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17 Dec 2010
Approximately $55 million of rated debt affected
New York, December 17, 2010 -- Moody's Investors Service raised the corporate family, probability
of default, and secured notes ratings of Vitamin Shoppe Industries,
Inc. (Vitamin Shoppe) to B1 from B2 based on expectations for continued
improvement in credit metrics due to both debt reduction and strong performance
driven by same store sales growth. Vitamin Shoppe's solid
growth throughout a period of weak consumer spending also supports the
The outlook is stable, and a summary of today's actions follows.
Vitamin Shoppe Industries, Inc. ,
....Senior Secured Bonds, Upgraded to
B1, LGD4, 54%, from B2, LGD4, 50%
.... Probability of Default Rating,
Upgraded to B1 from B2
.... Corporate Family Rating, Upgraded
to B1 from B2
Vitamin Shoppe's B1 corporate family rating incorporates its focus
on improving its credit profile, which we expect to continue.
Nevertheless, lease adjusted leverage will likely remain fairly
high (estimated to be in the low to mid 4 times debt-to-EBITDA
range pro forma for the November 2010 secured notes repayment),
which poses challenge for operating in a competitive industry with high
business risk associated with potential product safety issues.
Vitamin Shoppe also relies partially on product introductions to drive
growth, creating possible revenue volatility should newly launched
products fail to match evolving consumer preferences. Its strong
brand name, broad product selection, demonstrated resilience
of performance through a period of weak consumer spending and good geographic
diversity somewhat mitigate these risks. Also, we consider
industry growth prospects strong given the rising U.S. population
of people over 50, a demographic group that that tends to purchase
higher levels of vitamins, minerals, and nutritional supplements.
Good liquidity, including expectations for continued positive free
cash flow, also supports the rating.
The stable outlook incorporates our expectations that Vitamin Shoppe will
continue to generate positive free cash flow, maintain good liquidity,
and report sales growth.
Expectations that lease adjusted leverage will remain fairly high,
in addition to the fairly small scale and business risk somewhat limit
upward momentum. The relatively near maturity of the secured notes
(November 2012) also somewhat constrains the rating. However,
we would consider a positive ratings action with sustainable leverage
below 3 times debt-to-EBITDA, EBIT-to-Interest
above 3 times, and free cash flow to debt around 10%.
Declining sales or deterioration of liquidity or credit metrics could
result in a negative ratings action.
The principal methodology used in this rating was Global Retail Methodology
published in December 2006.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Vitamin Shoppe CFR and secured notes rating to B1 from B2
250 Greenwich Street
New York, NY 10007
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