GNC plummets on $433M Q4 loss, pleads for patience

Dive Brief:

  • Shares of GNC Holdings tumbled 7.2% on Thursday after the embattled supplements retailer reported a fourth quarter net loss of $433.4 million and its board of directors suspended the company's quarterly dividend.

  • GNC posted Q4 consolidated revenue of $569.9 million, down from $629.1 million in the year-ago period and missing the Thomson Reuters consensus estimate of $571.7 million. Adjusted earnings of 7 cents per share badly missed estimates for 34 cents per share. 

  • GNC's Q4 same-store sales decreased 12% in U.S. company-owned stores (including website sales, which contributed 4.5% of the decrease), missing the FactSet forecast for a 9.6% decline; same-store sales in U.S. franchise locations fell 6%.

Dive Insight:

GNC executives called for patience on Thursday, saying that the company’s major turnaround initiatives, while already paying off in may respects, need time to gain traction. “The results in the fourth quarter were certainly not what any of us wanted to see,” CEO Robert F. Moran told analysts on a Thursday conference call, according to a transcript from Seeking Alpha. “But I want to be clear this performance simply does not reflect the business model we have today or what we are now capable of delivering for our customers and our shareholders.”

Moran reminded analysts that GNC has been, as he has said before, “a company that has lost touch with its customers, its solid competitive differentiators and its place in an attractive growing market segment” and that righting the ship involves not just a comprehensive new marketing campaign, but also painstaking research into pricing models.

Some of that experimentation has led to basket size declines that CFO Tricia K. Tolivar called the natural result of focusing on price and scaling back promotions like buy-one, get-one. “BOGOs, by their nature, tend to build the basket size, so the combination of price reductions and the change in promotional cadence has impact on baskets that's bigger than price alone," she told analysts. " But, keep in mind, frequency should be impacted. So, while there would be less pantry-loading, we should see the customers more and we're certainly focused on improving that customer experience and communicating the features of the new GNC single-priced and the loyalty program, and getting those customers back on a more regular basis.”

GNC took the dramatic step of closing all stores late last year before literally and figuratively reopening its doors to its new strategy. “When we closed every store on Dec. 28 and reopened the following day as a New GNC, we launched the Fundamentally Transform Business Model,” Moran said. “While we have only six weeks of system-wide data at this point, I can tell you that we are encouraged with the performance we're seeing. Since the launch of the One New GNC, transactions are up approximately 7% in company-owned stores, which means we are now generating the strongest transaction growth in several years.”

GNC executives also expressed disappointment that Fox Broadcasting nixed its new advertising campaign for the Super Bowl, but said the commercial would run during high-profile events like the Oscars in coming weeks, adding that the spot has generated about 20 million views online.

While Wall Street looked askance at GNC's move to suspend “shareholder friendly activities,” Fitch Ratings Senior Director David Silverman expressed tentative hopes for the company's future.

"The elimination of GNC's dividend and share buyback programs will allow it to focus its positive cash flow on debt repayment and lower leverage levels — a prudent move in an otherwise challenging environment,” Silverman said in an email to Retail Dive. “As today's results show, GNC has sacrificed margins with its new pricing plan, leading to another disappointing quarter. Despite a new pricing system, loyalty program and marketing efforts, earnings pressure could be a reality for 2017. Debt repayment, however, could mitigate the impact of continued operational challenges on leverage.”

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