GNC Holdings, Inc. (NYSE: GNC) (the “Company”) reported
consolidated revenue of $472.6 million in the first quarter of
2020, compared with consolidated revenue of $564.8 million in the
first quarter of 2019. The decrease in revenue was largely
due to the closure of company-owned stores under our store
portfolio optimization strategy, sales declines during the second
half of March due to the COVID-19 pandemic, the transfer of the
Nutra manufacturing to the Manufacturing joint venture
("Manufacturing JV"), U.S. company-owned negative same store sales
and lower domestic and international franchise revenue.
Key Updates
- E-Commerce revenues grew
approximately 25% compared with the first quarter of 2019 driven by
improved site performance and increased demand related to
COVID-19
- Implemented e-commerce order
management system early in the first quarter of 2020 and
accelerated ship from store capabilities in over 100 locations in
the second quarter of 2020
- Launched curbside pickup in the
first quarter to allow our customers to continue to receive their
needed GNC products while enabling social distancing
- Due to impacts of COVID-19, the
company has significantly reduced inventory purchases and capital
expenditures, as well as taken action to decrease costs by nearly
$40 million in 2020 consisting of employee furloughs, marketing
reductions, store hours reductions and deferral of non-essential
spend
- Continue to evaluate all strategic
alternatives to address upcoming debt maturities, including
refinancing and restructuring options
For the first quarter of 2020, the Company
reported a net loss of $200.1 million compared with net loss of
$15.3 million in the prior year quarter. Diluted loss per share was
$2.45 in the current quarter compared with diluted loss per share
of $0.23 in the prior year quarter. Excluding non-cash long-lived
asset impairment charges and certain other expenses as outlined in
the table below, adjusted net loss(1) was $11.0 million in the
current quarter, compared with adjusted net income(1) of $19.0
million in the prior year quarter. Adjusted loss per share(1)
was $0.19 in the current quarter compared with adjusted earnings
per share ("EPS")(1) of $0.15 in the prior year quarter.
Adjusted EBITDA(2), as defined and reconciled to
net loss in the table below, was $31.0 million, or 6.6% of revenue
in the current quarter compared with $66.9 million, or 11.7% of
revenue in the prior year quarter.
______________________(1) This Non-GAAP
financial measure is reconciled to relevant GAAP metrics below
under the caption "Reconciliation of Net Loss and Diluted EPS
to Adjusted Net (Loss) Income and Adjusted EPS" (2) This Non-GAAP
financial measure is reconciled to relevant GAAP metrics below
under the caption "Reconciliation of Net Loss to Adjusted
EBITDA"
“As people around the globe cope with the
COVID-19 outbreak, GNC’s mission has never been more clear,” said
CEO Ken Martindale. “While this unprecedented situation has
significantly disrupted our business and required us to make
difficult decisions, we are focused on supporting customers with
high quality products through our strong e-commerce channels and
new buy-online-ship-from-store and curbside pickup services. Our
transformation into a true omni-channel brand continues and we are
working diligently to reposition and restructure our business for
the future."
Uncertainty Relating to
COVID-19
Our business has been materially and adversely
affected by the outbreak of the novel coronavirus known as
“COVID-19”. During March 2020, many state governments ordered all
but certain essential businesses closed and imposed significant
limitations on the circulation of the populace. Approximately
1,300, or 40%, respectively, of the U.S. and Canada company-owned
and franchise retail stores were closed as of May 6, 2020 due to
the COVID-19 pandemic. Some of the stores temporarily closed may be
closed permanently in the future.
Due to the current and future potential impact
of COVID-19, including uncertainties on the severity of the virus,
the duration of the outbreak, governmental, business or other
actions (which could include limitations on our operations),
impacts on our supply chain, the effect on customer demand,
temporary and permanent store closures or changes to our
operations, we have recorded charges to carrying amount of
inventory, accounts receivable, goodwill, indefinite-lived
intangibles, our equity method investment and other long-lived
assets during the three months ended March 31, 2020.
Segment Operating
Performance
U.S. & Canada
Revenues in the U.S. and Canada segment
decreased $65.0 million, or 13.3%, to $424.2 million for the three
months ended March 31, 2020 compared with $489.2 million in the
prior year quarter. E-commerce sales were 10.6% of U.S. and Canada
revenue for the three months ended March 31, 2020 compared with
7.4% in the prior year quarter.
A decrease of 10.1% in U.S. company-owned same
store sales, including e-commerce sales, resulted in a $35.8
million decrease to revenue for the three months ended March 31,
2020 compared with the prior year quarter, of which approximately
$20 million was attributed to the impact of COVID-19 in the second
half of March compared with sales trends during the first quarter
of 2020 prior to the pandemic outbreak. The closure of
company-owned stores under our store portfolio optimization
strategy resulted in a $20.7 million decrease in revenue. In
addition, domestic franchise revenue decreased by $8.3 million due
to a decrease in same store sales of 10.2% and a decrease in the
number of franchise stores.
Operating loss was $131.2 million for the three
months ended March 31, 2020 compared with operating income of
$52.1 million for the same period in 2019. Operating loss in the
current quarter included $88.6 million non-cash brand
impairment and $40.3 million other long-lived asset impairment
charges and store closing costs. In addition, the Company recorded
$22.4 million reserves for inventory obsolescence and vendor
allowances, $7.9 million allowance for doubtful accounts, and $1.1
million in severance and other expenses as outlined in the table
below in connection to the estimated adverse impacts from the
COVID-19. Excluding these items, operating income was $29.1
million, or 6.9% of segment revenue, in the current quarter
compared with $52.1 million, or 10.7% of segment revenue, in the
prior year quarter. The decrease in operating income percentage in
the current quarter compared to the prior year quarter was
primarily due to occupancy, salaries and benefits expense
deleverage associated with lower sales.
International
Revenues in the International segment decreased
$7.4 million, or 18.0%, to $33.5 million for the three months ended
March 31, 2020 compared with $40.9 million in the prior year
quarter primarily due to the outbreak of COVID-19 which caused
business disruption in the International segment beginning in
January 2020. Revenue from our international franchisees decreased
by $6.4 million in the current quarter compared with the prior year
quarter due to lower sales primarily in the Asian markets as a
result of the COVID-19 pandemic.
Operating loss was $17.4 million for the three
months ended March 31, 2020. Operating loss in the current quarter
included non-cash goodwill and brand impairment of
$28.6 million. Excluding the non-cash impairment charges
in the current quarter, operating income was $11.2 million, or
33.4% of segment revenue, compared with $14.1 million, or 34.3% of
segment revenue, for the same period in 2019. The decrease in
operating income percentage was primarily due to a lower margin
rate driven by changes in revenue mix within the segment as a
result of the transfer of the China business to the joint ventures
effective February 13, 2019.
Manufacturing / Wholesale
Revenues in the Manufacturing / Wholesale
segment, excluding intersegment sales, decreased $19.8 million, or
57.2%, to $14.9 million for the three months ended March 31, 2020
compared with $34.7 million in the prior year quarter primarily due
to the transfer of the Nutra manufacturing business to the
Manufacturing JV formed with International Vitamin Corporation
("IVC") effective March 1, 2019. Sales to our wholesale partners
decreased $4.0 million, or 21.4%, from $18.9 million in the prior
year quarter to $14.9 million in the current quarter largely due to
the closures of our Rite Aid store-within-a-store as a result of
Walgreens' acquisition of certain Rite Aid locations.
Operating income decreased $8.4 million, or
54.8%, to $6.9 million, or 46.7% of segment revenue, for the three
months ended March 31, 2020 compared with $15.3 million, or 21.9%
of segment revenue, in the prior year quarter. The increase in
operating income percentage was primarily due to a decrease in
revenues as a result of the Manufacturing JV transaction, however,
operating income margins were positively impacted as the
Manufacturing / Wholesale segment recognized profit margin that
resulted from maintaining consistent pricing to what was charged to
our other operating segments prior to the inception of the
Manufacturing JV.
Cash Flow and Liquidity
Metrics
For the three months ended March 31, 2020, cash
used in operating activities was $12.1 million compared with cash
provided by operating activities of $68.7 million for the three
months ended March 31, 2019. The decrease in cash from operating
activities was driven by a decrease in operating income and
unfavorable working capital changes. For the three months
ended March 31, 2020, the Company had negative free cash flow(3) of
$15.9 million compared with free cash flow of $65.7 million for the
three months ended March 31, 2019.
For the three months ended March 31, 2020, the
Company paid down $11.7 million of its Tranche B-2 Term Loan
utilizing proceeds from IVC's purchase of equity interest in the
Manufacturing JV during the first quarter of 2020.
At March 31, 2020, the Company’s cash and cash
equivalents were $137.4 million and debt was $895.0 million. The
Company had $30.0 million borrowings outstanding on the Revolving
Credit Facility at March 31, 2020. During April
2020, the Company borrowed an additional $30.0 million on the
Revolving Credit Facility and as of April 30, 2020, we had $60.0
million borrowing outstanding.
As further discussed below, the Company has an
accelerated maturity payment due on May 16, 2020 (the “Springing
Maturity Date”) that it does not have the ability to pay.
Since the Company has not refinanced the $738.7 million of
Tranche B-2 Term Loan, FILO Term Loan and Revolving Credit Facility
that will become due on the Springing Maturity Date, management has
concluded there is substantial doubt regarding the Company's
ability to continue as a going concern within one year from the
issuance date of the Company’s Consolidated Financial Statements.
Failure to complete a refinancing or other restructuring, obtain an
extension of the Springing Maturity Date as defined in the Credit
Agreements, reach an agreement with required lender groups under
the Credit Agreements prior to May 16, 2020 or to reach an
agreement with the Company's stakeholders on the terms of an
out-of-court restructuring would have a material adverse effect on
the Company's liquidity, financial condition and results of
operations and may result in filing a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in order to
implement a restructuring plan. As of March 31, 2020, the Company's
outstanding indebtedness has been classified as current on the
Company's Consolidated Balance Sheets. In addition, the Company
accelerated the amortization of original issuance discount and
deferred financing fees for the Tranche B-2 Term Loan, FILO Term
Loan and the Revolving Credit Facility of $12.4 million
to the Springing Maturity Date.________________(3) This Non-GAAP
financial measure is reconciled to relevant GAAP metrics below,
under the caption "Reconciliation of Net Cash Provided by Operating
Activities to Free Cash Flow." The Company defines free cash flow
as cash provided by operating activities less capital
expenditures
At March 31, 2020, the Company's indebtedness
includes $156.4 million of outstanding indebtedness under the
convertible senior notes ("Notes"), $434.8 million of
outstanding indebtedness under the Tranche B-2 Term Loan, and
$273.9 million of outstanding indebtedness under the FILO Term
Loan. The Company made an excess cash flow payment of $25.9 million
that was due in April 2020 which reduced the outstanding amount of
the Tranche B-2 Term Loan. Each of the Tranche B-2 Term Loan, FILO
Term Loan and Revolving Credit facility include an accelerated
maturity date of May 16, 2020 if more than $50 million of the
Notes are outstanding on such date. The Company does not have
the ability to reduce the outstanding balance on the Notes from
$156.4 million to below $50 million with projected cash on hand and
new borrowings under the Revolving Credit Facility, assuming such
borrowings remain available.
The Company is in the process of reviewing a
range of refinancing options to refinance the Company’s outstanding
indebtedness. The Company has been working with an independent
committee of the Board supported by independent financial and legal
advisors to conduct its review and has had a series of discussions
with financing sources in the United States and Asia. The Company
will continue to explore all options to refinance and restructure
its indebtedness. While the Company continues to work through a
number of refinancing alternatives to address its upcoming debt
maturities, the Company cannot make any assurances regarding the
likelihood, certainty or exact timing of any alternatives.
Reporting requirements under both the Tranche
B-2 Term Loan and the Credit Agreement require the Company to
provide annual audited financial statements accompanied by an
opinion of an independent public accountant without a "going
concern" or like qualification or exception, or qualification
arising out of the scope of the audit (other than a “going concern”
statement, explanatory note or like qualification or exception
resulting solely from an upcoming maturity date under the Tranche
B-2 Term Loan or the Notes). Management believes the Company
satisfied this requirement in the 2019 Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission (the "SEC") on
March 25, 2020 (the "2019 10-K"). If the lenders take a
contrary position, (a) they could decide to instruct the
administrative agent under the Senior Credit Agreements to deliver
a written notice thereof to the borrower, and if the alleged
default continued uncured for 30 days thereafter it would become an
alleged event of default (unless waived by the lenders) and (b) the
Company intends to contest such position and any action the lenders
may attempt to take as a result thereof. If the lenders were
to prevail in any such dispute, the required lenders could instruct
the administrative agent to exercise remedies under the Senior
Credit Agreements, including accelerating the maturity of the
loans, terminating commitments under the revolving credit facility
under the ABL Credit Agreement and requiring the posting of cash
collateral in respect of outstanding letters of credit issued under
the Revolving Credit Facility ($4.5 million at March 31, 2020). If
this were to occur, management would enter into discussions with
the lenders to waive the default or forebear from the exercise of
remedies. Failure to obtain such a waiver, complete a refinancing
or other restructuring, obtain an extension of the Spring Maturity
Date as defined in the Credit Agreements or to reach an agreement
with required lender groups under the Credit Agreements prior to
May 16, 2020 or to reach an agreement with the Company's
stakeholders on the terms of an out-of-court restructuring would
have a material adverse effect on the Company's liquidity,
financial condition and results of operations and may result in
filing a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code in order to implement a restructuring
plan.
Due to the adverse impacts of COVID-19, we
withheld rent and other occupancy payments beginning in April 2020
for certain of our retail locations as management negotiates with
landlords for rent concessions. The Company withheld rent and
other occupancy payments of approximately $19 million in April 2020
and approximately $16 million in May 2020. In the event that
withholding these rent payments would constitute an event of
default per the lease agreement, management intends to negotiate
resolution with the landlord. If such negotiations are not
successful, the lease liabilities associated with those leases
could become immediately due and payable. In the event
that withholding these rent payments would constitute an event of
default per the lease agreement, management intends to negotiate
resolution with the landlord. If such negotiations are not
successful, the lease liabilities associated with those leases
could become immediately due and payable.
Conference Call
GNC has scheduled a live webcast to report its
first quarter 2020 financial results on May 11, 2020 at 8:30 a.m.
ET. To participate on the live call, listeners in North America may
dial 1-888-204-4368 and international listeners may dial
1-323-994-2093. 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 May 25, 2020.
About Us
GNC Holdings, Inc. (NYSE: GNC) is a
leading global health and wellness brand that provides high quality
science-based products and solutions consumers need to live mighty,
live fit, live long and live well.
The brand touches consumers worldwide by
providing its products and services through company-owned retail
locations, domestic and international franchise locations, digital
commerce and strong wholesale and retail partnerships across the
globe. GNC’s diversified, multi-channel business model has
worldwide reach and a well-recognized, trusted brand. By
combining exceptional innovation, product development capabilities
and an extensive global distribution network, GNC manages a best in
class product portfolio. As of March 31, 2020, GNC had
approximately 7,300 locations, of which approximately 5,200 retail
locations are in the United States (including approximately 1,600
Rite Aid licensed store-within-a-store locations) and the remainder
are locations 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 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 the ongoing impact of the COVID-19 pandemic on
our operations and financial condition; our current debt profile
and obligations under our debt instrument could adversely affect
our results of operations and financial condition and adversely
impact our operating income and growth prospects; we have
substantial indebtedness due within the next twelve months and if
we are unable to refinance the indebtedness, we may not be able to
continue as a going concern; competition; our ability execute on,
or realize the expected benefit from the implementation of, our
strategic initiatives; resources devoted to product innovation may
not yield new products that achieve commercial success; natural
disasters, unusually adverse weather conditions, pandemic
outbreaks, terrorist acts and global political events could cause
permanent or temporary distribution center or store closures,
impair our ability to purchase, receive or replenish inventory or
cause customer traffic to decline, all of which could result in
lost sales and otherwise adversely affect our financial
performance; our operations with joint venture partners, which may
restrict our operational and corporate flexibility and subject us
to actions taken by the other partner; difficulties with our
vendors; our dependence on consumer discretionary spending; failure
to maintain and/or upgrade our information technology systems,
including electronic payments systems; successful development and
maintenance of a relevant omni-channel experience for our
customers; risks and costs associated with security breaches, data
loss, credit card fraud and identity theft; risks associated with
our international operations; securing suitable store locations for
our brick-and-mortar retail operations; failure to effectively
anticipate consumer preference, and unfavorable publicity or
consumer perception of our products; disruptions in our
manufacturing system owned by the Nutra joint venture; any
significant disruption to our distribution network, inventory
management system, or to the timely receipt of inventory; issues
with franchisees; material product liability claims, or product
recalls; any increase in the price and shortage of supply of key
raw materials; general economic conditions, including a prolonged
weakness in the economy; Harbin may exercise significant influence
over us, including through its ability to elect up to five members
of our Board of Directors; dependence on services of key executives
and failure to attract or retain key employees; not being insured
for a significant portion of our claims exposure; our limited
control over our franchisees who are independent operators; our use
of derivative instruments for hedging purposes; impact of potential
future impairment charges; our holding company structure; historic
volatility of our common stock price; and the impact of natural
disasters (whether or not caused by climate change), unusually
adverse weather conditions, pandemic outbreaks, terrorist acts and
global politics; our current and historical effective tax rate;
potential impact of issuance of Series A Convertible Preferred
Stock including dividend and repurchase obligations; the terms and
features of our current Notes may have a negative impact on our
liquidity, dilution or reported financial results; compliance with
new and existing laws and governmental regulations; failure to
comply with FTC regulations; failure to protect our brand
name and intellectual property; compliance with environmental and
health and safety laws and regulations; and our ability to continue
as a going concern if we are unable to meet our obligations as they
come due over the next twelve months.
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, 2019.
Non-GAAP Measures
Management has included non-GAAP financial
measures in this press release, including adjusted net income,
adjusted EPS, adjusted EBITDA, each as adjusted as reflected in
this release, and free cash flow, because it believes they
represent an effective supplemental means by which to measure the
Company’s operating performance.
Management believes that these measures 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 and that can
differ significantly from company to company depending on long-term
strategic decisions regarding capital structure, the tax
jurisdictions in which companies operate and capital
investments.
However, these measures are not measurements of
the Company’s performance under GAAP and should not be considered
as alternatives to net income, EPS 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.
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Statements of
Operations(in thousands, except per share
amounts)
| |
Three months ended March 31, |
| |
2020 |
|
2019 |
| |
(unaudited) |
| Revenue |
$ |
472,581 |
|
|
|
$ |
564,764 |
|
|
|
Cost of sales, including warehousing, distribution and
occupancy |
335,865 |
|
|
|
361,673 |
|
|
| Gross
profit |
136,716 |
|
|
|
203,091 |
|
|
|
Selling, general, and administrative |
144,542 |
|
|
|
148,303 |
|
|
|
Long-lived asset impairments and other store closing costs |
157,515 |
|
|
|
— |
|
|
|
Loss on net asset exchange for the formation of the joint
ventures |
1,655 |
|
|
|
19,514 |
|
|
|
Other income, net |
(962 |
) |
|
|
(208 |
) |
|
| Operating (loss)
income |
(166,034 |
) |
|
|
35,482 |
|
|
|
Interest expense, net |
47,444 |
|
|
|
32,956 |
|
|
|
Loss on forward contracts for the issuance of convertible preferred
stock |
— |
|
|
|
16,787 |
|
|
| Loss before income
from equity method investments and income taxes |
(213,478 |
) |
|
|
(14,261 |
) |
|
|
Income tax (benefit) expense |
(53,035 |
) |
|
|
1,956 |
|
|
| Loss before equity
income from equity method investments |
(160,443 |
) |
|
|
(16,217 |
) |
|
|
(Loss) income from equity method investments |
(39,643 |
) |
|
|
955 |
|
|
| Net loss |
$ |
(200,086 |
) |
|
|
$ |
(15,262 |
) |
|
| Loss per
share: |
|
|
|
|
Basic |
$ |
(2.45 |
) |
|
|
$ |
(0.23 |
) |
|
|
Diluted |
$ |
(2.45 |
) |
|
|
$ |
(0.23 |
) |
|
| Weighted average common
shares outstanding: |
|
|
|
|
Basic |
83,897 |
|
|
|
83,510 |
|
|
|
Diluted |
83,897 |
|
|
|
83,510 |
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Loss and Diluted
EPS to Adjusted Net (Loss) Income and Adjusted
EPS(in thousands, except per share
data)
|
|
Three months ended March 31, |
| |
2020 |
|
2019 |
| |
Net Loss |
|
Diluted EPS (1) |
|
Net (Loss) Income |
|
Diluted EPS (1) |
| |
(unaudited) |
| Reported |
$ |
(200,086 |
) |
|
|
$ |
(2.45 |
) |
|
|
$ |
(15,262 |
) |
|
|
$ |
(0.23 |
) |
|
|
Loss on net asset exchange for the formation of the joint
ventures |
1,655 |
|
|
|
0.02 |
|
|
|
19,514 |
|
|
|
0.15 |
|
|
|
Loss from equity method investment |
3,125 |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
|
|
Amortization of discount in connection with early debt payment |
156 |
|
|
|
— |
|
|
|
3,119 |
|
|
|
0.02 |
|
|
|
Amortization of discount and deferred financing fees in connection
with accelerated debt maturity date (2) |
12,390 |
|
|
|
0.15 |
|
|
|
— |
|
|
|
— |
|
|
|
Loss on forward contracts related to the issuance of convertible
preferred stock |
— |
|
|
|
— |
|
|
|
16,787 |
|
|
|
0.13 |
|
|
|
Long-lived asset impairments and other store closing costs |
157,515 |
|
|
|
1.88 |
|
|
|
— |
|
|
|
— |
|
|
|
Manufacturing JV other-than-temporary impairment |
35,840 |
|
|
|
0.43 |
|
|
|
— |
|
|
|
— |
|
|
|
Inventory and vendor allowance reserves (3) |
22,799 |
|
|
|
0.27 |
|
|
|
— |
|
|
|
— |
|
|
|
Allowance for doubtful accounts (4) |
8,703 |
|
|
|
0.10 |
|
|
|
— |
|
|
|
— |
|
|
|
Interest expense recognized on interest rate swap (5) |
10,810 |
|
|
|
0.13 |
|
|
|
— |
|
|
|
— |
|
|
|
Other (6) |
(821 |
) |
|
|
(0.01 |
) |
|
|
713 |
|
|
|
0.01 |
|
|
|
Tax effect (7) |
(63,043 |
) |
|
|
(0.75 |
) |
|
|
(5,837 |
) |
|
|
(0.05 |
) |
|
| Adjusted |
$ |
(10,957 |
) |
|
|
$ |
(0.19 |
) |
|
|
$ |
19,034 |
|
|
|
$ |
0.15 |
|
|
| |
|
|
|
|
|
|
|
| Weighted average
diluted common shares outstanding |
83,897 |
|
|
|
|
|
126,628 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
(1) The Company applies the if-converted method
to calculate dilution impact of the convertible senior notes and
the convertible preferred stock. For reported and adjusted diluted
EPS for the three months ended March 31, 2020 and reported diluted
EPS for the three months ended March 31, 2019, the underlying
shares of the convertible preferred stock and the convertible
senior notes are anti-dilutive. Therefore, the diluted EPS included
a reduction to net income for the cumulative undeclared dividends
of $5.2 million and $3.7 million, respectively, for the first
quarter of 2020 and 2019. For the adjusted diluted EPS for the
three months ended March 31, 2019, the underlying shares of the
convertible preferred stock is dilutive.
(2) The Company accelerated the amortization of
discount and deferred financing fees related to the Tranche B-2
Term Loan, FILO Term Loan and the Revolving Credit Facility as a
result of the expected acceleration of the debt maturity date to
the Springing Maturity Date.
(3) Included $18.2 million inventory
obsolescence reserves recorded as a reduction to inventory and $4.6
million vendor allowance recorded as a reduction to accounts
receivables due to current and estimated adverse impacts from the
COVID-19 pandemic. The inventory and vendor allowance
reserves were recognized within cost of sales in the Consolidated
Statement of Operations.
(4) Represents credit losses for its franchisees
and other third-party customers during the three months ended March
31, 2020 based on the current and estimated adverse impacts from
the COVID-19.
(5) The Company reclassified the loss related to
the interest rate swap that was previously deferred within
accumulated other comprehensive loss to interest expense as the
forecasted hedging transactions are not expected to occur by the
end of the originally specified time period as a result of the
expected acceleration of the debt maturity date.
(6) The three months ended March 31, 2020
included a $2.1 million gain from the sale of the Company owned
location in Boston, MA, offset by $0.8 million severance and a $0.3
million loss from the cancellation of the annual franchise
conference as a result of COVID-19 impact and $0.2 million of
retention. The three months ended March 31, 2019 included retention
of $0.7 million and immaterial refranchising gains. The retention
expense is relates to an incentive program to retain senior
executives and certain other key personnel below the executive
level who are critical to the execution and success of the
Company's strategy. The total amount awarded was approximately $10
million, of which $1 million was forfeited, which vested in four
installments of 25% each over two years. Vesting dates were on
November 2018, February 2019, August 2019 and February 2020.
(7) For the three months ended March 31, 2020
and 2019, the Company utilized a blended federal rate plus a net
state rate that excluding the impact of certain state net operating
losses, state credits and valuation allowance. The loss on forward
contracts related to the issuance of convertible preferred stock in
2019 had no tax impact.
Reconciliation of Net Loss to Adjusted
EBITDA (in thousands)
| |
Three months ended March 31, |
| |
2020 |
|
2019 |
| |
(unaudited) |
| Net loss |
$ |
(200,086 |
) |
|
|
$ |
(15,262 |
) |
|
|
Income tax expense |
(53,035 |
) |
|
|
1,956 |
|
|
|
Interest expense, net |
47,444 |
|
|
|
32,956 |
|
|
|
Depreciation and amortization |
7,858 |
|
|
|
10,190 |
|
|
|
Loss on net asset exchange for the formation of the joint
ventures |
1,655 |
|
|
|
19,514 |
|
|
|
Loss from equity method investment |
3,125 |
|
|
|
— |
|
|
|
Loss on forward contract related to the issuance of convertible
preferred stock |
— |
|
|
|
16,787 |
|
|
|
Long-lived asset impairments and other store closing costs |
157,515 |
|
|
|
— |
|
|
|
Manufacturing JV other-than-temporary impairment |
35,840 |
|
|
|
— |
|
|
|
Inventory and vendor allowance reserves (1) |
22,799 |
|
|
|
— |
|
|
|
Allowance for doubtful accounts (2) |
8,703 |
|
|
|
— |
|
|
|
Other (3) |
(821 |
) |
|
|
713 |
|
|
| Adjusted
EBITDA |
$ |
30,997 |
|
|
|
$ |
66,854 |
|
|
| |
(1) Included $18.2 million inventory
obsolescence reserves recorded as a reduction to inventory and $4.6
million vendor allowance recorded as a reduction to accounts
receivables due to the current and estimated adverse impacts from
the COVID-19 pandemic. The inventory and vendor allowance reserves
were recognized within cost of sales in the Consolidated Statement
of Operations.
(2) Represents credit losses for its franchisees
and other third-party customers during the three months ended March
31, 2020 based on the current and estimated adverse impacts from
the COVID-19.
(3) The three months ended March 31, 2020
included a $2.1 million gain from the sale of the Company owned
location in Boston, MA, offset by $0.8 million severance and a $0.3
million loss from the cancellation of the franchise conference as a
result of COVID-19 impact and $0.2 million of retention. The three
months ended March 31, 2019 included retention of $0.7 million and
immaterial refranchising gains. The retention expense is relates to
an incentive program to retain senior executives and certain other
key personnel below the executive level who are critical to the
execution and success of the Company's strategy. The total amount
awarded was approximately $10 million, of which $1 million was
forfeited, which vested in four installments of 25% each over two
years. Vesting dates were on November 2018, February 2019, August
2019 and February 2020.
GNC HOLDINGS, INC. AND
SUBSIDIARIESU.S. Company-Owned Same Store Sales
(including GNC.com)
| U.S. Company-Owned
Same Store Sales, including GNC.com |
|
Q1 |
|
2020 total same store sales |
|
(10.1)% |
| 2019 total same store
sales |
|
(1.6)% |
| |
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Balance
Sheets(in thousands)
| |
March 31, |
|
December 31, |
| |
2020 |
|
2019 |
| |
(unaudited) |
| Current
assets: |
|
|
|
|
Cash and cash equivalents |
$ |
137,444 |
|
|
|
$ |
117,046 |
|
|
|
Receivables, net of allowance of $27,390 and $22,648,
respectively |
83,932 |
|
|
|
101,234 |
|
|
|
Receivables due from related parties |
6,547 |
|
|
|
8,946 |
|
|
|
Inventory |
367,402 |
|
|
|
387,655 |
|
|
|
Prepaid and other current assets |
34,348 |
|
|
|
24,880 |
|
|
|
Total current assets |
629,673 |
|
|
|
639,761 |
|
|
| Long-term
assets: |
|
|
|
|
Goodwill |
73,552 |
|
|
|
79,109 |
|
|
|
Brand name |
189,000 |
|
|
|
300,720 |
|
|
|
Other intangible assets, net |
69,891 |
|
|
|
71,298 |
|
|
|
Property, plant and equipment, net |
72,054 |
|
|
|
86,916 |
|
|
|
Right-of-use assets |
305,788 |
|
|
|
350,579 |
|
|
|
Equity method investments |
42,520 |
|
|
|
97,930 |
|
|
|
Deferred tax assets |
12,389 |
|
|
|
— |
|
|
|
Other long-term assets |
21,090 |
|
|
|
24,274 |
|
|
|
Total long-term assets |
786,284 |
|
|
|
1,010,826 |
|
|
|
Total assets |
$ |
1,415,957 |
|
|
|
$ |
1,650,587 |
|
|
| Current
liabilities: |
|
|
|
|
Accounts payable |
$ |
143,535 |
|
|
|
$ |
150,742 |
|
|
|
Accounts payable due to related parties |
21,136 |
|
|
|
11,720 |
|
|
|
Current portion of long-term debt |
895,022 |
|
|
|
180,566 |
|
|
|
Current portion of lease liabilities |
106,704 |
|
|
|
112,005 |
|
|
|
Deferred revenue and other current liabilities |
94,812 |
|
|
|
105,792 |
|
|
|
Total current liabilities |
1,261,209 |
|
|
|
560,825 |
|
|
| Long-term
liabilities: |
|
|
|
|
Long-term debt |
— |
|
|
|
681,999 |
|
|
|
Deferred income taxes |
— |
|
|
|
31,586 |
|
|
|
Lease liabilities |
305,194 |
|
|
|
330,510 |
|
|
|
Other long-term liabilities |
40,549 |
|
|
|
41,535 |
|
|
|
Total long-term liabilities |
345,743 |
|
|
|
1,085,630 |
|
|
|
Total liabilities |
1,606,952 |
|
|
|
1,646,455 |
|
|
| |
|
|
|
| Mezzanine
equity: |
|
|
|
|
Convertible preferred stock |
211,395 |
|
|
|
211,395 |
|
|
| |
|
|
|
| Stockholders’
deficit: |
|
|
|
|
Common stock |
131 |
|
|
|
131 |
|
|
|
Additional paid-in capital |
1,013,394 |
|
|
|
1,012,076 |
|
|
|
Retained earnings |
318,519 |
|
|
|
518,605 |
|
|
|
Treasury stock, at cost |
(1,725,349 |
) |
|
|
(1,725,349 |
) |
|
|
Accumulated other comprehensive loss |
(9,085 |
) |
|
|
(12,726 |
) |
|
|
Total stockholders’ deficit |
(402,390 |
) |
|
|
(207,263 |
) |
|
|
Total liabilities, mezzanine equity and stockholders’
deficit |
$ |
1,415,957 |
|
|
|
$ |
1,650,587 |
|
|
|
|
GNC HOLDINGS, INC.
AND SUBSIDIARIESConsolidated Statements of Cash
Flows(in thousands)
| |
Three months ended March 31, |
| |
2020 |
|
2019 |
| |
(unaudited) |
| Cash flows from
operating activities: |
|
|
|
| Net loss |
$ |
(200,086 |
) |
|
|
$ |
(15,262 |
) |
|
| Adjustments to reconcile net
loss to net cash (used in) provided by operating activities: |
|
|
|
|
Depreciation and amortization expense |
7,858 |
|
|
|
10,190 |
|
|
|
Loss (income) from equity investments |
39,643 |
|
|
|
(955 |
) |
|
|
Amortization of debt costs |
16,814 |
|
|
|
7,988 |
|
|
|
Stock-based compensation |
1,372 |
|
|
|
1,334 |
|
|
|
Long-lived asset impairments and other store closing costs |
157,515 |
|
|
|
— |
|
|
|
Loss on forward contracts related to the issuance of convertible
preferred stock |
— |
|
|
|
16,787 |
|
|
|
Loss on net asset exchange for the formation of the joint
ventures |
1,655 |
|
|
|
19,514 |
|
|
|
Interest expense recognized on interest rate swap |
10,810 |
|
|
|
— |
|
|
|
Deferred income tax benefit |
(47,677 |
) |
|
|
(5,064 |
) |
|
|
Other |
(2,107 |
) |
|
|
(21 |
) |
|
|
Changes in assets and liabilities: |
|
|
|
|
Decrease (increase) in receivables |
17,824 |
|
|
|
(12,567 |
) |
|
|
Decrease (increase) in inventory |
17,578 |
|
|
|
(6,886 |
) |
|
|
Increase in prepaid and other current assets |
(8,401 |
) |
|
|
(3,658 |
) |
|
|
Increase in accounts payable |
3,346 |
|
|
|
57,722 |
|
|
|
(Decrease) increase in deferred revenue and accrued
liabilities |
(22,686 |
) |
|
|
4,437 |
|
|
|
Decrease in net lease liabilities |
(7,035 |
) |
|
|
(8,485 |
) |
|
|
Other operating activities |
1,492 |
|
|
|
3,637 |
|
|
|
Net cash (used in) provided by operating
activities |
(12,085 |
) |
|
|
68,711 |
|
|
| |
|
|
|
| Cash flows from
investing activities: |
|
|
|
|
Capital expenditures |
(3,858 |
) |
|
|
(3,017 |
) |
|
|
Refranchising proceeds, net of store acquisition costs |
180 |
|
|
|
667 |
|
|
|
Proceeds from net asset exchange |
18,211 |
|
|
|
101,000 |
|
|
|
Capital contribution to the newly formed joint ventures |
— |
|
|
|
(13,079 |
) |
|
|
Net cash provided by investing activities |
14,533 |
|
|
|
85,571 |
|
|
| |
|
|
|
| Cash flows from
financing activities: |
|
|
|
|
Borrowings under revolving credit facility |
30,000 |
|
|
|
22,000 |
|
|
|
Payments on revolving credit facility |
— |
|
|
|
(22,000 |
) |
|
|
Proceeds from the issuance of convertible preferred stock |
— |
|
|
|
199,950 |
|
|
|
Payments on Tranche B-1 Term Loan |
— |
|
|
|
(147,312 |
) |
|
|
Payments on Tranche B-2 Term Loan |
(11,719 |
) |
|
|
(114,000 |
) |
|
|
Original Issuance Discount and revolving credit facility fees |
— |
|
|
|
(10,365 |
) |
|
|
Fees associated with the issuance of convertible preferred
stock |
— |
|
|
|
(12,564 |
) |
|
|
Minimum tax withholding requirements |
(54 |
) |
|
|
(120 |
) |
|
|
Net cash provided by (used) in financing
activities |
18,227 |
|
|
|
(84,411 |
) |
|
| |
|
|
|
| Effect of exchange rate
changes on cash and cash equivalents |
(277 |
) |
|
|
22 |
|
|
| Net increase in cash and cash
equivalents |
20,398 |
|
|
|
69,893 |
|
|
| Beginning balance, cash and
cash equivalents |
117,046 |
|
|
|
67,224 |
|
|
| Ending balance, cash and cash
equivalents |
$ |
137,444 |
|
|
|
$ |
137,117 |
|
|
| |
GNC HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow(in
thousands)
|
|
Three months ended March 31, |
|
|
2020 |
|
2019 |
| |
(unaudited) |
| |
|
|
|
| Net cash (used in)
provided by operating activities |
$ |
(12,085 |
) |
|
|
$ |
68,711 |
|
|
|
Capital expenditures |
(3,858 |
) |
|
|
(3,017 |
) |
|
|
Free cash flow |
$ |
(15,943 |
) |
|
|
$ |
65,694 |
|
|
| |
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESSegment Financial
Data (in thousands)
| |
Three months ended March 31, |
| |
2020 |
|
2019 |
| |
(unaudited) |
| Revenue: |
|
|
|
|
U.S. and Canada |
$ |
424,181 |
|
|
|
$ |
489,157 |
|
|
|
International |
33,545 |
|
|
|
40,923 |
|
|
|
Manufacturing / Wholesale: |
|
|
|
|
Intersegment revenues |
— |
|
|
|
35,505 |
|
|
|
Third-party contract manufacturing |
— |
|
|
|
15,783 |
|
|
|
Wholesale partner sales |
14,855 |
|
|
|
18,901 |
|
|
|
Subtotal Manufacturing / Wholesale |
14,855 |
|
|
|
70,189 |
|
|
|
Total reportable segment revenues |
472,581 |
|
|
|
600,269 |
|
|
|
Elimination of intersegment revenues |
— |
|
|
|
(35,505 |
) |
|
| Total
revenue |
$ |
472,581 |
|
|
|
$ |
564,764 |
|
|
| Operating (loss)
income: |
|
|
|
|
U.S. and Canada |
$ |
(131,200 |
) |
|
|
$ |
52,100 |
|
|
|
International |
(17,382 |
) |
|
|
14,050 |
|
|
|
Manufacturing / Wholesale |
6,931 |
|
|
|
15,344 |
|
|
|
Total reportable segment operating (loss) income |
(141,651 |
) |
|
|
81,494 |
|
|
|
Corporate costs |
(24,835 |
) |
|
|
(26,261 |
) |
|
|
Loss on net asset exchange for the formation of the joint
ventures |
(1,655 |
) |
|
|
(19,514 |
) |
|
|
Other |
2,107 |
|
|
|
(237 |
) |
|
|
Unallocated corporate costs, loss on net asset exchange and
other |
(24,383 |
) |
|
|
(46,012 |
) |
|
| Total operating (loss)
income |
$ |
(166,034 |
) |
|
|
$ |
35,482 |
|
|
| |
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Store Count
Activity
| |
Three months ended March 31, |
| |
2020 |
|
2019 |
| U.S. &
Canada |
|
|
|
|
Company-owned (a): |
|
|
|
|
Beginning of period balance |
2,902 |
|
|
3,206 |
|
|
Store openings |
3 |
|
|
5 |
|
|
Acquired franchise stores (b) |
5 |
|
|
6 |
|
|
Franchise conversions (c) |
— |
|
|
(1 |
) |
|
Store closings (d) |
(92 |
) |
|
(87 |
) |
|
End of period balance |
2,818 |
|
|
3,129 |
|
|
Domestic Franchise: |
|
|
|
|
Beginning of period balance |
956 |
|
|
1,037 |
|
|
Store openings |
6 |
|
|
3 |
|
|
Acquired franchise stores (b) |
(5 |
) |
|
(6 |
) |
|
Franchise conversions (c) |
— |
|
|
1 |
|
|
Store closings (d) |
(25 |
) |
|
(17 |
) |
|
End of period balance |
932 |
|
|
1,018 |
|
|
International (e): |
|
|
|
|
Beginning of period balance |
1,915 |
|
|
1,957 |
|
|
Store openings |
15 |
|
|
24 |
|
|
Store closings |
(20 |
) |
|
(24 |
) |
|
China stores contributed to the China joint venture |
— |
|
|
(5 |
) |
|
End of period balance |
1,910 |
|
|
1,952 |
|
| Store-within-a-store
(Rite Aid): |
|
|
|
|
Beginning of period balance |
1,759 |
|
|
2,183 |
|
|
Store openings |
31 |
|
|
11 |
|
|
Store closings (f) |
(162 |
) |
|
(85 |
) |
|
End of period balance |
1,628 |
|
|
2,109 |
|
| Total
Stores |
7,288 |
|
|
8,208 |
|
_______________________________________________________________________________
(a) Includes Canada.
(b) Stores that were acquired from franchisees
and subsequently converted into company-owned stores.
(c) Company-owned store locations sold to
franchisees.
(d) Excludes approximately 1,100 of the U.S. and
Canada company-owned and franchise retail temporary closed stores
due to COVID-19 as of March 31, 2020.
(e) Includes franchise locations in
approximately 50 countries (including distribution centers where
sales are made) and company-owned stores located in Ireland. Prior
year also includes company-owned stores located in China.
(f) Rite Aid store-within-a-store closings were
primarily a result of the Walgreens acquisition of certain Rite Aid
locations
| |
| Contacts: |
| |
|
|
| Investors: |
|
Matt Milanovich, VP- Investor Relations & Treasury, (412)
402-7260; or |
| |
|
John Mills, Partner - ICR, (646) 277-1254 |
| |
|
|
| SOURCE: |
|
GNC Holdings, Inc. |
| |
|
|
| Web site: |
|
http://www.gnc.com |
| |
|
|
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