By David Clucas
The sudden resignation of GNC Holdings Inc. CEO Michael Archbold threw much up in the air for the nutritional supplement chain as it pulled its yearly guidance and remained mum on the status of its ongoing strategic review. The latter could include an upcoming sale of the business.
The company’s stock price (NYSE:GNC) fell more than 20 percent on June 28, following the leadership shake-up. Archbold, who had been tasked to lead a turn-around, had been with the company less than two years. But for all the uncertainty, GNC also provided some assurance and stability, immediately tapping former PetSmart CEO and Chairman and GNC board director Robert Moran to fill the CEO role on an interim basis.
All this came as GNC reported its second-quarter 2016 earnings results, which Morgan called “disappointing.”
Revenue for the quarter fell 2.4 percent to $673.2 million as same-store sales dropped 3.7 percent at GNC’s company-owned domestic stores (including GNC.com) and decreased 6.6. percent at its franchise locations. Second-quarter net income fell to $64 million, or 94 cents per diluted share, versus a net income of $67.4 million, or 79 cents per diluted share, during the same period a year ago. Adjusted EPS, excluding the benefit of a $16.9 million pre-tax gain related to the sale of 86 company-owned stores to franchisees, was 79 cents for the second quarter versus an adjusted EPS of 77 cents a year ago. The company remains on track to meet its 2016 goal to refranchise 200 company-owned stores, officials said.
“We are focused on addressing those areas where we can drive a meaningful impact on the business in the shortest period of time,” Moran said. “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.”
By region, GNC saw its sales fall 2 percent in North America to $570.9 million. “Our all store promotional events were not enough to offset the unexpected decline in retail traffic late in the quarter,” officials said.
Domestic franchise revenue dropped 2.1 percent to $86.5 million due to lower wholesale sales and royalties. “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,” officials said, noting the steeper drop in same-store sales at franchisee locations. GNC had been making efforts to attract more health-and-fitness conscious nutritional customers, trying to shed its previous body-building-only image.
International sales, which include franchise locations in 50 countries, including China, fell 2.5 percent to $43.1 million for the second quarter with same-store sales falling 1.6 percent. Wholesale sales and royalties from franchisees decreased, primarily relating to Mexico, Turkey and Chile, offset by gains in China.
Revenues for GNC’s manufacturing and wholesale segment — products it makes under its own brand and for other third-party customers — increased 5.3 percent to $59.2 million, largely on gains of sales to those third-party customers.
Looking ahead, the company pulled its previous guidance — which it had projected 2016 EPS between $2.80 – $2.90, already lowered from a a previous range of $3.15 to $3.35 — saying it needed time to evaluate the business under the new leadership.
“The decision to suspend our fiscal 2016 guidance in no way detracts from our commitment to move quickly to deliver improved performance,” Moran said. “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.”
Lead photo courtesy GNC
