GNC GNC Holdings Inc

PITTSBURGH, July 28, 2016 /PRNewswire/ -- GNC Holdings, Inc. (NYSE: GNC) (the "Company")  reported consolidated revenue of $673.2 million, a decrease of 2.4% as compared with consolidated revenue of $689.6 million for the second quarter of 2015.  As previously announced, beginning in the second quarter of 2016 the Company changed its reportable segments.  Revenue in the U.S. & Canada segment decreased by 2.0%, revenue in the International segment decreased 2.5%, and revenue in the Manufacturing/Wholesale segment, excluding intersegment sales increased 5.3%.

Same store sales decreased 3.7% in domestic company-owned stores (including GNC.com sales) in the second quarter of 2016.  In domestic franchise locations, same store sales decreased 6.6% in the second quarter of 2016.

For the second quarter of 2016, the Company reported net income of $64.0 million compared with net income of $67.4 million in the second quarter of 2015. Diluted earnings per share were $0.94 for the second quarter of 2016, compared with diluted earnings per share of $0.79 in the second quarter of 2015. Adjusted EPS, excluding the benefit of a $16.9 million pre-tax gain related to the sale of 86 company-owned stores to franchisees, were $0.79 for the second quarter of 2016 compared with adjusted EPS of $0.77 in the comparable prior year quarter.

Earlier today, the Company also announced the appointment of Robert F. Moran as Interim Chief Executive Officer.  Mr. Moran replaces Mike Archbold who is leaving the Company.  Mr. Moran commented, "Our results for the quarter were disappointing and we are focused on addressing those areas where we can drive a meaningful impact on the business in the shortest period of time.  We clearly have work to do to reverse the current trends, but I am confident in our business and the GNC brand and I am committed to working closely with our talented team to deliver improved performance.  As we do so, we will continue the previously announced comprehensive review of strategic and financial alternatives."

Segment Operating Performance

U.S. & Canada (Includes: Company-owned stores in the U.S., Puerto Rico and Canada, franchise stores in the U.S. and e-commerce)

For the second quarter of 2016, the U.S. & Canada segment revenue decreased $11.7 million, or 2.0%, to $570.9 million compared with $582.6 million in the prior year quarter.  The segment's revenue decline is due to decreases in same store sales in both company-owned and franchise stores. Domestic same store sales declines of 3.7%, which includes GNC.com, were primarily due to continued negative trends in the vitamin and food/drink categories, which more than offset the timing of the Easter holiday (March in the current year compared with April in the prior year) around which sales historically are low.  Our all store promotional events were not enough to offset the unexpected decline in retail traffic late in the quarter.

Domestic franchise revenue decreased $1.9 million to $86.5 million in the current quarter compared with $88.4 million in the prior year quarter due to lower wholesale sales and royalties as an overall decline more than offset the earlier timing of our annual franchise convention, which resulted in higher sales in the current quarter as compared with the prior year quarter. Our franchisees did not participate in all corporate promotions and our expanded assortment initiative has been adopted by approximately half of our franchise stores compared with the significant majority of our corporate stores as of June 30, 2016; as a result, our franchisees reported lower retail same store sales as compared with our corporate stores, or negative 6.6% in the second quarter of 2016.   

Operating income decreased slightly to $104.5 million for the three months ended June 30, 2016 compared with $105.5 million for the same period in 2015.  Operating income as a percentage of segment revenue was 18.3% in the current quarter compared with 18.1% in the prior year quarter. Excluding refranchising gains of $16.9 million and $1.1 million in the current quarter and prior year quarter, respectively, operating income decreased to $87.7 million compared with $104.4 million and was 15.4% and 17.9% of segment revenue.  The decrease in operating income percentage was due primarily to lower product margin rate in our GNC.com business and expense deleverage associated with negative same store sales.  

International (Includes: Franchise locations in approximately 50 countries, The Health Store and China operations)

Revenues in our International segment decreased $1.1 million, or 2.5%, to $43.1 million in the current quarter compared with $44.2 million in the prior year quarter.  Wholesale sales and royalties from franchisees decreased by $2.6 million primarily relating to Mexico, Turkey and Chile, partially offset by the earlier timing of our annual franchise convention, which resulted in higher sales in the current quarter compared with the prior year quarter.  Our international franchisees reported negative same store sales of 1.6% in the current quarter excluding the impact of foreign exchange rates relative to the U.S. dollar.  Partially offsetting the decrease in revenue was an increase in revenue of $1.5 million associated with our China business.

Operating income decreased $2.1 million, or 13.0%, to $13.6 million for the three months ended June 30, 2016 compared with $15.7 million in the prior year quarter.  Operating income was 31.7% of segment revenue in the current quarter compared with 35.5% in the prior year quarter.  The decrease in operating income percentage was primarily due to a bad debt allowance with a franchisee recorded in the current quarter along with the comparative effect of the reversal of a previously established bad debt allowance with a franchisee in the prior year quarter.  In addition, a foreign currency loss of $0.4 million was recorded in the current quarter.

Manufacturing / Wholesale (Includes: Manufactured product sold to other segments, third-party contract manufacturing and sales to wholesale partners)

Revenues in our Manufacturing / Wholesale segment, excluding intersegment sales, increased $3.0 million, or 5.3%, to $59.2 million compared with $56.2 million in the prior year quarter.  Third-party contract manufacturing sales increased $5.2 million, or 18.3%, to $33.7 million for the quarter compared with $28.5 million in the prior year quarter.  This increase was partially offset by a decrease in wholesale sales of $2.2 million, or 8.1%. Intersegment sales decreased $16.4 million from $73.0 million in the prior year quarter to $56.6 million in the current quarter primarily due to lower proprietary sales.

Operating income decreased $3.2 million, or 15.0%, to $17.9 million for the three months ended June 30, 2016 compared with $21.1 million in the prior year quarter.  Operating income as a percentage of segment revenue decreased from 16.3% in the prior year quarter to 15.5% in the current quarter primarily due to lower intersegment sales, which resulted in unfavorable manufacturing variances, and a higher mix of third-party contract manufacturing sales, which generally contribute lower margins.

Refranchising Store Strategy

Consistent with its previously announced refranchising strategy, the Company completed the conversion of 86 corporate stores during the second quarter of 2016, of which 84 stores were sold to one franchisee, and recorded a pre-tax gain of $16.9 million.  The Company remains on track to meet its 2016 goal to refranchise 200 company-owned stores.   

Year-to-Date Performance

For the first six months of 2016, the Company reported consolidated revenue of $1,342.1 million, a decrease of 2.1% compared with consolidated revenue of $1,370.8 million for the first six months of 2015. Revenue in the U.S. & Canada segment decreased by 1.4%, revenue in the International segment decreased 4.6%, and revenue in the Manufacturing/Wholesale segment increased 4.4%, excluding intersegment sales.

For the first six months of 2016, the Company reported net income of $114.8 million, compared with net income of $130.6 million for the first six months of 2015. Diluted earnings per share were $1.62 for the first six months of 2016, compared with diluted earnings per share of $1.50 in the first six months of 2015.

Operating Metrics

As of June 30, 2016, the Company had 3,506 corporate stores in the U.S. and Canada, 1,163 domestic franchise locations, 2,343 Rite Aid franchise store-within-a-store locations and 2,075 international stores. The Company now has 9,087 store locations worldwide.

For the first six months of 2016, the Company generated net cash from operating activities of $130.9 million and invested $20.8 million in capital expenditures. The Company generated free cash flow of $110.5 million (which it defines as cash provided by operating activities less cash used in investing activities excluding acquisitions).  As of June 30, 2016, the Company's cash and cash equivalents were $48.2 million and long-term debt was $1.59 billion.

Dividends

The Company's Board of Directors declared a cash dividend of $0.20 per share of its common stock for the third quarter of 2016. The dividend will be payable on or about September 30, 2016 to stockholders of record at the close of business on September 16, 2016.  The Company currently intends to pay regular quarterly dividends; however, the declaration of such future dividends is subject to the final determination of the Company's Board of Directors.

2016 Outlook

As the Company conducts its evaluation of the business under new leadership and develops an appropriate course of action to deliver improved results, it has suspended its previous earnings guidance for fiscal 2016.

Mr. Moran stated, "The decision to suspend our fiscal 2016 guidance in no way detracts from our commitment to move quickly to deliver improved performance.  We remain confident in GNC's long-term prospects but believe it is prudent to suspend guidance as we identify actions to address the challenges we are currently facing in our business."

Conference Call

GNC has scheduled a live webcast to report its second quarter 2016 financial results on July 28, 2016 at 8:30 a.m. Eastern time. To participate on the live call listeners in North America may dial (888) 259-8387 and international listeners may dial (913) 981-5544. In addition, a live webcast of the call will be available on www.gnc.com via the Investor Relations section under "About GNC." A replay of this webcast will be available through August 25, 2016.

About Us

GNC Holdings, Inc.  (NYSE: GNC) - Headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer.

The Company's foundation is built on 80 years of superior product quality and innovation. GNC connects customers to their best selves by offering a premium assortment of health, wellness and performance products, including protein, performance supplements, weight management supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise. This assortment features proprietary GNC - including Mega Men®, Ultra Mega®, Total LeanTM, Pro Performance®, Pro Performance® AMP, Beyond Raw®, GNC Puredge®, GNC GenetixHD®, Herbal Plus® - and nationally recognized third-party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third-party contract manufacturing, e-commerce and corporate partnerships. As of June 30, 2016, GNC had more than 9,000 locations, of which more than 6,700 retail locations are in the United States (including 2,343 Rite Aid franchise store-within-a-store locations) and franchise operations in approximately 50 countries.

Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company's financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions, or by discussions regarding our dividend, share repurchase plan, strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain.  The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to unfavorable publicity or consumer perception of our products; costs of compliance and any failure on our part to comply with new and existing governmental regulations governing our products; limitations of or disruptions in our manufacturing system or losses of manufacturing certifications; disruptions in our distribution network; or failure to successfully execute our growth strategy, including any inability to expand our franchise operations or attract new franchisees, any inability to expand our company-owned retail operations, any inability to grow our international footprint, any inability to expand our e-commerce businesses, or any inability to successfully integrate businesses that we acquire.  The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. For a listing of factors that may materially affect such forward-looking statements, please refer to the Company's  Annual  Report  on  Form  10-K  for  the  year  ended  December  31,  2015.

The Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions. The Company may finance any repurchases with cash, potential financing transactions, or a combination of the foregoing.  The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the program. The Company intends to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-18 and, as applicable, Rule 10b-5 of the Securities Exchange Act of 1934, as amended.

Management has included as an operational metric same store sales, which is a commonly used statistical measure in the retail industry and is important to the understanding of the Company's performance.  Same store sales growth represents the percentage change in same store point-of-sale retail sales in the period presented compared with the prior year period.  Same store sales are calculated on a daily basis for each store and exclude the net sales of a store for any period if the store was not open during the same period of the prior year.  The Company includes its internet sales of GNC.com in the domestic retail company-owned same store sales calculation.  When a store's square footage has been changed as a result of reconfiguration or relocation in the same mall or shopping center, the store continues to be treated as a same store.  If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchise store of a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year.  The Company excludes sales during the period presented that occurred on or after the date of relocation to a different mall or shopping center or the date of a conversion. 

Management has included non-GAAP financial measures in this press release because it believes they represent an effective supplemental means by which to measure the Company's operating performance.  Management believes that net income and earnings per share, adjusted to exclude gains on refranchising and certain prior period expenses as reflected in this release, and free cash flow are useful to investors as they enable the Company and its investors to evaluate and compare the Company's results from operations in a more meaningful and consistent manner by excluding specific items which are not reflective of ongoing operating results.  However, these measures are not measurements of the Company's performance under GAAP and should not be considered as alternatives to earnings per share, net income or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, or as a measure of the Company's profitability or liquidity.  For more information, see the attached reconciliations of non-GAAP financial measures.

 

 

 

Note: The presentation of certain amounts in the consolidated financial statements of prior periods have been revised to conform to the current periods presented with no impact on previously reported net income or stockholders' equity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE GNC Holdings, Inc.