How Did GNC Holdings’ 1Q16 Earnings Turn Out?
Why Did GNC Holdings' Top and Bottom Lines Fall in 1Q16?
Price movement of GNC Holdings
GNC Holdings (GNC) has a market cap of $1.8 billion. GNC fell by 28.9% to close at $25.32 per share on April 28, 2016, the day it reported 1Q16 earnings. The stock’s weekly, monthly, and YTD (year-to-date) price movements are -29.6%, -23.3%, and -20.9%, respectively. GNC is trading 24.9% below its 20-day moving average, 20.3% below its 50-day moving average, and 30.4% below its 200-day moving average.
Related ETFs and peers
The iShares Morningstar Small-Cap Value ETF (JKL) invests 0.55% of its holdings in GNC Holdings. The ETF tracks a market cap–weighted index of US small-cap value stocks. JKL has risen 7.4% YTD, as of April 28. The Vanguard Small-Cap Growth ETF (VBK) invests 0.31% of its holdings in GNC.
The market caps of GNC Holdings’ competitors are as follows:
Walgreens Boots Alliance (WBA): $86.8 billion
Rite Aid Corporation (RAD): $8.4 billion
GNC Holdings’ performance in 1Q16
GNC Holdings reported 1Q16 revenue of $668.9 million, a fall of 1.8% compared to revenue of $681.3 million in 1Q15. The company’s cost of sales, including warehousing, distribution, and occupancy, as a percentage of revenue rose by 2.2%, and its operating income fell by 14.1% in 1Q16 compared to 1Q15.
In 1Q16, GNC’s net income and EPS (earnings per share) fell to $50.8 million and $0.69, respectively, compared to $63.3 million and $0.72, respectively, in 1Q15.
GNC’s cash and cash equivalents and inventory rose by 8.0% and 1.3%, respectively, in 1Q16 compared to 4Q15. Its current ratio fell to 2.2x, and its debt-to-equity ratio rose to 7.8x, compared to current and debt-to-equity ratios of 2.9x and 4.5x, respectively, in 4Q15.
In 1Q16, the company repurchased 7.6 million shares of its common stock worth $218.9 million at an average price of $28.81 per share. As of March 31, 2016, a total of $208.0 million remains available for purchase under the repurchase program.
Projections
The company has made the following projections:
Consolidated EPS will be in the range of $2.80–$2.90, which excludes the net gain from corporate to franchise store conversions for 2016.
It expects a pretax franchising gain of ~$20 million, which includes $17 million related to the sale of 84 stores to Sun Holdings in 2Q16.
In the next article in this series, we’ll look at an in-depth analysis of GNC Holdings’ segments in 1Q16.
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