GNC Holdings, Inc. replaced its CEO Mike Archbold with interim CEO Robert F. Moran after disappointing second-quarter results, reporting revenue decrease of 2.4 percent, or $673.2 million, as compared to the year prior. Meanwhile revenue in the U.S. & Canada segment didn’t sidestep the hit, decreasing 2 percent, while the International segment performed even more poorly, with a revenue decrease of 2.5 percent. However, the Manufacturing/Wholesale segment managed to remain afloat, increasing revenue 5.3 percent.

Same store sales saw a drop of 3.7 percent 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 percent.

The reported net income of $64 million compared with $67.4 million in the second quarter of 2015. Diluted earnings per share were $0.94 for the second quarter of 2016, compared with $0.79 the year prior. 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.

Alongside its announcement of tumbling Q2 results, GNC’s new interim CEO 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.”

For the second quarter 2016, the U.S. & Canada segment revenue decreased 2 percent, or $11.7 million, to $570.9 million compared with $582.6 million in the prior-year quarter.  The segment’s revenue decline was due to decreases in same store sales in both company-owned and franchise stores.

Domestic same store sales also got hit, dropping 3.7 percent, which includes GNC.com, 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 are historically low. 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. An overall decline more than offset the earlier timing of GNC’s annual franchise convention, which did result higher sales in the current quarter as compared with the prior-year quarter. However, not all GNC franchisees participated in corporate promotions. Its expanded assortment initiative has been adopted by approximately half of GNC franchise stores compared with the significant majority of its corporate stores as of June 30, 2016. As a result, franchisees reported lower retail same store sales as compared with corporate stores of negative 6.6 percent in the quarter.

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 percent, compared with 18.1 percent in the prior year. Excluding re-franchising gains in the current quarter and prior-year quarter, operating income decreased to $87.7 million compared with $104.4 million. The decrease was due primarily to lower product margin rate in GNC.com business and expense deleverage associated with negative same store sales.

International revenues decreased 2.5 percent, or $1.1 million, to $43.1 million in second quarter 2016, compared with $44.2 million the prior year. Primarily relating to Mexico, Turkey and Chile, wholesale sales and royalties from franchisees decreased by $2.6 million, partially offset by the earlier timing of GNC’s annual franchise convention. Its international franchisees reported negative same store sales of 1.6 percent in the quarter, excluding the impact of foreign exchange rates relative to the U.S. dollar. Partially offsetting the decrease in revenue was an increase of $1.5 million associated with GNC’s China business.

Operating income also saw a nosedive with a 13 percent drop, decreasing $2.1 million to $13.6 million for the three months ended June 30, 2016, compared with $15.7 million the year before. Operating income was 31.7 percent of segment revenue in the current quarter, compared with 35.5 percent last year. The decrease was a side effect of 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 Q2.

Revenues in GNC’s manufacturing/wholesale segment, excluding inter-segment sales, increased 5.3 percent, or $3 million. Third-party contract manufacturing sales also got a boost of 18.3 percent, or $5.2 million, partially offset by a decrease in wholesale sales of 8.1 percent, or $2.2 million. Due almost wholly to lower proprietary sales, inter-segment sales decreased $16.4 million to $56.6 million.

Operating income decreased 15 percent, or $3.2 million, 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 percent in the prior-year quarter to 15.5 percent in the current quarter, due to lower inter-segment sales, which resulted in unfavorable manufacturing variances and a higher mix of third-party contract manufacturing sales, which generally contribute lower margins.

Consistent with its previously announced re-franchising strategy, GNC completed conversion of 86 corporate stores during the second quarter 2016, of which 84 stores were sold to one franchisee, recording a pre-tax gain of $16.9 million. The company remains on track to meet its goal to re-franchise 200 company-owned stores within the year.

For the first six months of 2016, GNC reported a consolidated revenue decrease of 2.1 percent, or $1.3421 billion, as compared to $1.3708 billion for 2015. Revenue in the U.S. & Canada segment decreased by 1.4 percent, the International segment decreased 4.6 percent, and revenue in the manufacturing/wholesale segment increased 4.4 percent, excluding inter-segment sales.

For the first six months of 2016, GNC reported net income of $114.8 million, compared with net income of $130.6 million for the first six months of 2015.

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. It now has 9,087 store locations worldwide.

2016 Outlook

As GNC evaluates 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.

“The decision to suspend our fiscal 2016 guidance in no way detracts from our commitment to move quickly to deliver improved performance,” said Moran. “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.”