Vitamin Shoppe Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Vitamin Shoppe, (VSI)

Vitamin Shoppe (NYSE:VSI)

Q1 2013 Earnings Call

May 07, 2013 8:30 am ET

Executives

Susan McLaughlin - Director of Corporate Communications

Anthony N. Truesdale - Chief Executive Officer and Director

Louis H. Weiss - Chief Marketing Officer

Brenda M. Galgano - Chief Financial Officer and Executive Vice President

Analysts

Simeon Gutman - Crédit Suisse AG, Research Division

Shane Higgins - Deutsche Bank AG, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Brian Wang - Barclays Capital, Research Division

Mark R. Miller - William Blair & Company L.L.C., Research Division

Sean P. Naughton - Piper Jaffray Companies, Research Division

Kate Wendt - Wells Fargo Securities, LLC, Research Division

Damian Witkowski - Gabelli & Company, Inc.

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Vitamin Shoppe First Quarter 2013 Earnings Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded. I would now like to turn the call over to Susan McLaughlin. Please go ahead.

Susan McLaughlin

Thank you, and good morning, everyone. As a matter of formality, I need to remind participants that remarks made by management during the course of this call may contain forward-looking statements about the company's results and plans. These are subject to risks and uncertainties that could cause the actual results and implementation of the company's plan to vary materially. The words believe, expect, plan, intend, estimate or anticipate and similar expressions, as well as future or conditional verbs, such as should, would and could, identify forward-looking statements. You should not place undue reliance on these forward-looking statements, and we expressly do not undertake any duty to update forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by law.

We refer all of you to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, as well as our quarterly reports on Form 10-Q for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition.

Earlier this morning, we released our results for the first quarter 2013. A copy of our earnings release and a recording of this call will be available on our website at vitaminshoppe.com in the Investor Relations section. Making presentations today will be Tony Truesdale, Chief Executive Officer; Brenda Galgano, Chief Financial Officer; and Lou Weiss, Chief Marketing officer. I will now turn the call over to Tony Truesdale, Chief Executive Officer.

Anthony N. Truesdale

Thank you, Susan, and good morning to everyone. Thank you for joining us. The quarter was a busy one for us. We closed the acquisition of Super Supplements and began the integration of 31 stores and the back office into the Vitamin Shoppe family, and we continue to make progress in the new Ashland, Virginia distribution center with a goal of beginning operations during the summer.

During the quarter, total revenue increased 12.5%, driven by comparable sales growth, a double-digit sales increase for e-commerce and growth from new and acquired stores. Growth in adjusted operating margins expanded and net income increased 14%. Our quarterly results underscore the strength of our business model. Comparable store sales increased 4.5% in the quarter. This represented the 30th consecutive quarter of positive comp sales growth. This growth was on top of a 9.6% comp increase we reported in the first quarter of 2012, which as we have discussed in the past, benefited from higher whey protein inflation and above-average sales strength of weight management products. The comparable sales growth in the quarter was driven by a combination of traffic and ticket. Our certificate redemptions in the quarter were comparable to last year, indicative that our loyal customers remain committed to the category and to the Vitamin Shoppe. April sales though, were a bit slower than we anticipated, making us cautious with our comp expectations for the remainder of the year. Our solid performance in the quarter was due to the strength across many product categories, including sports nutrition, specialty supplements, as well as natural bath and beauty, which has seen a lift in sales since the introduction of the aromatherapy line.

Last year, you heard me discuss that multivitamins was a category that represented an opportunity for us. We have added an exciting line of multivitamins, and this is being reflected in overall category performance improvement.

Mytrition, our multipacks for men and women, which launched with 6 SKUs is doing very well. We have received very positive customer feedback about this unique offering. And due to the current sales performance, we plan to add an additional 4 SKUs in the fourth quarter. Also on the new category front, we will be testing natural sweeteners in 40 stores beginning in June. Why natural sweeteners? First, we're always looking for new and existing products that meet our customers' growing needs for their health and welling -- well-being. And second, consumer concerns surrounding refined sugar, high-fructose corn syrup and other artificial sweeteners are increasing. Our broad range of natural sweetener products will target several different customers' needs. Those who are looking for natural sweetener products such as honey or those looking for low or no-cal sugar alternatives for weight management. Now on to the stores. We opened 13 stores during the quarter and are on track to open 20 in the first half. Total store count at the end of the quarter, which includes our 2 Canadian stores, was 621, up from 579 at year-end 2012. We're committed to opening 50 stores this year, which includes 2 small market test stores. The first franchise store opened on March 4 in Panama City, Panama. The size of the box is smaller at 1,000 square feet and the SKU count is less than our U.S. stores. The franchisee is looking for additional locations in the country, and we are continuing to develop our franchising capabilities as we look to other international markets for development opportunities.

Before turning the call over to Lou, I will provide a brief update on our acquisition of Super Supplements.

As you know, the transaction closed on February 14, midway through the quarter. The integration process is going as planned and there have been no significant surprises. We see an opportunity to improve the profitability of the business by leveraging the Vitamin Shoppe scale and expertise and supply chain. And Brenda will take you through the costs that we incurred in the first quarter.

In summary, I'm pleased with our first quarter results. We have a lot going on this year as we position the company for continued, sustainable long-term growth. We have a team of talented Health Enthusiasts. And I am confident in our ability to successfully execute our strategic initiatives. We are energized and we are looking forward to sharing our progress with you in the future. With that, I'll hand the call over to Lou to discuss our e-commerce business. Lou?

Louis H. Weiss

Thank you, Tony, and good morning, everyone. In the first quarter, our e-commerce sales increased 16% on a year-over-year basis in an environment that was still very competitive. This represented our 7th consecutive quarter of double-digit growth. We remained pleased with and committed to the incremental investments we made starting in late 2011 to ensure that the experience customers have in doing business with Vitamin Shoppe online is everybody's compelling of the experience they had every day in our stores.

One of the things that we hear over and over from customers is that they very much appreciate and value our ability to help them navigate the large selection of products that we carry, help them find the ones that are right for them. In the first quarter, we continue to improve our ability to do that online in several ways.

First, we have continued to increase the number of Health Enthusiasts available to talk to our customers via our website's live chat functionality. As we've said, our goal is to have our website be the perfect online expression of our brand and everything that customers love about us. Since the talent, knowledge, empathy and passion of our Health Enthusiasts are the core of what our brand stands for, it's a natural sweet spot for us to provide the customers who visit our website access to this same resource. And from everything that we can see, the experience we're providing here is resonant for our customers who use it, conversion rates on sessions where a customer interacts with our Health Enthusiasts via live chat are substantially higher than sessions where they don't. We've also made several improvements to the ways in which customers find the products they're looking for. We have reorganized several aspects of our site navigation to more perfectly reflect the ways that customers have told us they think about individual products and how to group them. We've developed, tested and launched several landing pages that make it easier for customers to understand the choices that we offer in some of our larger categories, and we are currently working on more of these landing pages. For example, our aromatherapy landing page offers rich content, as well as several different ways to shop our robust assortment. We also continue to improve our site search experience. With approximately 18,000 products available, the breadth and depth of terms that get searched on vitaminshoppe.com is quite large. We continue to make incremental improvements in site search conversion rates. We have launched new promotional tactics on our homepage, and the early results are positive. For example, our newly launched deal of the week promotion has provided more than 100% sales lift on certain targeted items.

We also continue to be pleased with the results of investments made in our social media efforts. We produced an ever-increasing quantity of top-notch content for a variety of social media outlets, and regularly see customer engagement levels that rival retailers with much larger fan bases. This tells us both how passionate our customer base is about their health and wellness, as well as indicates that the content we're producing is compelling to our audience. We continue and will continue to invest in the people, processes and technologies necessary to provide our customers with a world-class experience they expect from The Vitamin Shoppe. As the retail landscape continues to evolve and the lines between channels continue to blur, we are committed to ensuring that the experience of doing business with The Vitamin Shoppe remains second to none and that we continue to generate long-term profitable growth while doing so. I will now turn the call over to Brenda to walk you through the first quarter financial results. Brenda?

Brenda M. Galgano

Thank you, Lou, and good morning, everyone. Thanks for joining us. I'll spend the next few minutes covering our first quarter results and provide an update on the Super Supplements integration. After that, I'll walk you through our outlook for 2013. Let me start with our first quarter EPS results. Reported diluted EPS in the quarter was $0.68 or $0.72 when you exclude $0.04 per share for transaction and integration expenses associated with the Super Supplements acquisition.

As Tony mentioned, we are pleased with the integration process to date, which I will cover later in my presentation.

During the quarter, we recorded total sales growth of 12.5%, with comparable sales growth of 4.5%. Retail revenue increased 12.4% to $248 million with the 31 Super Supplements stores contributing about $10 million.

Direct revenue increased 13.3%, driven by a 16% increase in e-commerce sales, as Lou mentioned. Moving down the P&L, reported first quarter gross profit as a percentage of sales was 36.4%, compared to 35.6% in the same quarter of the prior year. In the first quarter of 2013, we continued to realize leverage in occupancy at approximately 40 basis points. We also realized an approximate 50 basis point reduction in warehouse and transportation costs, which includes an increase in capitalized inventory cost during the quarter as compared to a year ago. Previously, we discussed an approximate 30 basis points delevering of warehouse and transportation costs in 2013, mainly due to the new DC. Given the benefit we realized in the first quarter, we now expect total 2013 delevering to be reduced to 20 basis points for the year. We expect some deleverage in each of the next 3 quarters, with the greatest impact now expected in the fourth quarter, given our most current projections on when inventory purchase during the start-up month will sell-through.

Product margin was flat in the quarter, and given that Super Supplements runs at a lower margin, we are pleased with these results.

Given all the moving parts within gross margins, I will summarize our expectations for the rest of the year. First, we expect to continue to realize leverage from occupancy of approximately 30 basis points. Second, we expect deleveraging from then new DC of approximately 40 basis points. With the first quarter leveraging at almost 50 basis points, the full year impact is the approximate 20 basis points I previously discussed. Third, we continue to expect project margins to be flat for the Vitamin Shoppe business. And lastly, we expect the recently acquired Super Supplements stores to reduce total margins by approximately 20 basis points. As such, in summary, we expect a year-over-year decline in gross margins of approximately 30 basis points for the balance of the year.

SG&A for the quarter was $67 million compared to $58 million in the prior year. This year's cost includes transaction and integration cost of approximately $2 million related to the Super Supplements acquisition. Excluding the Super Supplement costs, SG&A as a percentage of sales was 23.3%, basically flat with the same period of the prior year. Advertising costs were up 30 basis points and were offset by leverage in other areas, including corporate costs. Our adjusted EBIT margin was 13.1% in the quarter compared with 12.3% in the same period of the prior year.

By segment, the retail EBIT margin increased in the quarter and reflects continued leverage from sales growth.

For the direct business, EBIT reflects the inclusion of the lower-performing Super Supplements e-commerce business, as well as an increase in advertising expenses.

Now I will provide an update on the integration of Super Supplements. As a reminder, the transaction closed on February 14, so we had the business for about half the quarter. As expected, we incurred approximately $1.7 million in transaction costs this quarter. In addition, we incurred approximately $300,000 in integration costs. We continue to expect total integration costs for the year to be approximately $3.5 million. Some of our integration activities to date include the conversion of the inventory merchandising system to the Vitamin Shoppe platform and the transfer of certain back-office function including inventory purchasing to our North Bergen high quarters. Based on net synergies identified to date, we are at an annualized run rate of almost $1 million beginning primarily in 2014.

Moving on to cash flow. We generated $11.2 million of operating cash flow in the quarter. CapEx totaled $11.8 million in the quarter and reflected the expenditures required to open 13 new stores, work on the development of new stores for upcoming quarters, as well as some investments for the new DC plant to open this summer. During the quarter, we also utilized approximately $50 million of cash for the Super Supplements acquisition.

Turning to the balance sheet. At quarter end, we held $31.2 million in cash and cash equivalents, had no long-term debt and nothing drawn on our revolver. As noted in the press release, we expect the following for 2013: we plan to open approximately 50 new stores, we expect low- to mid-single-digit comparable sales growth for the year, we are planning capital expenditures of approximately $45 million to $50 million, depreciation is expected to be approximately $28 million and includes the additional depreciation from the Super Supplements acquisition, the impact of the Super Supplements acquisition is expected to be dilutive to earnings per share by approximately $0.03, which includes transaction and integration costs, and fully diluted shares outstanding are projected at $30.7 million.

I am pleased with our first quarter results. We believe that our strong model and capital structure provides flexibility to continue to deliver profitable growth.

This concludes our prepared remarks. We'd be happy to take your questions now. Operator, please open the lines to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Simeon Gutman at Crédit Suisse.

Simeon Gutman - Crédit Suisse AG, Research Division

Tony, first, on April. I guess, we get that if April was tough, it might make you more cautious for the second quarter. I'm curious, maybe if you can clarify how tough it was. Meaning, why being more cautious for the whole year? Anything -- I mean, anything big standout?

Anthony N. Truesdale

Yes. I mean, there's 2 things. First of all, we've seen probably more variability in sales this year than we've seen in the past. And the second thing is with April being softer than my expectations, we thought it was prudent, and we tend to be cautious to kind of moderate the comp store sales forecast for the rest of the year.

Simeon Gutman - Crédit Suisse AG, Research Division

And I guess trying to put a finger on it, is it competition? Industry growth? I mean, industry growth, if it's supposed to be mid-single-digit, right, then that would imply that maybe you're not taking share this year. Is it cannibalization? Are there any factors or anything geographic that could help explain some of it?

Anthony N. Truesdale

Yes, let me -- so I think the macroeconomic environment for the consumer is much tougher this year than as you've heard from other retailers. I think the 2 other things is we're still cycling through the weight management piece. And if you recall last year in the first and second quarter, those were our 2 biggest quarters for weight management. And then you've got the protein price inflation, so we're seeing good unit growth in sports nutrition. But you've got -- you don't have the benefit of inflation that you had last year.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And my last question is do you think there's any -- is there any, I guess, competitive activity you're seeing from your -- from the member pricing program that your big competitor's doing?

Anthony N. Truesdale

Yes. I mean, year-to-date, we haven't seen at retail a lot of change in competitive activity.

Operator

And we'll go next to Shane Higgins at Deutsche Bank.

Shane Higgins - Deutsche Bank AG, Research Division

And Tony, I just had a quick question on gross margins. They came in quite a bit stronger than I was modeling. I know you guys increased the capitalized inventory cost during the quarter. Is that something that you guys typically do? And could you just walk me through that?

Brenda M. Galgano

I'll take that question. Capitalized inventory is essentially based on changes in inventory, as well as changes in capitalized cost, and we didn't see an increase in that in the first quarter. There would be adjustments from quarter-to-quarter, that is baked into the guidance that I gave. This really relates to warehouse and transportation costs. So the guidance that I gave for the rest of the year, which is a decline of 40 basis points and the remaining 3 quarters would bake that in.

Shane Higgins - Deutsche Bank AG, Research Division

Okay, okay. And just switching gears real quick to your -- to new product pipeline that you guys have. Is there anything you guys can call out that you're going to be rolling out in the next couple of months? And maybe just speak to how the MyTrition lines are doing? I know you said that you're going to add some SKUs, but was that a meaningful driver to sales at all in the quarter?

Anthony N. Truesdale

I think we were pleasantly pleased with Mytrition, and we only developed 6 SKUs. We wanted to see how it's going. We've got -- and we saw the initial results, we've had some struggles on keeping it in stock quite honestly, so we're ramping up 4 more SKUs and we're working hard at product development. We launched Raspberry Ketones in the quarter. We launched the Coffee Bean Extract in the quarter. The $9.99 multis are in the store. If you go to into a store today, you'll see a great display of third-party and Vitamin Shoppe brands, $9.99 multis. So I think the things that we said we're going to do a year ago on multivitamins have kind of come together, and we're happy with that. We expect more product development in the back half of the year.

Operator

Next, we'll move to Matthew Fassler at Goldman Sachs.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

I'd like to ask a question about the competitive environment, roughly speaking. You had cited that particularly in the online arena as a factor on your fourth quarter call. I'm kind of curious whether this is persisting and whether it's spilling over the retailer, whether price points associated with that might be impacting comps as well?

Anthony N. Truesdale

Yes, Matt. I mean, I would say that -- I think Lou made the comment in his conversation earlier that the competitive environment had stayed pretty robust online. And I think we had some great tactics from an advertising and promotional perspective that led to good solid results in this particular quarter. We don't have any evidence of it bloating -- bleeding over the retail though.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

I guess, the second question. On April, and addressing this question earlier, you spoke about whey protein and weight management as sort of problems that persisted from Q1. In Q1, you did a 4.5% in the mid-single-digit range, I'm not sure if you expected April to get better. But presumably, the incremental softening would've come elsewhere. So where did the business get weaker for you to the extent that you felt compelled to call it out. Are there year-ago comparison issues in those categories or anything like that, that could explain it?

Anthony N. Truesdale

Yes, I think it's a general weakness across a number of different categories. So I'd say we're still getting growth, but there's a weakness versus the growth a year ago. And the variability, really, from week-to-week that we're seeing with the consumer, that we haven't seen in the past. So it's really that variability that we're cautious of.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

And one last quick one. Inventory growth. I know this shows up on the balance sheet. It also obviously ties in to the unit cap -- capitalization of cost. The inventory growth was up a bit from where it had been. Can you attribute that to any particular driver, be it distribution, be it the acquisition? Anything you'd want to focus on here?

Brenda M. Galgano

Sure. The reason for the acceleration and the increase in inventory is really mainly driven by the Super Supplements acquisition, which was $13 million to $14 million. And then the other growth was really driven by growth of the business.

Anthony N. Truesdale

Yes, Matt, going back to...

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

That's very helpful.

Anthony N. Truesdale

Sorry, Matt. Go ahead.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

No, you go ahead, Tony.

Anthony N. Truesdale

Well, I was just going to go back to your original comment. We still believe that low- to mid-single-digits is where we're going to be for the remainder of the year.

Operator

And we'll go next to Peter Benedict at Robert W. Baird.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Just first, can you remind us how material the inflation was last year in the first half of the year? I think 2% to 3%. I just wanted to get that sense. And are you seeing deflation now? Do you think it's more -- or do you think there's not, I mean, any really inflation?

Anthony N. Truesdale

Yes. Go ahead, Brenda.

Brenda M. Galgano

I'll take that. So last year, we saw inflation at this time in the range of 3% overall. And this year, that is closer to 2%.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then as you look out over the balance of the year, Brenda, you're expecting, I guess, last. So maybe that inflation tailwind eases and goes flat over the balance of year. Is that reading it correctly? Or...

Brenda M. Galgano

That's correct, right. If we look over the longer term, typically, inflation is in the 1% to 2% range, so we see that as continuing to be a headwind for us throughout the rest of the year.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then Tony, one of the hallmarks of your business in the past has been the consistency and predictability of the new store performance. Can you talk about any changes you might be seeing around that year-to-date? And how, for all your longer-term view, the store maturity curve is changing?

Anthony N. Truesdale

Yes. I mean, I think longer term, we don't have a view that the maturity curve is going to change. But I would tell you, given the macroeconomic environment, the stores that came out of the box earlier this year have been below my expectations.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then lastly, just on the store openings. You reiterated your plans for this year when you looked past '13 into '14, do you expect to get back to that 10% unit growth rate? Or should we be assuming something less than that?

Anthony N. Truesdale

Yes, I think long term, we're probably in that 8% to 10% store growth range.

Operator

We'll move next to Brian Wang of Barclays.

Brian Wang - Barclays Capital, Research Division

The first question I have is, I know you guys were on that semi-annual Bogo sale in April. And I guess if you just talk a little bit about the cadence of -- not the cadence, but I guess the breakdown of sales between like, is April a bigger month for you in the second quarter?

Anthony N. Truesdale

Certainly, the Bogo sale is a traditional event that we've held every year. And I think this year that we did some things in the quarter that it changed some things in hindsight that we probably would've done differently. But given that in the macroeconomic environment, I think the combination of the 2 is what lead to probably a softer-than-anticipated April.

Brian Wang - Barclays Capital, Research Division

Do you care to get more specific on what you think you might have done differently?

Anthony N. Truesdale

No, I don't think we would publicly talk about that.

Brian Wang - Barclays Capital, Research Division

Okay. And then just another question follow-up on via the Co10 issue that you've sort of mentioned out last quarter, have you seen any change or improvement with that?

Anthony N. Truesdale

No, we've seen no change in that.

Operator

We'll go next to Mark Miller at William Blair.

Mark R. Miller - William Blair & Company L.L.C., Research Division

Tony, maybe you can expand on just how you're thinking about the macro impacts on the consumer in this category, because Vitamin Shoppe performed exceptionally well through much what I perceive to be tougher periods. And so why now do you think these macro trends are impacting the business? And do you think there might be other things that are important beyond the macro that are causing this apparent slowdown?

Anthony N. Truesdale

Yes, I think that we're -- again, I keep talking about the weight management, the media attention and some of things. We've seen some pretty dramatic changes in that category year-over-year from a sales perspective. And we've also seen our low spenders have not been as prominent as they have been in the past. So that's another thing that we're -- we've got some tactics internally that we're working on.

Mark R. Miller - William Blair & Company L.L.C., Research Division

And then on e-commerce, I'd like your estimate of what do you think the growth rate of this category is online? So I mean, you've got a nice rate of growth, but do you think you're keeping pace with the growth of these product categories in aggregate? And then, if you can also just spend a little bit more time on what you're doing in mobile, clearly, that's very important.

Anthony N. Truesdale

Yes. Lou, why don't you take that?

Louis H. Weiss

Yes. So the data that we see, indicate a growth rate around 13%. And we intend to grow, as we've said before, at or above that growth rate, which we continue to do in the first quarter. Clearly, mobile is very important to the future of the interactive experience for retailers, as well as the e-commerce, specifically. And we have been making and we'll continue to make investments in that area.

Operator

We'll go next to Sean Naughton at Piper Jaffray.

Sean P. Naughton - Piper Jaffray Companies, Research Division

And maybe you can just clarify something for me. I'm just -- and Brenda, I'm just trying to figure out what is the gross margin decline for the full year you're looking for, and then the same thing for SG&A as well.

Brenda M. Galgano

You're fading out a little bit. But I think your question is what is the overall gross margin decline for the year?

Sean P. Naughton - Piper Jaffray Companies, Research Division

Correct.

Brenda M. Galgano

Yes. So for the first quarter, overall gross margin's improved around 80 basis points. And for the remaining of the next 3 quarters, we expect on average that it will decline 30 basis points in each of the quarters. So if you take the full year, it's slightly down but essentially flat.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then the same thing on SG&A as well?

Brenda M. Galgano

SG&A costs, there's a few moving parts. So I'll talk to it excluding the Super Supplements transaction and integration costs. But if you look at SG&A, excluding those costs, we were essentially flat year-over-year. And if you recall, in the past, I did say that the impact of Super Supplements to the overall SG&A rate was a decline of about 30 basis points. However, we continue to get leverage in other areas. So overall, we'd be aiming to get to an SG&A rate that would be flat to probably slightly negative given the headwind of adding Super Supplements.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. So all in: gross margins, flat to slightly down; and then SG&A, flat to slightly leveraged. All inclusive of everything that's going on?

Brenda M. Galgano

SG&A, not flat to slightly leveraged, flat to slightly up as well. Sorry, I -- sorry if I confused that. But yes, the rate would go up slightly potentially, because of the Super Supplements headwind.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And is that versus your GAAP or non-GAAP numbers for last year?

Brenda M. Galgano

That would be versus the adjusted numbers.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay, so that's versus the adjusted numbers last year?

Brenda M. Galgano

Yes.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then I guess secondly, Lou, maybe for you. When looking at the e-commerce segment, margins in the business looked like they were down 150 basis points, so a little bit of an acceleration sequentially. Can you talk about how much of that decline was attributable to Super Supplements acquisition versus the competitive environment? And then maybe also talk about how much of the 16% growth was attributable to the acquisition?

Louis H. Weiss

Yes. As I mentioned before, the 2 key drivers of the rate declination were the integration of Super Supplements and increased advertising expense spending. Without including Super Supplements sales, the growth rate would have been in excess of 13%.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then on the rate, the 40 basis point of acceleration and decline, that was mostly Super Supplements in the direct segment then?

Louis H. Weiss

Yes.

Operator

We'll go next to Kate Wendt at Wells Fargo Securities.

Kate Wendt - Wells Fargo Securities, LLC, Research Division

I just want to follow up on your comment about the competitive environment online not swinging over to retail, I think, certainly these days, consumers probably shop both channels so that they're pre-shopping or making transactions in both channels. Do you think the softness about retail that you've experienced could be due to, perhaps, the slightly higher prices you seem kind of have in store versus online? Or do you think it's more just macro in stores and competitive environment online?

Anthony N. Truesdale

I mean, Kate, this is Tony. I mean, we can -- because of the database, we can monitor customer movement from channel-to-channel. So we can talk to what we see within the Vitamin Shoppe portfolio of customers moving from stores to online, but we can't talk to the greater population beyond that and what their behavior is. But when we look at the data internally, we feel comfortable that we're creating new customers online with our offer, and it's not a tremendous cannibalization of our store-based business based on what we're seeing.

Kate Wendt - Wells Fargo Securities, LLC, Research Division

Got it. Are you seeing at all an increased number of people asking to price match online prices in store?

Anthony N. Truesdale

No, we're not. That -- we do allow that against the vs.com website. And we have said publicly that we do price differently between the 2, but we haven't seen a sizable increase in that matched numbers. So that would lead us to believe there's -- that's not happening as well.

Kate Wendt - Wells Fargo Securities, LLC, Research Division

Got it. And then just finally, we noticed in a job posting that you might be relaunching the website this year. So maybe either for Lou or Tony, can you talk about what the timing might be around this? Anything you can share in terms of any additional functionality that you'd like to add?

Louis H. Weiss

Yes. We are always looking at making improvements to the website. As we've said, it's important to us that our website be the perfect online expression of everything that our brand stands for. And what our brand stands for is the ability to interact with Health Enthusiasts who are incredibly well trained and interested in our consumers' health, as well as the ability to navigate the 18,000 products that we carry online with content, with information, with navigation, with different ways to buy. We talked about some of our new merchandising and promotional tactics that we've seen early success with. So when you see us revamping aspects of our website, it tends to be always in that direction.

Kate Wendt - Wells Fargo Securities, LLC, Research Division

Okay, great. But it's not necessarily going to be a big replatforming of the website, for you would have to take it down and do a big relaunch?

Anthony N. Truesdale

No. Kate, we're doing incremental redesign elements based on what we've learned from the consumer. This is not a massive change to the business.

Operator

[Operator Instructions] We'll go next to Damian Witkowski at Gabelli & Company.

Damian Witkowski - Gabelli & Company, Inc.

Tony, just want to go back to your comment. And you used the word variability in sales, and I think it goes beyond April. Is it just -- put it in historical perspective, is it sort of remind you of maybe 2008, 2009? Or is it totally new consumer behavior that you've not seen in the past?

Anthony N. Truesdale

Yes. I mean, I would say you'd have to go way, way back. I've been in Vitamin Shoppe since 2006. And so I wouldn't call this out if I hadn't -- it's been pretty consistent in the past. We'd have to go back a long way since we've seen this variability. We saw some variability back in the recession, but we still had strong comps. We're being prudent and cautious about our guidance going forward. We still believe very, very strongly in the business model, but we think we're just going through a little bumpy road here.

Damian Witkowski - Gabelli & Company, Inc.

Okay. And remind me, weight management, a, how big of a -- what percentage of your overall sales is it in? And then can you just expand on the dramatic changes that are going on in the category? I know there's been, I guess, a lot more press a year ago that put a spotlight on the category, but anything else that you're seeing?

Anthony N. Truesdale

There's nothing else that we're seeing except for the variability in items that get lots of PR in TV and magazine prints last year, and we don't see that same kind of activity in weight management this year, so you're going to see a decline. We haven't publicly disclosed the size of that business, it's always been part of the sports nutrition business. So we think that we're going to be over that after the second quarter, as the big quarter for the weight management change year-over-year.

Damian Witkowski - Gabelli & Company, Inc.

Okay. And then, Brenda, can I just follow up on the onetime costs associated with the integration of the acquisition? And do I have it right? For the full year, it's going to be about $5.2 million, is that correct?

Brenda M. Galgano

Well, the integration costs of it would be, for the full year, about $3.5 million, of which $300,000 was incurred in the first quarter. And then in addition to that separately, we incurred in the first quarter $1.7 million of transaction costs.

Damian Witkowski - Gabelli & Company, Inc.

Okay, okay. So, okay, together. And then the new distribution center, are there any onetime costs associated with that going forward this year?

Brenda M. Galgano

Yes, there are. And that is baked into the guidance that I gave.

Damian Witkowski - Gabelli & Company, Inc.

Okay, the $1.7 million. Okay.

Brenda M. Galgano

Yes.

Operator

And that does conclude today's question-and-answer session. At this time, I'd like to turn the conference back over to Tony Truesdale for closing remarks.

Anthony N. Truesdale

Again, I'm pleased with the performance and the progress that we've made in the quarter. And our expectations for longer-term growth remain unchanged. We continue to build our business to deliver long-term value to our shareholders. Thank you for joining us this morning, and we look forward to updating you on the next quarter.

Operator

And that does conclude today's conference. Again, thank you for your participation.

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