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GNC Holdings (GNC) Down 12.4% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for GNC Holdings, Inc. (GNC - Free Report) . Shares have lost about 12.4% in that time frame.

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 the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

GNC Holdings reported first-quarter 2018 adjusted earnings per share (EPS)of 24 cents, reflecting a 36.8% year-over-year decline. Adjusted EPS surpassed the Zacks Consensus Estimate of 20 cents by 20%.

Revenues

Revenues (which now exclude Lucky Vitamin in all periods) in the reported quarter dropped 7.2% year over year to $607.5 million.The drop was primarily because of the sale of Lucky Vitamin in September 2017 and the termination of the Gold Card program.

Same-store sales increased 0.5% in domestic company-owned stores (including GNC.com sales) in the quarter under review. Notably, this is the third straight quarter of growth. In domestic franchise locations, same-store sales dropped 1.9%.

Segments in 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 (including 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 decreased 4.5% to $512.4 million. In domestic franchise locations, revenues declined $7.8 million due to a decrease in retail same store sales along with a reduction in the number of franchise stores.

Revenues at the International segment increased 0.8% to $40.1 million driven by higher cross-border e-commerce sales in China.

Revenues at the Manufacturing/Wholesale segment (excluding intersegment revenues) declined 1.4% to $55.1 million. Within this segment, third-party contract manufacturing sales fell by $0.9 million. However, Intersegment sales increased $3.4 million on the company's increased focus on proprietary products. 

Margin

Gross profit declined 5.9% in the reported quarter to $206.9 million. However, gross margin expanded 48 basis points (bps) to 34.1% on rising penetration of the company’s private label brands.

Selling, general and administrative expenses contracted 3.2% to $160.7 million. Accordingly, adjusted operating margin dropped 62 bps to 7.6%.

Financial Position

GNC Holdings exited first-quarter 2018 with cash and cash equivalents of $53.9 million, up from $64 million at the end of 2017. Long-term debt was $1.06 billion in quarter under review, compared with $1.29 billion at 2017-end. Net cash flow from operating activities totaled $25.07 million, compared with $46.10 million a year ago.

Further, the company generated free cash flow of $37.4 million as compared with $33.4 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'. Till now, more than 13 million consumers have joined the company's loyalty programs, including approximately 935,000 customers enrolled under the PRO Access membership.

Store count update

As of Mar 31, 2018, GNC Holdings had 3,385 corporate stores in the United States and Canada, 1,083 domestic franchise locations, 2,428 Rite Aid franchise store-within-a-store locations and 2,009 international locations. The company currently has 8,905 store locations globally. The company intends to shutter approximately 200 stores in 2018 as part of the ongoing optimization of the company's store portfolio.  The company has also announced plans to open a limited number of new stores in 2018.

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.

GNC Holdings, Inc. Price and Consensus

 

GNC Holdings, Inc. Price and Consensus | GNC Holdings, Inc. Quote

VGM Scores

At this time, GNC has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

GNC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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