Vitamin E and low carb impact NBTY 2Q results

Related tags Low carb Marketing

Global supplement maker and marketer NBTY has failed to maintain
the momentum with which it started fiscal 2005, reporting a net
income of $20.87 million in the second quarter - just over half the
figure for the prior year period.

Overall sales were up 0.7 percent to $442.71 million, but this marginal increase was driven by Europe, where the retail division (Holland & Barrett and GNC) racked up $146 million in sales for the quarter, a 19 percent increase on 2004. The gross profit percentage for the region remained the same at 62 percent.

In the US, sales for the wholesale division, which markets the Nature's Bounty and Sundown brands, fell four percent to $182,556. The company is attributing this decrease to negative reports in the media about vitamin E and the waning market for low carb related products.

At the end of last year the Annals of Internal Medicine and the American Heart Association reported that daily vitamin E doses of 400 international units or more had been seen in a study to increase the risk of death and should be avoided.

"In animal and observational studies, vitamin E supplementation was shown to prevent cardiovascular disease and cancer. However, other studies suggested that high doses could be harmful,"​ said the researchers.

Despite attracting criticism from many in the supplements industry, this research was picked up widely by the mass media and also had a part to play in the 19 percent decrease in sales for the direct response/Puritan's Pride division, said NBTY​. It also adopted an "aggressive pricing strategy"​, slashing price tags to maintain its customers base and increase pressure on the competition.

The North American retail division dipped by $0.13 million to just below $56 million. This division was formerly known as the US retail division but was renamed after the $5 million acquisition of Canada's 103-store strong Le Naturiste Jean-Marc Brunet chain in February.

But rather accept the market pressures quietly, NBTY took the proactive route and upped its advertising spend by $15 million, a 79 percent increase on 2004, in order to "build brand awareness and to retain market share in a difficult environment."

But while vitamin E and low carb products are in slump, demand is high for key ingredients in NBTY's joint health products such as Osteo Bi-Flex, Flex-a-min and Knox NutraJoint. To ensure it is not caught short, the company increased its inventory of these ingredients by $39.75 million in the quarter, and by $12.75 million for other raw materials.

This follows a $35 million increase in inventory in the first quarter of 2005 in a bid to prevent supply issues impacting sales. President and CFO Harvey Kamil told in January that the company's inventory turnover remained constant.

He said that supply issues were a relatively new problem for the company: "We have had issues in the past but the company is bigger now, so our demand on our suppliers is greater."

According to NBTY chairman and CEO Scott Rudolph, the company is not the only major market player feeling the squeeze:

"Although the industry, as a whole, continues to struggle in this environment, we believe our financial strength positions us not only to ride out the current market, but to capitalize on the opportunities this market presents.

"We remain confident in the long-term outlook for the Company and anticipate continued long term growth in revenue and market share for NBTY."

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