GNC Holdings, Inc. GNC reported second-quarter 2018 adjusted earnings per share (EPS) of 20 cents, reflecting a 52.4% year-over-year plunge. Adjusted EPS however, surpassed the Zacks Consensus Estimate by 42.9%. A significant year-over-year decline in revenues along with escalating costs impedes the bottom-line growth in the reported quarter.
Revenues
Revenues (which now exclude Lucky Vitamin in all periods) in the quarter under review declined 4.9% year over year to $617.9 million. The downside was primarily because of the sale of Lucky Vitamin in September 2017 (resulting in a $22.6-million reduction in revenues) and lower sales associated with certain store closures at the end of the respective lease term. This is integral to the company’s store portfolio optimization strategy. The quarter’s revenues also lagged the Zacks Consensus Estimate of $623 million.
GNC Holdings, Inc. Price, Consensus and EPS Surprise
GNC Holdings, Inc. Price, Consensus and EPS Surprise | GNC Holdings, Inc. Quote
Same-store sales slipped 0.4% in domestic company-owned stores (including GNC.com sales) in the quarter under review. In domestic franchise locations, same-store sales dipped 4%.
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 decreased 2% to $517.3 million. E-commerce sales accounted for 8.3% of U.S. and Canada revenues, a 2.8% increase year over year.
In domestic franchise locations, revenues fell $8.2 million due to a decrease in same-store sales and lower number of franchise stores.
Revenues at the International segment increased 11% to $48.6 million, driven by higher cross-border e-commerce sales in China along with increasedsales at the company’s international franchisees.
Revenues at the Manufacturing/Wholesale segment (excluding intersegment revenues) declined 7.2% to $52 million. Within this, third-party contract manufacturing sales were down by $3.6 million. However, Intersegment sales rose $9.2 million on the company's raised focus on proprietary products.
Margin
Gross profit declined 4.9% in the reported quarter to $617.9 million. Gross margin contracted 18 basis points (bps) to 33.6%.
Selling, general and administrative expenses slid 0.6% to $158.5 million. Accordingly, adjusted operating margin dropped 130 bps to 7.9%.
Financial Position
GNC Holdings exited second-quarter 2018 with cash and cash equivalents of $43.4 million, down from $53.9 million at the end of the first quarter. Long-term debt was $1.05 billion in the quarter under consideration compared with $1.06 billion at first quarter-end. In the first half of 2018, net cash flow from operating activities totaled $49.1 million compared with $72.8 million a year ago.
Further, the company generated free cash flow of $58.2 million compared with $54.1 million in the prior-year period.
Store Count Update
As of Jun 30, 2018, GNC Holdings had 8,800 locations, of which, approximately 6,600 retail locations are in the United States (including approximately 2,400 Rite Aid franchise store-within-a-store locations) and franchise operations across approximately 50 countries.
Our Take
GNC Holdings exited the second quarter of 2018 on a mixed note with earnings exceeding the Zacks Consensus Estimate and revenues lagging the mark. The year-over-year lower-than-expected adjusted earnings and revenues are dampening. While domestic retail comps were a bit softer than expected, GNC registered a strong performance in e-commerce business as well as at International segment.
In fact, GNC Holdings is pulling out all the stops to strengthen its international presence. In this regard, the company’s plan is well in place toexpand its footprint in China and India and also to enter the Australian market with strategies to leverage alternative channels of distribution.
Zacks Rank & Key Picks
GNC Holdings has a Zacks Rank #3 (Hold).A few better-ranked stocks in the broader medical space are Insulet Corporation PODD, Amedisys, Inc. AMED and Integer Holdings Corporation ITGR.
Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarterly loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Amedisys is expected to release second-quarter 2018 results on Jul 31. The Zacks Consensus Estimate for adjusted EPS is pegged at 78 cents and for the top line at $403.6 million. The stock carries a Zacks Rank of 1.
Integer Holdings is slated to release second-quarter 2018 results on Aug 2. The consensus estimate for the bottom line per share stands at 90 cents and for revenues at $381.8 million. The company is a Zacks #1 Ranked player.
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