On Mar 8, 2019, we issued an updated research report on GNC Holdings, Inc. (GNC - Free Report) . We are upbeat about this Zacks Rank #3 (Hold) company’s significant progress with e-commerce business over the last few quarters. However, cut-throat competition is a persistent concern.
This leading global specialty retailer of products for health and wellness including vitamins, minerals and herbal supplement plus sports nutrition and diet has underperformed its industry in the past year. The stock has declined 42.9%, wider than the 19.9% fall of the industry.
GNC Holdings exited 2018 on a dismal note with both fourth-quarter earnings and revenues lagging the Zacks Consensus Estimate. In the reported quarter, revenues dipped 2.6% year over year. This decrease was primarily attributable to lower sales associated with the store closures at the end of the respective lease term, which is a component of the company's store portfolio optimization strategy.
Within same store, the company performed poorly at domestic franchise locations. Revenues from U.S. & Canada segment dipped 3.7% due to the impact of company-owned net store closures, further inducing a $10-million decrease in revenues and negative same store sales of 0.6%, which in turn, caused a revenue decline of $1.9 million.
Additionally, domestic franchise revenues fell $5 million on account of soft retail same store sales and lower number of franchise stores. Domestic retail comps were also weak in the quarter under review. Moreover, revenues from manufacturing segment reported a sharp year-over-year decline. The contraction in gross and operating margins was disappointing too.
On a positive note, GNC Holdings registered a strong performance in both e-commerce and International segments. Capitalizing on this uptick, the company’s plan is well in place to grow its presence in China, Mexico and South Korea with strategies that will leverage alternative channels of distribution.
GNC Holdings is progressing commendably pertaining to the execution of its joint venture with Harbin Pharmaceutical (Hayao). Gaining traction from the latter’s expertise in operational and manufacturing areas as well as broad pharmaceutical distribution network in China, GNC Holdings plans to fortify its foothold in the country’s huge supplements market.
Following the recent closure of the transaction, Hayao now holds 40% of GNC Holdings on a converted basis. The company is currently launching two joint ventures with Hayao that will lend access to an extensive distribution network and a sturdy manufacturing expertise in China. The investment is anticipated to strengthen GNC Holdings’ capital position.
Zacks Rank & Key Picks
GNC Holdings has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are ABIOMED, Inc., (ABMD - Free Report) , Varian Medical Systems, Inc. (VAR - Free Report) and Masimo, Inc. (MASI - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABIOMED’s long-term earnings growth rate is expected at 27.67%.
Varian’s long-term earnings growth rate is estimated at 8.00%.
Masimo’s long-term earnings are projected to grow 15.60%.
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