Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

What exactly is Carlson Capital trying to achieve at Vitamin Shoppe?

When disclosing its activist stake 10 months ago, the hedge fund said it planned to continue discussing matters with the supplement chain's board and management including the company's "business, management, strategic alternatives and direction."

Since then, Vitamin Shoppe's shares have lost roughly 40 percent of their value. On Tuesday alone, they declined more than 13 percent after the company posted weak fourth-quarter and full-year results. 

Supplement retailers like Vitamin Shoppe and GNC have been struggling, in part due to scrutiny from U.S. agencies.
Source: Bloomberg

While the company's executive chairman has transitioned to a non-executive role and Carlson was granted the ability to propose one of two new independent directors, it doesn't appear that the fund has made any traction towards a deal long-desired by other shareholders: A takeover by GNC Holdings. 

Both stocks have struggled, especially over the past six months, in part because U.S. agencies including the Food and Drug Administration have stepped up their scrutiny of dietary supplements. 

And although Vitamin Shoppe's enterprise value is now just 6 times its estimated 2016 Ebitda, GNC's EV/Ebitda mulitple has sunk to 7.1, according to data compiled by Bloomberg. Paying a 30 percent premium in an all-cash deal would be immediately accretive to GNC's earnings, even without accounting for synergies, but the company doesn't seem open to taking on more debt. In an earnings call earlier this month, GNC's chief financial officer said any share buybacks would be made with an eye toward the company maintaining its current credit rating.

Meanwhile, Vitamin Shoppe is embarking on a reinvention strategy which includes efforts to improve its customers' experiences both in-store and online, and to tap into local communities by participating in events such as sporting competitions and health fairs. Like Starbucks, it hopes changes to its loyalty program will encourage more spending and separately plans to roll out new privately branded products that are expected to grow at double the rate of its overall business through 2018.

On the Decline
The supplement retailer has come up with a list of ways to reinvent itself to combat declining same store sales. It's also opening less stores in 2016 than analysts expected.
Source: Bloomberg Intelligence

Such levers don't guarantee Carlson's stake will become profitable soon, but the firm may be taking comfort in the fact that the broader industry is expected to enjoy growth in coming years as the U.S. population ages. According to Piper Jaffray analysts, 82 percent of people over the age of 60 consume vitamins (compared to 71 percent on average). They note the percentage of the nation's population aged 65 and over is expected to reach 16 percent by 2020 and 19 percent by 2030, representing a growth rate three times faster than the general population. 

Still, Carlson's efforts seems unfinished. In the absence of more significant corporate change or a turnaround in the company's performance, it's hard to see Vitamin Shoppe turning into an activist success story. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Gillian Tan in New York at

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Beth Williams at