Not to state the obvious, but why would any company or franchisee even consider buying in (or into) this? They and all of their peers are struggling; Amazon is firmly entrenched in this space and will s.ell cheaper. Why would there be any premium at all? I notice that GNC just made Zack's strong sell list. I thought it was a strong sell before - lots and lots of baggage
Sentiment: Strong Sell
The stock is up $1.50 in pre-market trading this morning to $25.85.
As noted in a prior post, the company has more than $300mm of LTM FCF.
The company has announced it will refranchise 1,000 company-owned stores
over the next 3-4 years. I have estimated that could raise $750mm in proceeds.
If we assume that FCF in each of the next three years averages $250mm annually,
then the company will generate $1.5 billion in cash over three years.
That compares to the current equity market cap of $1.75 billion.
That makes these shares ridiculously cheap and completely explains why the
Board has decided to take this step.
It is already a buy.
They bought back about 10% of the stock during 16Q1 and now have only about 70 million shares outstanding. Therefore, at $25 the equity market cap is just $1.75 billion.
Yet, last 12 months FCF is more than $325 million.
$325 / $1,775 = 18.5%
You can't get an 18.5% FCF yield practically ANYWHERE.
Yes, there are problems. competition from AMZN is largest among them.
However, I expect that the company's 3-year program to refranchise more than
1,000 company-owned stores, is likely to generate more than $500 million in
proceeds. Add in 3 years of FCF at the $250 million level and the company will be
generating more than $1.25 billion in FCF over 3 years on a $1.75 billion equity
So, unless you think the company's business will completely implode (and that was
not the impression I got from reading the conference call transcript), the stock is a
solid buy here.
All IMHO, FWIW, DYODD
Closing stores. Couldn't sell the product fast enough so it expired and they had to write down. They sell at a premium price to other stores. Together that means they have to drop pricing to move inventory. Mgt can spin that all they want, they really are competing with brick and mortar against online shoppers with products that are known and easily shipped. Guess how that works out long term?
Sentiment: Strong Sell
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Earnings were not that bad the guidance is this stock always gets hit big on bad news it seems. This is such a tough business so many other stores sell similar products possibly cheaper too.
The worst thing I can see is that the SSS for the franchised units looks very poor.
Midpoint of guidance is above the consensus estimate.
Just raised the divided recently.
Hedge fund raised its position recently.
was up earlier, now flat in a very weak market.
This private equity / activist investor annonuced today that it had increased its stake in GNC from 4.3% to 6.3%, but it remains a "passive stake."
i think that's why the stock jumped $1 today.
Earnings are out tomorrow morning and the conference call starts at 8:30.
They have already told the Street that earnings would be at the high end of guidance.
So, the only major point of "unknown" that may be cleared up tomorrow is what they provide in terms of guidance.
The current consensus for the new fiscal year is $3.19/share.