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GNC Holdings Inc. (GNC - Free Report) reported first-quarter 2017 adjusted earnings per share (EPS) of 37 cents, reflecting a massive 46.4% year-over-year deterioration. However, the quarter’s adjusted EPS surpassed the Zacks Consensus Estimate by 12.1%.
The year-over-year decline was due to underperformance of the U.S. & Canada and manufacturing/wholesale segments.
Including one-time items, the company’s reported earnings were 35 cents per share, down 49.3% year over year.
GNC Holdings, Inc. Price, Consensus and EPS Surprise
Revenues during the reported quarter dropped 3.6% year over year to $644.8 million. The figure however outpaced the Zacks Consensus Estimate of $631.4 million.
The decline in revenue can be attributed to lower sales at the U.S. & Canada international and manufacturing/wholesale segments.
Same store sales decreased 3.9% in domestic company-owned stores (including GNC.com sales) in the first quarter of 2017. In domestic franchise locations, same store sales declined 4.6%.
Segment in Details
GNC Holdings reports its operations under three segments: U.S. & Canada – including company-owned stores in the U.S., Puerto Rico and Canada, franchise stores in the U.S. and e-commerce; International – including franchise locations in approximately 50 countries, The Health Store and China operations; and Manufacturing/Wholesale – comprising manufactured product 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 dropped 3.8% to $552.9 million, primarily because of a decline in same store sales in both company-owned and franchise stores. Domestic franchise revenues however rose 1.6% to $83.1 million, driven by a net increase in the number of franchise stores from 1,082 as of Mar 31, 2016, to 1,164 as on Mar 31, 2017. This was partially offset by the impact of negative retail same stores sales of 4.6% in the reported quarter. Weakness in the food and protein categories as well as significant decrease in e-commerce sales due to better aligning web promotions to the company's stores, largely affected this segment in the fourth quarter.
Revenues at the international segment increased 7% to $39.4 million. Revenues from international franchisees increased $1.3 million primarily due to an increase in wholesale sales and in retail same store sales of 3.8% in the current quarter (excluding the impact of foreign exchange rate changes relative to the U.S. dollar). Revenues from the China business increased $1.2 million in the current quarter compared with the prior quarter.
Revenues at the manufacturing/wholesale segment (excluding intersegment revenues) decreased 8.6% to $52.5 million. Within this segment, third-party contract manufacturing sales increased 0.9% to $30.7 million, which was partially offset by a 19.3% decline in wholesale sales to $21.8 million and a 2.7% drop in intersegment sales to $61.3 million, primarily due to lower proprietary sales in the U.S. & Canada segment.
Margin
Gross profit deteriorated 9.7% in the reported quarter to $212.9 million. Consequently, gross margin contracted 223 basis points (bps) to 33% owing to lower sales and product margins at the company’s GNC.com business and deleverage of occupancy costs as a result of negative same-store sales.
Selling, general and administrative expenses rose 12.2% to $160.5 million. However, adjusted operating margin deteriorated 231 bps to 32.3% owing to a wider decline in gross profit.
Financial Position
GNC Holdings exited the reported quarter with cash and cash equivalents of $39.8 million, down from $34.4 million at the end of fiscal 2016. Long-term debt was $1.50 billion at the end of the quarter, compared with $1.52 billion at the end of fiscal 2016. In the first quarter, the company used cash of $46.1 million in operating activities, compared with $142.3 million a year ago.
Further, the company generated free cash flow of $33.4 million in the reported quarter as compared to $132.1 million in the year-ago quarter.
‘One New GNC’ Plan Update
Earlier, management had announced plans to revamp its existing business model, dubbed as the ‘One New GNC”. The company has already started seeing transformational changes during the first quarter 2017. GNC Holdings recorded 9.3% growth in the reported quarter and its management is encouraged by the new loyalty programs under this plan. As of the end of the first quarter of 2017, 5 million consumers joined the myGNC Rewards Program.
Our Take
Although GNC Holdings reported better-than-expected results in the first quarter of 2017, the year-over-year decline on both the fronts was a huge disappointment. The decline can be attributed to lower sales in the company’s U.S. & Canada and manufacturing/wholesale segments.
On a positive note, during the first quarter, management witnessed positive response for its New GNC Plan. Not only did the company experience encouraging transformation in its operations, it also saw growth in transactions and strong performance by its loyalty programs. Thus, management’s latest plan for operational improvement raises optimism.
Zacks Rank & Key Picks
GNC Holdings currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Medical space include Inogen, Inc. (INGN - Free Report) , ZELTIQ Aesthetics, Inc. and Hill-Rom Holdings, Inc. . While Inogen sports a Zacks Rank #1 (Strong Buy), ZELTIQ Aesthetics and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen gained 54.7% in the last one year, compared with the S&P 500’s gain of 11.4%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.
ZELTIQ Aesthetics surged 92.3% in the last one year, compared with the S&P 500’s gain. Its four-quarter average earnings surprise was a positive of 12.30%.
Hill-Rom gained over 29.3% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 3.1%.
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Image: Bigstock
GNC Holdings (GNC) Q1 Earnings & Revenues Top, Decline Y/Y
GNC Holdings Inc. (GNC - Free Report) reported first-quarter 2017 adjusted earnings per share (EPS) of 37 cents, reflecting a massive 46.4% year-over-year deterioration. However, the quarter’s adjusted EPS surpassed the Zacks Consensus Estimate by 12.1%.
The year-over-year decline was due to underperformance of the U.S. & Canada and manufacturing/wholesale segments.
Including one-time items, the company’s reported earnings were 35 cents per share, down 49.3% year over year.
GNC Holdings, Inc. Price, Consensus and EPS Surprise
GNC Holdings, Inc. Price, Consensus and EPS Surprise | GNC Holdings, Inc. Quote
Revenues
Revenues during the reported quarter dropped 3.6% year over year to $644.8 million. The figure however outpaced the Zacks Consensus Estimate of $631.4 million.
The decline in revenue can be attributed to lower sales at the U.S. & Canada international and manufacturing/wholesale segments.
Same store sales decreased 3.9% in domestic company-owned stores (including GNC.com sales) in the first quarter of 2017. In domestic franchise locations, same store sales declined 4.6%.
Segment in Details
GNC Holdings reports its operations under three segments: U.S. & Canada – including company-owned stores in the U.S., Puerto Rico and Canada, franchise stores in the U.S. and e-commerce; International – including franchise locations in approximately 50 countries, The Health Store and China operations; and Manufacturing/Wholesale – comprising manufactured product 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 dropped 3.8% to $552.9 million, primarily because of a decline in same store sales in both company-owned and franchise stores. Domestic franchise revenues however rose 1.6% to $83.1 million, driven by a net increase in the number of franchise stores from 1,082 as of Mar 31, 2016, to 1,164 as on Mar 31, 2017. This was partially offset by the impact of negative retail same stores sales of 4.6% in the reported quarter. Weakness in the food and protein categories as well as significant decrease in e-commerce sales due to better aligning web promotions to the company's stores, largely affected this segment in the fourth quarter.
Revenues at the international segment increased 7% to $39.4 million. Revenues from international franchisees increased $1.3 million primarily due to an increase in wholesale sales and in retail same store sales of 3.8% in the current quarter (excluding the impact of foreign exchange rate changes relative to the U.S. dollar). Revenues from the China business increased $1.2 million in the current quarter compared with the prior quarter.
Revenues at the manufacturing/wholesale segment (excluding intersegment revenues) decreased 8.6% to $52.5 million. Within this segment, third-party contract manufacturing sales increased 0.9% to $30.7 million, which was partially offset by a 19.3% decline in wholesale sales to $21.8 million and a 2.7% drop in intersegment sales to $61.3 million, primarily due to lower proprietary sales in the U.S. & Canada segment.
Margin
Gross profit deteriorated 9.7% in the reported quarter to $212.9 million. Consequently, gross margin contracted 223 basis points (bps) to 33% owing to lower sales and product margins at the company’s GNC.com business and deleverage of occupancy costs as a result of negative same-store sales.
Selling, general and administrative expenses rose 12.2% to $160.5 million. However, adjusted operating margin deteriorated 231 bps to 32.3% owing to a wider decline in gross profit.
Financial Position
GNC Holdings exited the reported quarter with cash and cash equivalents of $39.8 million, down from $34.4 million at the end of fiscal 2016. Long-term debt was $1.50 billion at the end of the quarter, compared with $1.52 billion at the end of fiscal 2016. In the first quarter, the company used cash of $46.1 million in operating activities, compared with $142.3 million a year ago.
Further, the company generated free cash flow of $33.4 million in the reported quarter as compared to $132.1 million in the year-ago quarter.
‘One New GNC’ Plan Update
Earlier, management had announced plans to revamp its existing business model, dubbed as the ‘One New GNC”. The company has already started seeing transformational changes during the first quarter 2017. GNC Holdings recorded 9.3% growth in the reported quarter and its management is encouraged by the new loyalty programs under this plan. As of the end of the first quarter of 2017, 5 million consumers joined the myGNC Rewards Program.
Our Take
Although GNC Holdings reported better-than-expected results in the first quarter of 2017, the year-over-year decline on both the fronts was a huge disappointment. The decline can be attributed to lower sales in the company’s U.S. & Canada and manufacturing/wholesale segments.
On a positive note, during the first quarter, management witnessed positive response for its New GNC Plan. Not only did the company experience encouraging transformation in its operations, it also saw growth in transactions and strong performance by its loyalty programs. Thus, management’s latest plan for operational improvement raises optimism.
Zacks Rank & Key Picks
GNC Holdings currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Medical space include Inogen, Inc. (INGN - Free Report) , ZELTIQ Aesthetics, Inc. and Hill-Rom Holdings, Inc. . While Inogen sports a Zacks Rank #1 (Strong Buy), ZELTIQ Aesthetics and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen gained 54.7% in the last one year, compared with the S&P 500’s gain of 11.4%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.
ZELTIQ Aesthetics surged 92.3% in the last one year, compared with the S&P 500’s gain. Its four-quarter average earnings surprise was a positive of 12.30%.
Hill-Rom gained over 29.3% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 3.1%.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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