GNC Shows Q3 Profit with New Model

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GNC Front Store

Pittsburgh, PA – Just six weeks into the job, GNC Holdings CEO Ken Martindale expressed optimism about a turnaround with unique products and services in the pipeline for 2018 and the ability to market them better during his first call with analysts reporting same store third-quarter sales up 1.3% in company-owned stores.

“It is clear that our strengthened model is creating a solid foundation for growth,” said the former CEO of RiteAid Stores. “Going forward, we will continue to focus on growing sales and on giving customers innovative, highly differentiated products and experiences.”

“This company has extraordinary potential,” he added. “One of the key components has been the revamping of our pricing strategy. Customers are responding. Today 75% fewer items are on sale, promotion or BOGO. The business is not so reliant on sales and discounts,” while traffic growth was up 12.4% for the quarter.

“Our vertically integrated model gives us a competitive advantage,” Martindale said. “This company’s R&D is a real edge… we can drive real profitability … giving consumers products and services they can’t get anywhere else… and anticipating customer needs. Research tells us consumers want connections with the brands that serve them.”

There’s a long way to go.

For the nine months ended Sept. 30, 2017, GNC reported net income of $61 million, less than half the net income of $147.2 million for the same period in 2016.

For third quarter 2017, GNC reported net income of $21.5 million compared with $32.4 million in the prior year quarter. Adjusted earnings per share (EPS) was 32 cents and 59 cents in the three months ended Sept. 30, 2017 and 2016, respectively.

The impact of Hurricanes Harvey, Irma and Maria are estimated to have resulted in a 2-cent reduction to adjusted EPS for the quarter. Most stores in Puerto Rico are expected to remain closed indefinitely.

Overall consolidated revenue of $609.5 million for the quarter is down from $628 million in the same period last year.  Same-store sales in franchised operations were down 1.7%.

A reduction in advertising spending and one-time effort to get enrollees to use the points on their loyalty cards by activating them all, were also factors.

The One GNC loyalty program that replaced the GNC gold card has enrolled 9 million members to date and another 580,000 have signed up for PRO Access membership. Martindale said personalized marketing using this database is in the works for 2018.

Ecommerce is ramping.

In addition, GNC’s ecommerce business is ramping up on both GNC.com and the new GNC Storefront in Amazon Marketplace. The company declined to say how important Amazon has been to growing the business except that it is “exceeding expectations.”

E-commerce sales were 10.2% of U.S. and Canada revenue for the quarter compared with 8.2% in the prior year third quarter. GNC.com sales were up 41.9% for the three months ended Sept. 30, 2017, reflecting changes to ecommerce pricing and promotion to eliminate channel conflict and bulk sales.

GNC launched on Amazon in January and recently took its GNC.com website in-house to give it more flexibility and control for new features and enhancements including advanced personalization capability, improved merchandising and opportunity for omnichannel expansion, which is creating the ability to better optimize the e-commerce business.

Martindale said store associates can also engage more effectively with customers because of tablets that let them enroll customers in the loyalty program, redeem points, and make customized product recommendations from the floor.

Supply chain optimization efforts drove about a $40 million reduction to inventory from June 30 to Sept. 30.

Revenues in the International segment increased $8 million, or 19.3%, to $49.1 million for the quarter. The company is looking to expand its China business, which grew by $4.8 million over the same period last year.

Published on WholeFoods Magazine Online, 10/26/17

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