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GNC Holdings' (GNC) Q1 Earnings and Sales Miss Estimates

Zacks Equity Research

GNC Holdings, Inc. GNC reported first-quarter 2020 adjusted loss per share of 19 cents (excluding the impact of certain one-time items like inventory and vendor allowance reserves relates expenses due to current and estimated adverse impacts from the COVID-19 pandemic), a significant decline from year-ago adjusted earnings per share of 15 cents. The bottom line significantly lagged the Zacks Consensus Estimate of earnings of 6 cents per share.

Reported loss per share for the quarter was $2.45, marking a huge decline from loss of 23 cents reported in the prior year.

Revenues

Revenues for the first quarter came in at $472.6 million, down 16.3% year over year. The top line lagged the Zacks Consensus Estimate by 0.6%. The year-over-year decline in revenues was the result of a number of factors including the closure of company-owned stores under its store portfolio optimization strategy, sales declines during the second half of March due to the COVID-19 pandemic, the transfer of the company’s Nutra manufacturing to the Manufacturing joint venture (under its agreement with International Vitamin Corporation or IVC), a 13.8% drop in domestic company-owned same store sales and lower domestic and international franchise revenues.

Quarterly Segmental Details

GNC Holdings operates 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).

GNC Holdings Inc Price, Consensus and EPS Surprise

GNC Holdings Inc Price, Consensus and EPS Surprise

GNC Holdings Inc price-consensus-eps-surprise-chart | GNC Holdings Inc Quote

In the reported quarter, GNC Holdings’ revenues from the U.S. & Canada segment fell 13.3% year over year to $424.2 million. Notably, e-commerce sales accounted for 10.6% of U.S. and Canada revenues, up from the prior-year quarter’s 7.4%.

Company-owned net store closures, including e-commerce salesdropped 10.1% resulting in a $35.8 million decline in revenues. Out of this, approximately $20 million was attributed to the impact of COVID-19 in the second half of March.

International segment revenues declined 18% to $7.4 million during the reported quarter. This downside chiefly resulted from the outbreak of COVID-19, which caused business disruption in the International segment from January 2020. International franchisees revenues declined $6.4 million due to lower sales primarily in the Asian markets as a result of the pandemic.

The Manufacturing / Wholesale segment’s revenues registered 57.2% year-over-year plunge to $14.9 million. This mainly resulted from the transfer of the Nutra manufacturing business to the manufacturing joint venture with International Vitamin Corporation. Further, sales to wholesale partners decreased 21.4% to $14.9 million largely due to the closures of Rite Aid store-within-a-store as a result of Walgreens' acquisition of certain Rite Aid locations.

Margins

Gross profit declined 32.7% year over year to $136.7 million. Gross margin contracted 703 basis points (bps) to 28.9% in the first quarter.

Selling, general and administrative expenses declined 2.5% to $144.5 million. The company registered adjusted operating loss of $7.8 million in the quarter against $54.8 million of adjusted operating profit in the year-ago period.

Financial Position

GNC Holdings exited first-quarter 2020 with cash and cash equivalents of $137.4 million compared with $117 million at the end of 2019. Total debt was $895 million at the end of the quarter, compared with $862.6 million at the end of 2019.

First-quarter net cash outflow from operating activities totaled $12.1 million compared with $68.7 million of net cash inflow recorded in the year-ago period.

Our Take

GNC Holdings first-quarter 2020 results were dismal largely because of significant sales disruption caused by the pandemic. All the operating segments of the company registered significant year-over-year sales decline during this period.

The company noted that during March 2020 significant COVID-19-led restrictions were imposed by the state governments.  As of May 6, 2020, a respective 1300 and 40% of U.S. and Canada company-owned and franchise retail stores were closed. GNC fears that some of the stores temporarily closed now, may be closed down permanently in the future.

Zacks Rank & Stocks to Consider

GNC Holdings currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Aphria Inc. APHA, Biogen Inc. BIIB and Eli Lilly and Company LLY.

Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents against the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.

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