GNC Holdings (GNC - Free Report) has been gaining from its recently-formed partnerships, which have been expanding its customer base. However, a tough competitive landscape and company-owned net store closures could offset the positives to some extent.
Shares of this company have gained 4.1% in a year against the industry’s 10.4% decline. Meanwhile, the S&P 500 has rallied 17.1% in the same time frame.
This $265.5-million global specialty retailer of health and wellness products is expected to see earnings growth of 19% in the next five years. Also, the company has delivered a positive earnings surprise of 42.9%, on average, in the trailing four quarters.
Let’s delve deeper into the factors that substantiate why it's perfectly alright to hang onto this Zacks Rank #3 (Hold) stock.
New Partnerships: GNC Holdings’ recent joint venture with a vitamins and nutritional supplement manufacturer, International Vitamin Corporation, looks promising at the moment. Apart from this, the company has been progressing well with its joint venture with Harbin Pharmaceutical Group. During the third quarter, GNC Holdings inked a partnership with BFG Brasil Comercial de Vitaminas LTDA to expand its customer base in Latin America. The company has also collaborated with Proship Inc. to offer ship-from-store service at more than 400 locations. These collaborations should be driving growth for the company through the rest of 2019.
Expansion in Overseas Markets: GNC Holdings’ expanding international business has been a key growth driver in recent times. The company is currently gaining traction in international markets such as India, the Philippines and Guatemala. Recently the company converted an existing location in Shanghai, China, to its first global showroom store. The company expects revenues from its Chinese business to grow to $200 million over the next three years.
Growing E-Commerce Business: Of late, GNC Holdings has progressed significantly with its e-commerce business. The team continues working closely with the company’s counterparts at Amazon to identify and implement sales-boosting initiatives. We are also encouraged about its recent contract with Walmart to use the Amazon online marketplace.
Competitive Headwinds: GNC Holdings’ international competitors include large international pharmacy chains, major international supermarket chains and other large U.S.-based companies with international operations. Further, the company’s wholesale and manufacturing operations compete with other wholesalers and manufacturers of third-party nutritional supplements. Management fears that stiff competition might lead to price reduction, which in turn may result in lower margins.
Impact of Net Store Closure: The company-owned net store closures negatively impacted revenues by $14.8 million during the third quarter. 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.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $2.07 billion, indicating a decline of 11.9% from the year-ago period. For adjusted earnings per share (EPS), the same is pinned at 28 cents, suggesting a 17.7% decline from the year-ago quarter’s reported figure.
For the fourth quarter, the Zacks Consensus Estimate for revenues is pinned at $465.4 million, calling for a year-over-year decline of 15.1%. The same for adjusted loss stands at 2 cents.
Stocks Worth a Look
Some better-ranked stocks from the broader medical space are Haemonetics Corporation (HAE - Free Report) , NuVasive, Inc (NUVA - Free Report) and ResMed (RMD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Haemonetics has a projected long-term earnings growth rate of 13.5%.
NuVasive has an expected long-term earnings growth rate of 10.9%.
ResMed has a long-term earnings growth rate of 12.9%.
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