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GNC (GNC) Up 4.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for GNC (GNC). Shares have added about 4.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is GNC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

GNC Holdings Q2 Earnings Beat Estimates

GNC Holdings reported second-quarter 2019 adjusted earnings per share of 13 cents, down 35% from the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 85.7%.

Reported earnings per share for the quarter came in at 11 cents, down 31.25% year over year.

Revenues

Revenues for the second quarter came in at $534 million, down 13.6% year over year. The top line missed the Zacks Consensus Estimate by 2.9%.

Segmental Details

GNC Holdings reports operations under three segments — U.S. & Canada (including company-owned stores in the United States, Puerto Rico and Canada, franchise stores in the United States, and e-commerce), International (inclusive of franchise locations in approximately 50 countries, The Health Store and China operations) and Manufacturing/Wholesale (comprising manufactured products sold to other segments, third-party contract manufacturing and sales to wholesale partners).

During the reported quarter, GNC Holdings’ revenues from the U.S. & Canada segment fell 8% year over year to $476.1 million. Notably, e-commerce sales accounted for 8.1% of U.S. and Canada revenues, decreasing from 8.3% in the prior-year quarter.

Company-owned net store closures negatively impacted revenues by $14.9 million. Further, a decline of 4.6% in same-store sales led to a fall of $17.5 million in revenues of this segment. Moreover, in domestic franchise locations, same-store sales decreased 1.8% from the year-ago period.

Revenues in the International segment declined 18.9% to $40.9 million for the quarter under review. This downside can be primarily attributed to transfer of the China business to the newly formed joint venture, effective Feb 13, 2019.However, the decline was partially offset by a $0.7-million increase in sales of the company’s international franchisees.

Revenues in the Manufacturing /Wholesale segment registered year-over-year plunge of 64.4% to $18.5 million, excluding intersegment sales. This was mainly due to the transfer of the Nutra manufacturing business to the newly formed manufacturing joint venture with International Vitamin Corporation, effective Mar 1, 2019.

Margins

Gross profit declined 6.7% year over year to $193.7 million. Gross margin expanded 266 bps to 36.3% in the second quarter.

Selling, general and administrative expenses declined 9.3% to $143.8 million. Adjusted operating profit rose 1.4% to $49.9 million and adjusted operating margin expanded 138 bps to 9.3%.

Financial Position

GNC Holdings exited the second quarter with cash and cash equivalents of $95.9 millioncompared to $137.1 million at the end of the first quarter. Long-term debt was $854.7 million in the quarter under review, down from $888.4 million at the end of the previous quarter.

Year-to-date net cash flow from operating activities totaled $65.3 million compared with $49.1 million from the year-ago period.

Further, the company generated year-to-date free cash flow of $58.9 million compared with $40.8 million in the prior-year quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.


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