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GNC (GNC) Down 33.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for GNC (GNC). Shares have lost about 33.2% in that time frame, underperforming the S&P 500.

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

GNC Holdings Sees Y/Y Decline in Q1 Revenues on Soft U.S. Retail

GNC Holdings reported first-quarter 2019 adjusted earnings per share of 15 cents, down 37.5% from the year-ago quarter. Reported loss per share for the quarter came in at 23 cents against earnings of 7 cents a year ago.

Revenues

Revenues for the first quarter came in at $564.8 million, down 7% year over year.

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 4.5% year over year to $489.2 million. Notably, e-commerce sales accounted for 7.4% of U.S. and Canada revenues, increasing from 7.1% in the prior-year quarter.

Company-owned net store closures negatively impacted revenues by $14 million. Further, a decline of 1.6% in same store sales led to a fall of $6.2 million in revenues within this segment. However, in domestic franchise locations, same store sales increased 0.6% from the year-ago period.

Revenues in the International segment rose 2.1% to $40.9 million for the quarter under review.  The improvement can primarily be attributed to an increase in the sales volume in the international franchisees. However, a decline in the sales volume in China due to the transfer of the cross-border e-commerce China business to the newly formed joint venture (effective Feb 13, 2019) partially offset the upside.

Revenues in the Manufacturing /Wholesale segment registered year-over-year plunge 37% to $34.7 million, excluding intersegment sales. This was mainly due to the transaction with International Vitamin Corporation (IVC) for the newly founded manufacturing joint venture (JV) effective Mar 1, 2019.

Margins

Gross profit declined 1.8% year over year to $203.1 million. Gross margin expanded 180 bps to 35.9% in the first quarter.

Selling, general and administrative expenses declined 7.7% to $148.3 million. Adjusted operating profit rose 18.7% to $54.8 million and adjusted operating margin expanded 210 bps to 9.7%.

Financial Position

GNC Holdings exited the first quarter with cash and cash equivalents of $137.1 million, which skyrocketed nearly 104% from $67.2 million at the end of the 2018. Long-term debt was $888.4 million in the quarter under review, down 10.6% from $993.6 million at the end of the previous year.

Net cash flow from operating activities for the three months ended Mar 31, 2019, totaled $68.7 million compared with $25.1 million from the year-ago quarter.

Further, the company generated free cash flow of $154.3 million in the quarter under review compared with $37.4 million in the prior-year quarter.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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