Brief

GNC shares topple as CEO resigns, guidance is suspended

Dive Brief:

  • GNC Holdings CEO Michael Archbold has resigned after less than two years at the helm, the embattled nutritional supplement retailer announced Thursday. Former PetSmart chairman and CEO Robert Moran was named interim CEO, effective immediately, and GNC’s previously announced strategic review process remains ongoing.
  • Same-store sales at company-owned GNC locations declined 3.7% during the second quarter of 2016, the retailer also announced Thursday. Same-store sales at franchised locations plunged 6.6%.
  • Shares of GNC dropped 19% in early trading, the Wall Street Journal reports. GNC has suspended earnings guidance for the remainder of fiscal 2016 and halted its stock buyback program.

Dive Insight:

Turned out, Michael Archbold was not the shot in the arm that health and wellness retailer GNC needed to improve its sagging fortunes. Hired in August 2014 after serving as CEO and CFO of women’s apparel retailer Talbots where he spearheaded customer experience strategies credited with significant bottom-line improvements, Archbold failed to repeat the trick this time around.

Faced with mounting concerns over the effectiveness of its signature dietary supplements that culminated in a damning New York State attorney general’s office probe, Archbold shifted GNC’s emphasis to its vitamin business, but his efforts were undermined by cuts to the company’s marketing budget. In late April, GNC announced plans to sell and refranchise 84 of its stores to franchisee Sun Holdings for $17 million. GNC said at that time it is looking to sell a total of 200 company-owned stores this year and another 1,000 in total over the next several years.

“While we are making progress on our strategic evolution which we started in 2014, the turnaround is taking longer than expected and the progress is insufficient,” Archbold said at the time. “Our number one priority is our vitamin business and the steps we need to take to grow same-store sales in this category through new promotions and a renewed marketing focus. In addition, we are reducing the significance of aged inventory, optimizing our assortment and training store associates to emphasize the vitamin solution to our customers."

But same-store sales continued to stumble. In the second quarter of 2016, GNC revenue declined 2.4% to $673.2 million from the year-ago period while net income slumped 5% to $64 million.

"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,” interim CEO Moran said in a statement. “We clearly have work to do to reverse the current trends.”

Reports suggest GNC is now exploring sale options, although Archbold’s abrupt exit leaves its future even murkier. While rumors of a potential deal with rival Vitamin Shoppe have long circulated, The Street reports interest from Chinese strategic buyers as well. China's Xiwang Foodstuff in June acquired Canadian supplements maker Iovate Health Sciences International for $730 million, but GNC’s fading fortunes and leadership questions could drive suitors away.

Mark Wiltamuth, analyst at global investment bank Jefferies, sees little hope for GNC to right the ship.

"Pressured by mass retailers, lower priced internet options, structurally eroding mall traffic (malls are 35% of sales), and a customer accustomed to aggressive promos, we see no easy fixes," Wiltamuth wrote in a Thursday note, according to The Street.

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Filed Under: Corporate News
Top image credit: GNC Facebook page