. GNC’s size could work both for and against the company. As the top player, there is nowhere to go but down. The company also has an international presence; however, we have seen the economic struggles across the Atlantic for more than a year now. On the other hand, GNC’s larger size has created better economies of scale that have led to better profitability, relative to Vitamin Shoppe.
Vitamin Shoppe, with zero outstanding debt and a smaller store base, probably has more opportunity for growth, but that is largely reflected in the stock price. It trades at 33 times earnings, while GNC only trades at 22 times earnings. Basically, Vitamin Shoppe’s shares trade at a 50% premium to GNC’s.
If we had to pick between these two, we recommend GNC, since you’d pay less per unit of earnings, and the company has performed well growing same-store-sales for 27 consecutive quarters. This is quite an impressive feat considering that period includes the 2007-2009 recession.
Question:
I saw that Bed Bath & Beyond is taking over Cost Plus World Market. Seems to me the stores are so similar. What is the advantage?
Answer:
Bed Bath & Beyond (NASDAQ: BBBY) agreed to buy its rival Cost Plus, Inc. (NASDAQ: CPWM) for $495 million, or $22 per share. The acquisition does not come as a surprise. For more than a year, Bed Bath & Beyond has been testing specialty imported foods from Cost Plus in a section of its stores in key markets. The advantage to the acquisition is that it will expand Bed Bath & Beyond’s consumable offerings into gourmet food and beverages. Cost Plus World Market also has a strong home furnishings business. On the surface, it appears that Bed Bath & Beyond is adding food categories in an effort to drive traffic.
With the acquisition, Bed Bath & Beyond will have to contend with more real estate liabilities, which has been an issue at the forefront of Best Buy, Borders, Barnes & Noble and others in their recent struggles. In the meantime, Amazon continues to steal share from the big-box store concepts with online retail sales.
Question:
I’m looking for some solid small-cap plays. I know you’re traditionally large cap, but I know you keep an eye out for the small caps that are worthwhile.
Answer:
One we like is The Men’s Wearhouse (NYSE: MW). The company operates the Men’s Wearhouse and K&G chains. The suit retailer stands to benefit from a recovery in the labor market as people who get jobs begin shopping for new business attire. The company also rents tuxedos, and the last time we checked, weddings and proms are still happening. The high-margin tux rental business also draws new, younger potential customers into the stores. Lastly, while it doesn’t operate the Big & Tall store chain, it does offer clothes for those who are big and tall. As a nation growing bigger and taller, demand for these products should be strong going forward.
At Henssler Financial we believe you should Live Ready, which includes doing your research on the companies whose stock you want to own. If you have questions on your stock picks, the analysts experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
