Vitamin Shoppe (VSI) Q3 2018 Results - Earnings Call Transcript

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About: Vitamin Shoppe, Inc. (VSI)
by: SA Transcripts

Vitamin Shoppe, Inc. (NYSE:VSI) Q3 2018 Earnings Call November 7, 2018 8:30 AM ET

Executives

Kathleen Heaney - Vitamin Shoppe, Inc.

Sharon M. Leite - Vitamin Shoppe, Inc.

Dave Mock - Vitamin Shoppe, Inc.

Bill Wafford - Vitamin Shoppe, Inc.

Analysts

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Sean Kras - Barclays Capital, Inc.

Damian Andrew Witkowski - Gabelli & Company

Christopher Horvers - JPMorgan Securities LLC

Operator

Good day and welcome to the Vitamin Shoppe Third Quarter 2018 Earnings Results Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Kathleen Heaney. Please go ahead, ma'am.

Kathleen Heaney - Vitamin Shoppe, Inc.

Thank you, and good morning, everyone. Earlier this morning, we released financial results for the third quarter 2018. A copy of the earnings release can be found at vitaminshoppe.com in the Investor Relations section. Making presentations today will be Sharon Leite, Chief Executive Officer; Dave Mock, Chief Merchandising Officer; and Bill Wafford, Chief Financial Officer.

Before we begin, I need to remind listeners that remarks made during the course of this call may contain forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 about the company's future results or plans, guidance, strategy, and prospects. These are subject to risks and uncertainties that could cause the actual results and implementation of the company's plan to differ 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.

During the call, we may refer to non-GAAP figures. We have provided a reconciliation for these numbers in Tables 4 and 5 in the press release. 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.

I will now turn the call to Sharon.

Sharon M. Leite - Vitamin Shoppe, Inc.

Thank you, Kathleen, and good morning, everyone, and thank you for joining us. I'm delighted to be participating on my first call as the Vitamin Shoppe's new CEO. I'll spend a few moments talking about what I've learned over the past two months. Both Dave and I will discuss some key business highlights from the third quarter. Bill will take you through the financials and then we'll take any questions you may have.

When I joined the Vitamin Shoppe, I embarked on a journey to learn as much as I could about our business from a customer's perspective. I worked in and toured stores in multiple areas of the country, visited both of our distribution centers, spoke to our vendor partners, and conducted numerous roundtables and town halls across the organization.

Some of the key things I learned, first, our Vitamin Shoppe Health Enthusiasts have an incredible passion for what they do. They are informed, well educated about the products we sell, and have a sincere desire to help customers with their health, wellness, and fitness journey. The team has made progress with our product innovation pipeline, speed to market, and our products are of the highest quality and efficacy in the industry.

Our vendor partnerships are getting stronger and through our joint business planning process, we will strengthen them further. There is no reason we shouldn't win. We are part of a strong category, one that is growing, and we have a team that is ready to deliver results and build a great future. I've also learned there are ways we can be more effective. We have to truly know our customers, understand everything about them, put them in the center of everything we do, and leverage our data to make better decisions.

Digital, all things digital, we must deliver a comprehensive digital shopping experience that customers expect today. We welcomed Stacey Renfro to our organization this week as our new Chief Customer and Digital Experience Officer. Stacey has a proven track record in this area and will be laser focused delivering on this priority and driving sales. While the team is building an innovative product pipeline and there has been some success to date, we have much more work to do and need to be known in the marketplace as the leader for product newness and innovation.

We must also streamline our operations, including a deeper understanding of the role the stores play in the future and a more in-depth analysis of the performance of each individual store. In addition, we must revise our cost structure and infrastructure, operate with excellence and drive flawless execution in everything we do. Much of what I've learned in my short time here is that our wounds are self-inflicted and can be overcome. Progress has been made which is evident by the more recent results of the company. However, we will be intensifying our turnaround efforts and I look forward to sharing more of that with you on future calls.

Now onto third quarter results, retail fundamentals are core to the turnaround at the Vitamin Shoppe and lay the foundation to support future growth. We are making progress across the organization and saw better results across both channels, major product categories and product margins. Margin rate improved across the business coming from third party, private brands and sales mix.

Lastly, our clearance program has been successful in driving sales at a higher margin rate than last year, while opening up space for newness and private brand expansion. On the customer front, new customer growth through September was up 6% and reflects the initiatives the organization has started to refine, including media mix, seasonality, incentives, new online capabilities, and in-store grassroots marketing programs to help drive traffic and customer acquisition.

Our approach to marketing will be centered on strengthening customer relationships by targeting communication and offers to each customer as well as attracting new customers to the Vitamin Shoppe. As shared in a previous call and to support improving the customer experience and deepen our relationship with customers, we have been testing our new Healthy Awards loyalty program. Our attractive value proposition will be further supported by our loyalty program that is robust, uniquely positioned in the marketplace, and valued by its members. Initial results are encouraging and we expect to make a determination early next year to fully roll out the program in 2019.

I will now turn the call over to Dave to provide additional details about our product offerings.

Dave Mock - Vitamin Shoppe, Inc.

Thank you, Sharon, and good morning, everyone. It's a real pleasure to be with you. Third quarter sales were driven by core categories such as specialty supplements, herbs and weight management. We're seeing improving trends in protein, reflecting the introduction of several new protein brands as we work closely with our protein partners to both reinvent and reimagine our sports business. Additionally, we are experiencing strong trend growth in convenience foods, specifically ready-to-drink and healthy snacks.

A key driver behind our sales in Q3 has been the success we have had with new product introductions from our strategic vendor partners and from the continued launch and expansion of new private brands. For example, we are very excited about being first to market in launching our Keto destination or KETO HQ in-store and on our website, which has been well-received with both existing and new customers and driving incremental sales.

Our omni launch of Keto in Q3 has positioned us top of mind with our consumers and as their destination for meeting their everyday Keto needs. Our Health Enthusiasts are trained Keto experts and have become a key resource for customers seeking a Keto solution. In Q3, our joint business planning process continued to produce positive results, both from a promotional planning and new product point of view. A few of our successful major launches were Optimum Gold Standard Isolate, Isopure Infusions, and Garden of Life My Kind Herbs. Importantly, sales from new items have doubled versus last year. New product launches in the quarter exceeded Q2 launches, and we expect this trend will continue for the balance of the year with strong new brand and new category introductions.

We are very encouraged with how our vendors, particularly VPX, RedCon1, Optimum Nutrition, Woodbolt, Garden of Life, and Performix are working with us on this initiative. Private brand development is also a key priority, and you will see more emphasis from us over the coming year. During Q3, our private brand sales trend and penetration continued to improve to last year and our margin rate expanded over 200 basis points through successful negotiations for lower cost of goods.

We saw a solid 20% plus brand growth from plnt, MyTrition, and ProBioCare supported by omni-marketing focused on differentiation and solving consumer need states. In Q3, private brand launches of black seed oil, plnt apple cider vinegar, and BodyTech Flash Point – Rainbow Sherbert exceeded our expectations supported by strong marketing. We launched 21 new products and are targeting a similar amount in Q4.

As we look ahead, we are excited about the plans we have for a new private brand hierarchy of strong new product introduction calendar, both supported with a strong omni-marketing execution. To help achieve this goal, we have recently hired a new Vice President of Private Brands who brings a new level of experience from retail and private brand development.

Summing up, we recognize the need to continuously evolve the product assortment and increase relevance with our consumers. We have been making good progress in clearing up unproductive inventory and opening up space for more relevant and new product assortments. We are at the beginning of our journey to make the Vitamin Shoppe a more relevant and sought-after omni brand.

With that, I will turn the call over to Bill to take you through the quarter's financial results.

Bill Wafford - Vitamin Shoppe, Inc.

Thank you. Thank you, Dave. Our financial performance reflects the benefits from the initiatives we launched over the past year. On a GAAP basis, earnings per share from continuing operations in the third quarter was $0.08, reflecting improved margins and a $1.3 million Federal tax benefit.

Adjusting for the items shown in Table 4 in the earnings release, earnings per share from continuing operations in the third quarter was $0.04, which is flat with the third quarter of 2017. We remain focused on our back to the fundamental strategy and are continuing to see tangible benefits from executing our strategic plans.

With respect to sales, Q3 total comps were down 1.9%, an improvement over the same period in the prior year. Digital comps which include vitaminshoppe.com, marketplaces and Auto Delivery were up 22% in the quarter, primarily driven by Auto Delivery. And we continue to see improving trends in our stores. We opened one store in the quarter and closed three as we continued to evaluate our real estate portfolio.

Moving down the P&L, gross profit margin was 31.3%, which was flat with adjusted third quarter 2017. As a reminder, in Q3 2017 we incurred a $2 million expense associated with the closing of the North Bergen distribution center. Components of the changes in gross profit rate during Q3 2018 include improvement in product margins of 200 basis points year-over-year. This is an area where we have made significant improvements with respect to product mix, pricing, promotions, and lower cost of goods.

Supply chain and occupancy deleveraged by approximately 200 basis points due to the impact from channel shift and lower sales. Reported SG&A expenses were $82.7 million and include $600,000 in expenses associated with management realignment and the closure of the North Bergen facility. On an adjusted basis, SG&A as a percentage of sales levered by approximately 10 basis points in the quarter. In the quarter, we also incurred store impairment expense of $700,000.

Moving on to the balance sheet, our balance sheet and cash flow generation remained healthy. We ended the quarter with cash and equivalents of approximately $1.8 million, convertible notes with a total face value of $68.4 million, and nothing drawn on our credit facility. During the year, we have repurchased $75.3 million in aggregate principal amount of our convertible notes.

As for inventory, in Q3, we further reduced unproductive inventory in both our warehouses and stores, improving turnover performance. Inventory at the quarter-end was down $14 million from Q2 2018 and down nearly $50 million from Q3 2017, reflecting improvements we are making with unproductive inventory, optimization of product assortment, as well as the closure of the North Bergen distribution center. We now have a consistent markdown clearance program integrated into the promotional and planning process. Cash generated from operating activities in the quarter was $11 million and $77 million year-to-date. Capital expenditures were $9 million with funds primarily used for IT and digital investments.

Let me close with a few words on our outlook for the year. We expect comparable sales growth in the negative low- to mid-single-digit range, driven by growth of digital programs and new customer acquisition. Note, the following two items are on an adjusted basis. The reconciliation to GAAP is shown in Table 5 in today's earnings release.

Our adjusted gross margin, this excludes the assortment optimization and North Bergen DC charges, is expected to be in the range of 31.5% to 32%. We expect an improvement in rate from the annualization of savings from our cost of goods reduction initiatives and moderating fixed cost deleverage, partially offset by increased delivery expense. We expect adjusted SG&A to be between $340 million and $345 million. This excludes expenses associated with the management realignment and other costs we called out in Table 4 of today's earnings release.

Total capital expenditures are planned at approximately $30 million. This includes the opening of two new stores and increased digital investments, which is planned to be our largest area of investment. We plan to close approximately 14 stores during the year and are continuing our ongoing evaluation of our real estate portfolio.

I will now turn the call back to Sharon.

Sharon M. Leite - Vitamin Shoppe, Inc.

Thanks, Bill. Well, I'm enthused about the future of the Vitamin Shoppe and in my short time here and even more encouraged by the opportunities ahead of us and evolving the organization to be a dominant leader in the marketplace. We need to expeditiously turn this business around, and we will. The plan shared with the investment community earlier this year will be used as a foundation for our longer-term strategy, and I look forward to sharing where we are headed on our next call.

I want to thank the Vitamin Shoppe team for the warm welcome I've received. I look forward to working with our talented and enthusiastic Vitamin Shoppe colleagues. And I'm confident that together we will quickly execute the plans necessary to turn around our company, while providing a better customer experience relevant for today's consumer.

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

Question-and-Answer Session

Operator

Thank you. We'll now take our first question from Simeon Gutman of Morgan Stanley. Please go ahead.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Thanks. Good morning. Welcome, Sharon. I have a question on, first, the fourth quarter and then something longer term. For the fourth quarter, it looks like the e-com growth rate should slow significantly. Is that right or wrong? And are you planning for positive or negative store-only comps?

Bill Wafford - Vitamin Shoppe, Inc.

Simeon, we don't break down the kind of what our forecast is on the comps perspective. But what I can tell you is on the e-com growth, I think what you'll see is not so much of a slowdown as the annualization of ADP. By the time we were in Q4 last year – you saw that between Q2 and Q3 of this year.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Yeah.

Bill Wafford - Vitamin Shoppe, Inc.

We're coming around them more and have a lot of sign-ups there. So you're starting to see us level out to some extent in there. On a store comp perspective, you can see we've progressed each of the last three quarters in comp and a trend in stores and we expect to continue to progress there, but aren't kind of feeling where Q4 comp's going to be there.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Are you going to provide the Q4 adjustments the way that you provided the adjustments this quarter, but I don't think we have them for next quarter so that we can model the margin properly?

Bill Wafford - Vitamin Shoppe, Inc.

We don't provide them ahead of time. We've given the postdoc (18:08). The one thing I'll tell you is, if you guys look at where you guys are on a margin perspective, I mean you're a little bit – I mean from the last time, you guys were a little bit low, right? And so if you look at our full year guidance of the 31.5% to 32%, we expect to be right in that range.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Okay. And then, these adjustments basically lap out in when? The first quarter of next year?

Bill Wafford - Vitamin Shoppe, Inc.

Yeah.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

And just bigger picture, is there a scenario – let's just say for argument's sake, next year comps are flattish overall, irrespective of what the plan is. Between sort of the margin efforts that you're working on, could margins be up next year in a scenario in which comps are flat?

Bill Wafford - Vitamin Shoppe, Inc.

I think that's something we'll get into when we get into guidance for next year. But the margin is going to be a consistent focus for us as we look at kind of turnaround the base business, yeah. I think we've got opportunity there when you look at the annualization of our margin rate this year versus last year.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Okay. And last and finally just, Sharon, your view on the total store count, I'm assuming the extra number of closures I think that we heard, I don't know, to me that was a slight change, a bump up. I don't know if that reflects your decision or it's too early for that and that was just ongoing business, but just your overall view on the store count.

Sharon M. Leite - Vitamin Shoppe, Inc.

Yeah. So, that was our kind of ongoing business in terms of what you've seen thus far. We're not in a position right now to make a comment about the longer-term footprint. However, I will say we are going to be incredibly diligent in understanding the profitability of our fleet and we do plan to always look at that and we'll have more information for you in the near term.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Okay. Thanks.

Operator

We will now take our next question from Sean Kras of Barclays. Please go ahead.

Sean Kras - Barclays Capital, Inc.

Thanks. Good morning and appreciate you taking my questions.

Sharon M. Leite - Vitamin Shoppe, Inc.

Good morning.

Sean Kras - Barclays Capital, Inc.

Sharon, you touched – good morning. You touched on this a bit in your prepared remarks, but it'd be great just to get your thoughts just overall on the health of the industry as well as Vitamin Shoppe's positioning and strategy.

Sharon M. Leite - Vitamin Shoppe, Inc.

Sure. Obviously, what attracted me to the Vitamin Shoppe was it's a strong player in the industry. It's a category that's growing. We have terrific products. I was incredibly impressed by the way our Health Enthusiasts demonstrated their knowledge of our business with our customers and just truly the engagement that we have with our consumers. Clearly, it's a very competitive environment. But we're going to do everything we can to make sure that we are a strong player in the industry.

Sean Kras - Barclays Capital, Inc.

Okay.

Sharon M. Leite - Vitamin Shoppe, Inc.

And we certainly believe that we've got room to grow this business.

Sean Kras - Barclays Capital, Inc.

Thanks. And then a question on comps, I think there was a fair amount of noise in the comps last year between the hurricanes and I think a fairly high level of promotion and price investment. Could you give us a sense of how we should think about comps going forward or maybe some color on how they're progressing in the fourth quarter?

Bill Wafford - Vitamin Shoppe, Inc.

I mean, we don't quote obviously how we did in October, Sean. And when you look at the annualization of year-over-year, you're right, we had the hurricane mainly hit Houston last year, right? We had a couple this year that were a little bit offsetting. So, if you look at the puts and take on that, kind of leveled itself out in the big scheme of things, some hit to us, but not something that we're calling out as significantly material. I do think if you look at it on – kind of we forecasted the full year guidance to be in that negative low- to mid-single-digit comps. So, I mean that can kind of tell you where we expect Q4 to come in based on where we are year-to-date. Year-to-date, we're down in the 2% range.

Sean Kras - Barclays Capital, Inc.

Okay. That's helpful. And then a couple questions on the gross margin, obviously, a nice improvement in product margins again this quarter. I guess, can you just maybe talk about the sustainability of product margin improvement from here? And then, I guess, secondly related to the gross margin, there's a pretty big range implied by the guidance, I guess what would be the factors that would swing it one way versus the other, between the high end and the low end?

Bill Wafford - Vitamin Shoppe, Inc.

Sure. No problem. Let me take your question in two parts. First, on the sustainability of the margin improvement, right, I mean it's not we can't keep going in perpetuity in terms of picking up that much margin rate, right? We feel really good about the progress we've made so far this year. But we still know there's room to grow ahead of us. Now, you do get pressure based on channel shift associated with that, and when you look at the channel shift between in-store and online and what is the margin implication to that. But we do feel really good about the work we're doing with our suppliers and vendor partners, our private label penetration, and our ability to grow margin in the future.

When you think about, hey, what are the factors that could impact us on a go-forward basis and if you even think about our Q4 margin rate, a lot of our margin rate when I look at it on external gross profit perspective, we get de-levered in Q4 because of lower volume, and we've got basically a fixed cost of occupancy and, to some extent, the warehouse and transportation expense associated with that that's layered into our gross profit margin, right?

So, as we de-lever, that brings rate down. So, when you talk about rate, what's the biggest thing that could impact us? At this point, it's really going to be volume, right? We're not going to chase empty sales that aren't profitable. So, we can maintain the volume. We feel really good about our gross profit margin rate.

Sean Kras - Barclays Capital, Inc.

Okay. And then, I want to ask one more just on SPARK and Auto Delivery. I'm curious now since the program has been – I think it was launched last year in August or so, I'm curious to just what the baskets look like for mature customers in terms of a customer that signs up today versus one that's a more mature customer just in terms of the total basket size and that evolution as well as the number of items in the basket.

Bill Wafford - Vitamin Shoppe, Inc.

I mean, when you look at it from a basket size perspective, I mean, an Auto Delivery basket on a dollar basis is larger than our average basket for the total company, right? And we're not going to quote – we're not going to break down the decomposition of what that looks like for everybody. But we can tell you on the average – the average dollar basis and you can kind of back into it a little bit overall (24:33) if it's grown there.

We are incredibly pleased to see the performance of that and how it's maintained its consistency throughout the duration of the program to date. If you figure we're live at, call it, circa 15 months at this point, obviously, we're coming around the horn on a lot of growth and so that's why you see the comp on that piece a little bit lower than it was maybe a quarter ago, but it's continuing to perform very well for us.

Sharon M. Leite - Vitamin Shoppe, Inc.

And we will continue to support that and drive better execution in the program going forward.

Sean Kras - Barclays Capital, Inc.

Thanks. Thanks for that. But just to maybe sneak one more here just to clarify a point. So, do you see incrementality with SPARK in the sense that when someone signs up initially and they have some products on Auto Delivery, have you been able to basically grow that basket over time bringing basically more items into that basket? Or do you think it's – or does data show that it's fairly stable that the customer base kind of gets what they want and from there it just kind of is as it is?

Bill Wafford - Vitamin Shoppe, Inc.

Sean, it's a combination of things, right? We've been able to grow the basket over time, not only from the number of items that are on subscription, but then the incremental items they may add when they go to modify a subscription or something like that; also, the duration and longevity. So, if you think about it from like an adherence perspective that we keep people on the program, that increases their customer lifetime value.

Sean Kras - Barclays Capital, Inc.

Great. Appreciate it. Thanks, guys.

Bill Wafford - Vitamin Shoppe, Inc.

Sure.

Operator

We'll now take our next question from Damian Witkowski of Gabelli & Company. Please go ahead.

Damian Andrew Witkowski - Gabelli & Company

Hi, good morning. Sharon, welcome and congratulations on your appointment.

Sharon M. Leite - Vitamin Shoppe, Inc.

Thank you.

Damian Andrew Witkowski - Gabelli & Company

It looks like you've done a lot of work on trying to get to know the individual stores. And I know you don't want to talk about the long-term targets yet, but if you look at, I think, about 10% or maybe more of your store base comes up for renewal each year.

Sharon M. Leite - Vitamin Shoppe, Inc.

Right. Absolutely.

Damian Andrew Witkowski - Gabelli & Company

How are the negotiations going with the lease operators and – I mean the owners. And if you look at 2019 and you look at the basket of stores that are coming up for renewal, I mean if you couldn't renegotiate some of those leases, how many stores do you think you will close or how many leases you wouldn't renew?

Sharon M. Leite - Vitamin Shoppe, Inc.

So we look at leases as they come up. We have approximately 10% of our leases that come due every year which is obviously an opportunity for us to reevaluate if we want to stay or not or quite frankly just renegotiate a better deal with the landlord. So, we look at those renewal periods typically in about five-year increments. And so, we'll just continue to evaluate them as we see fit based on the performance of the store and make the adjustments as we believe are right for the business.

Damian Andrew Witkowski - Gabelli & Company

I mean, if you look at the store base, this is sort of a barbell where you have some stores doing very well and have positive same-store sales just at the store level. And then another sort of offsetting, doing much worse than expected.

Sharon M. Leite - Vitamin Shoppe, Inc.

Sure. Well, I mean clearly there's variability of performance. I'll let Bill kind of share the details of that.

Bill Wafford - Vitamin Shoppe, Inc.

Yeah, Damian, I think when you look, I mean obviously, we're going to be pretty consistent with other retailers, right, you have the (27:46) – your upper and lower tier of performing stores. I mean, our focus is on getting the base performance of stores to improve, right? Of course, we called out this year that we're going to close 14 in the year. Our previous guidance was 10, right (27:59)? And that's because we had 4 stores that opportunistically came up. They were – it made sense for us to close those stores, right? We'll consistently do that going forward, but our primary focus is just improving core store performance.

Sharon M. Leite - Vitamin Shoppe, Inc.

Absolutely.

Damian Andrew Witkowski - Gabelli & Company

Okay. And then just lastly on traffic, I don't know if you mentioned it, I heard up 6%, but I didn't know what that means. So, if you look at the Q3 same-store sales number just for the retail stores, which was down 4.7%, how does that break down between traffic and basket?

Bill Wafford - Vitamin Shoppe, Inc.

Damian, that 6% number was the number of new customers we've acquired on a year-to-date basis over 2017. So, our new customer acquisition was up 6% on a year-over-year basis. We don't break down (28:41) decompose traffic to see traffic and basket on a per quarter basis.

Sharon M. Leite - Vitamin Shoppe, Inc.

And we don't have traffic counters in our stores today.

Damian Andrew Witkowski - Gabelli & Company

Okay. All right. Thanks.

Sharon M. Leite - Vitamin Shoppe, Inc.

Thank you.

Operator

We will now take our next question from Christopher Horvers of JPMorgan. Please go ahead.

Christopher Horvers - JPMorgan Securities LLC

Thanks. Good morning.

Sharon M. Leite - Vitamin Shoppe, Inc.

Good morning.

Christopher Horvers - JPMorgan Securities LLC

Also focusing on the gross margin opportunity, can you give us some details on sort of where private label penetration is? Visibility, sort of what the growth rate was in the current quarter compared to recent history? And then, I know you don't just launch new private label brands, so presumably you have some visibility to the growth in 2019. Any thoughts there would be much appreciated.

Bill Wafford - Vitamin Shoppe, Inc.

Yeah. Chris, I mean we don't break down – we don't give – in terms of, hey, what our private label penetration is or what the growth is within that. And I mean, I think we've talked anecdotally about it before. It is obviously a primary focus for us when you look at it in terms of two things. One, obviously, it's a profitable business for us to be in from a private label perspective. But it's also about getting customer equity associated with that, right, and how do we make our customers a little more sticky with us. So, I mean, we're happy to talk to you about anything on kind of overall gross margins, but we don't decompose that from a private label perspective.

Christopher Horvers - JPMorgan Securities LLC

So, asked differently, so as you think about the growth rate that you've seen recently, I guess, has that accelerated? And then, as you think about the pipeline that you see into 2019, do you expect that growth rate to be similar to what you've seen year-to-date, or do you expect acceleration or deceleration?

Bill Wafford - Vitamin Shoppe, Inc.

We expect it – I mean we will obviously – Dave talked about a little bit earlier that we've actually hired new people on the team there. We expect an acceleration of our private label programs, right? We think it's critical to the kind of future growth of the business and we'll continue to invest there.

Sharon M. Leite - Vitamin Shoppe, Inc.

And also it will continue to support the importance of the Vitamin Shoppe being a real brand, and just again continuing to evolve the relationship with our customers.

Christopher Horvers - JPMorgan Securities LLC

Understood. And then, big picture, as you think about where the industry is, you have a pretty flesh consumer environment. We're seeing mall stores reporting positive comps, department stores reporting positive comps. Do you think it's an industry issue that you and your biggest peer are seeing negative comps? Or do you think it's a share loss issue from the data that you've seen? How would you diagnose a share issue versus the overall growth rate of the industry?

Bill Wafford - Vitamin Shoppe, Inc.

I mean, because I think it's a combination of things, right? Do you think you're going to see – it's a little bit of a share issue, right? If you looked over the last few years, that number of competitors in the market and the volume, their selling of our products, whether the Amazons and Walmarts of the world, I think you'll see that. I think – and so you obviously see expansion of shelf space for kind of our core business.

In addition, I think when you look at over the last couple of years, there was a lack of innovation in our category, right? And I think you've seen Dave and team start to really deliver on new innovation and when we see that as critical to driving our growth and what we're modeling for the future, I think it's really the confluence of those two things.

Sharon M. Leite - Vitamin Shoppe, Inc.

And the only other thing I would add there also is our need to be able to live in a digital world, which is why we are making the changes in the organization to make sure that we can compete there.

Christopher Horvers - JPMorgan Securities LLC

Okay. And then just lastly from a reporting perspective, last year, you reported a different adjusted gross margin number. So, what's the difference versus what you're reporting now? The release last year said 30.5%.

Bill Wafford - Vitamin Shoppe, Inc.

Yeah. If you look at – if you go ahead and back into that, right, so we had an adjustment for the closure of North Bergen distribution center last year, you'll see. So, if you look at the kind of reconciliation table, that should bring you back to kind of what you'll see when we did the comparison this year to give you an apples-to-apples.

Christopher Horvers - JPMorgan Securities LLC

Got it. Thanks very much.

Bill Wafford - Vitamin Shoppe, Inc.

No problem.

Operator

It appears that we have no further questions at this time. Ms. Leite, I would like to turn this conference back over to you for any additional or closing remarks.

Sharon M. Leite - Vitamin Shoppe, Inc.

Thank you very much. Well, I appreciate everybody joining us on the call today. I look forward to providing more updates in upcoming calls, as well as meeting you over the coming months. Thank you again for your interest in the Vitamin Shoppe and for joining us this morning.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.