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Cramer: Beware of these vitamin stocks in ‘existential crisis'

Abigail Stevenson

While the retail cohort has been struggling recently, Jim Cramer slammed the vitamin retailers as being worse off than the rest of the group.

Two of the largest publicly-traded players in the space are GNC Holdings (GNC) and Vitamin Shoppe (VSI), which both initially roared higher after coming public, but have fallen dramatically in the past two years.

"We've got two very ugly train wrecks here," the "Mad Money" host said.

Initially these two stocks were loved, as more people became obsessed with losing weight, doing cleanses and taking supplements. Vitamin Shoppe went public in 2009 and GNC in 2011 and for the first few years the stocks were solid growth stories.

But by the time 2015 came along, the companies started to struggle as nothing they did seemed to work and business slowed.

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Cramer noted that GNC's downturn was much more severe than Vitamin Shoppe. In 2016 GNC began reporting worrisome sales and earnings shortfalls. It began aggressively marking down vitamins to deal with excess inventory and franchisees started having trouble.

In April of 2016, guidance from GNC was so weak the stock lost 29 percent of its value in a single day. Cramer was most worried about its balance sheet, with has over a billion dollars in long-term debt, most of which comes due in the next few years, versus just $834 million in cash and current assets.

If anything, GNC seemed to Cramer like one more company that has been gobbled up by Amazon.

The decline in Vitamin Shoppe also illustrated that this may not be specific to GNC, but is an industry-wide problem. While the weakness in Vitamin Shoppe has been less dramatic and it has a cleaner balance sheet, it still has been plagued by the same issues: declining same-store sales, a weakening outlook and many analysts downgrading the stock.

"Vitamin Shoppe is getting beat on pricing, convenience, product, promotions and innovation — just like GNC — as online retailers and just ordinary supermarkets and pharmacies take more and more share from specialist vitamin retailers," Cramer said.

When Cramer looked at GNC and Vitamin Shoppe, he saw an industry in secular decline. While both companies have put forth initiatives to turn things around, he wasn't sure there is anything they can do at this point.

"To me, they are having an existential crisis as in, why would these vitamin retailers even exist? Do they have a reason for being in this world where you can order all of this stuff online?" Cramer asked.

Cramer warned to stay away from the stocks of GNC and Vitamin Shoppe due to lack of purpose, aside from being market-share donors to Amazon (AMZN).

CNCB has reached out to GNC and Vitamin Shoppe for comment but did not immediately receive a response.

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