On Dec 11, 2015, we issued an updated research report on Pennsylvania-based GNC Holdings Inc. GNC – a leading global specialty retailer of health and wellness products, including vitamins, minerals, herbal supplements, sports nutrition and diet elements.
GNC Holdings delivered disappointing third-quarter 2015 results, which squarely missed the Zacks Consensus Estimate. The company’s poor same-store sales were primarily responsible for the debacle.
Moreover, GNC Holdings’ business is particularly subject to changing consumer trends and preferences. So the company’s continued success depends partly on its ability to anticipate and respond adequately to these changes. If the company fails to respond in a timely or commercially appropriate manner to such changes, it may adversely affect its customer relationships and product sales.
In addition, in the U.S., GNC Holdings competes for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. Management fears, in the face of stiff competition, the company may fail to function effectively and its attempts to do so may require it to reduce its prices, which in turn may result in lower margins. Failure to effectively compete may also adversely affect GNC Holdings’ market share, revenues and growth prospects.
Further, the Federal Trade Commission’s (FTC) numerous enforcement actions against dietary supplement companies like GNC Holdings warrants caution. As a result of these, the company is currently subject to a consent decree that limits its ability to make certain claims with respect to its products. This, together with two other consent decrees that are no longer in force, required GNC Holdings to pay civil penalties and other amounts worth $3.0 million in the past. Such unfavorable instances and applicable regulations, if they happen to occur in the future, may result in substantial monetary penalties.
On a brighter note, the company continues to witness meaningful expansion in the international market. During the reported quarter, the company’s international revenues increased 12.2%. Moreover, the company’s largest segment – Retail – exhibited consistent growth, with its balance sheet demonstrating strong parameters.
Currently, GNC Holdings carries a Zacks Rank #4 (Sell).
Key Picks in the Sector
Some better-ranked medical stocks are Natus Medical Inc. BABY, Masimo Corporation MASI and Steris Plc STE. All the three stocks hold a Zacks Rank #1 (Strong Buy).
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