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GNC Holdings (GNC) Q3 Loss Meets Estimates, Revenues Miss

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GNC Holdings, Inc. (GNC - Free Report) reported third-quarter 2019 adjusted loss per share of 2 cents, down from adjusted earnings per share of 2 cents from the year-ago quarter. The bottom line was in line with the Zacks Consensus Estimate.

Reported loss per share for the quarter was 9 cents, narrower than loss of 10 cents reported a year ago.

Revenues

Revenues for the third quarter were $499.1 million, down 13.9% year over year. The top line missed the Zacks Consensus Estimate by 1.8%.

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

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).

In the reported quarter, GNC Holdings’ revenues from the U.S. & Canada segment fell 6.7% year over year to $444.7 million. Notably, e-commerce sales accounted for 8.6% of U.S. and Canada revenues, declining from 7.2% in the prior-year quarter.

Company-owned net store closures negatively impacted revenues by $14.8 million. Further, a decline of 2.8% in same-store sales led to a fall of $9.7 million in the segment’s revenues. Moreover, in domestic franchise locations, same-store sales declined 0.8% from the year-ago period.

Revenues in the International segment dipped 28.1% to $36.9 million for the quarter under review. The downside can be primarily attributed to lower sales in Hong Kong, and other temporary challenges faced in Saudi Arabia and South Korea. Also, revenues from China fell $5.1 million in the third quarter due to the transfer of the China business to the newly formed joint venture (with Harbin Pharmaceutical Group Co., Ltd. or Hayao), effective February 13, 2019.

The Manufacturing / Wholesale segment’s revenues registered 66.7% year-over-year plunge to $17.4 million, excluding intersegment sales. This mainly resulted from the transfer of the Nutra manufacturing business to the newly formed manufacturing joint venture with International Vitamin Corporation, effective Mar 1, 2019.

Margins

Gross profit declined 11.9% year over year to $162.6 million. However, gross margin expanded 75 bps to 32.6% in the third quarter.

Selling, general and administrative expenses declined 9.4% to $135.8 million. Despite that, adjusted operating profit fell 22.9% to $26.8 million. Adjusted operating margin contracted 62 bps to 5.4%.

Financial Position

GNC Holdings exited the third quarter with cash and cash equivalents of $121.9 million compared with $95.9 million at the end of the second quarter. Long-term debt was $705.7 million in the quarter under review, down from $854.7 million at the end of the previous quarter.

Year-to-date net cash flow from operating activities totaled $97.6 million compared with $55.7 million recorded in the year-ago period.

Further, the company generated year-to-date free cash flow of $86.7 million compared with $42.3 million in the prior-year quarter.

Our Take

GNC Holdings exited the third quarter of 2019 on a disappointing note, as revenues lagged the Zacks Consensus Estimate. The company once again registered adjusted loss per share, which was in line with the consensus mark.

All three operating segments reported year-over-year sales declines. Despite the negatives, we are optimistic about the company’s recent contract with Walmart to use the latter’s online marketplace. The newly formed partnership with BFG Brasil Comercial de Vitaminas LTDA to expand customer base in Latin America and GNC Holdings’ partnership with ProShip Inc (a Wisconsin-based shipping software company) to offer ship-from-store service at more than 400 locations also buoy optimism.

We are encouraged about the company’s gross margin expansion in the quarter despite the contraction of the operating margin.

Zacks Rank & Stocks to Consider

GNC Holdings currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are ResMed, Inc (RMD - Free Report) , Intuitive Surgical, Inc (ISRG - Free Report) and Thermo Fisher Scientific Inc (TMO - Free Report) . All three stocks currently carry a Zacks Rank #2 (Buy).

ResMed reported first-quarter fiscal 2020 adjusted EPS of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

Intuitive Surgical’s third-quarter 2019 adjusted EPS of $3.43 surpassed the Zacks Consensus Estimate by 15.9%. Its revenues totaled $1.13 billion, which surpassed the consensus estimate of $1.06 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion beat the Zacks Consensus Estimate by 1.3%.

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