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Why Is GNC (GNC) Down 9% Since Last Earnings Report?

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A month has gone by since the last earnings report for GNC (GNC - Free Report) . Shares have lost about 9% 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 the most recent earnings report in order to get a better handle on the important catalysts.

GNC Holdings Sees Y/Y Decline in Q4 Revenues on Soft U.S. Retail

GNC Holdings reported fourth-quarter 2018 adjusted loss per share of 13 cents against the year-ago quarter’s adjusted earnings of 26 cents.  The Zacks Consensus Estimate was pegged at 2 cents. Reported earnings per share for the quarter came in at 62 cents against loss of $3.03 cents a year ago.

For full-year 2018, the company reported adjusted earnings of 34 cents, reflecting a decline of 75.3% from 2017. This figure missed the Zacks Consensus Estimate by 27.7%.

Revenues

Revenues for the fourth quarter came in at $547.9 million, down 2.6% year over year. This figure missed the Zacks Consensus Estimate by 1.1%.

For the full year, the company reported revenues of $2.35 billon, marking a decline of 8% from 2017. The top line, however, matched the consensus estimate.

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 3.7% year over year to $444.9 million. Notably, e-commerce sales accounted for 9.3% of U.S. and Canada revenues, increasing from 8.4% in the prior-year quarter.

Company-owned net store closures negatively impacted revenues by $10 million. This apart, there was a 0.6% decline in same store sales, which contributed to a fall of $1.9 million in revenues within this segment. Moreover, domestic franchise revenues fell $5 million from the year-ago period owing to reduction in same store sales as well as the number of franchise stores.

Revenues in the International segment rose 12.1% to $51.3 million for the quarter under review.  Higher cross border e-commerce sales contributed to a surge in revenues from China. Despite a 3% reduction in retail same store sales (in local currency), revenues from international franchisees saw growth of $2.3 million.

Revenues in the Manufacturing / Wholesale segment registered a decline of 6.1% year over year to $51.6 million, excluding intersegment sales. This was mainly on account of a $2.5 million adjustment related to previously reported revenues for specialty manufacturing. Banking on the company’s increased focus on proprietary products, intersegment revenues surged $14.4 million in the fourth quarter of 2018.

Margins

Gross profit declined 6% year over year to $172.4 million. Accordingly, gross margin contracted 112 basis points (bps) to 31.5% in the fourth quarter.

Selling, general and administrative expenses climbed 6.4% to $151.7 million. Accordingly, adjusted operating profit fell 49.2% to $20.7 million and adjusted operating margin contracted 347 bps to 3.8%.

Financial Position

GNC Holdings exited 2018 with cash and cash equivalents of $67.2 million, up from $64 million at the end of the 2017. Long-term debt was $993.6 million in the quarter under consideration, down from $1.29 billion at the end of the previous year. At the end of 2018, net cash flow from operating activities totaled $95.8 million compared with $149.6 million a year ago.

Further, the company generated free cash flow of $95.7 million in the year compared with $196.7 million in 2017.

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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