On Sep 1, we issued an updated research report on GNC Holdings, Inc. GNC, a leading global specialty retailer of products for health and wellness, including vitamins, minerals, herbal supplement, sports nutrition and diet. The company currently carries a Zacks Rank #3 (Hold).
Over the past year, GNC Holdings has been underperforming the broader industry. The company has lost 60%, as compared with the 13.1% decline of the broader industry over this period. Weak margins and significant decline in revenues on a year-over-year basis raise concern. Tough competition, changing consumer preferences along with Federal Trade Commission (FTC) regulations continue to pose challenges.
Moreover, this Pittsburgh, PA-based company exited the second quarter of 2017 on a disappointing note with revenues missing the Zacks Consensus Estimate. Although earnings exceeded the consensus estimate, the year-over-year decline on both the fronts was dampening. The decline can be attributed to lower sales in the company’s U.S. & Canada and manufacturing/wholesale segments.
On a positive note, during the second quarter, management witnessed positive response for its New GNC Plan under which the company had started incorporating transformational changes in its operations. Also, management is currently working on product pricing and innovation. Moreover, new consumer enrollment under the myGNC Rewards Program and launch of GNC storefront on Amazon buoy optimism.
GNC Holdings is developing products and formulas to address unmet customer needs and is also expanding customer brands like Beyond Raw, Mega Men, Women’s Ultra Mega and GNC Probiotics.
Also, the company’s prospects in the international business and strong cash position are encouraging. Management expects to continue capitalizing on international revenue opportunities through the addition of franchise stores in existing markets, expansion into new high-growth markets and growth of product distribution in both existing and new markets.
During the second quarter of 2017, the company’s international business drove a 1.3% increase in revenues and 14.3% rise in operating income. Apart from the strong e-commerce business in China, the company witnessed improvement in trends in Mexico, South Korea and Hong Kong.
Meanwhile, the nutritional supplements industry is characterized by rapid and frequent changes in demand for products and new product introductions. This apart, GNC Holdings’ international competitors include large pharmacy chains, major supermarket chains and other big U.S.-based companies with global operations.
Management fears that in the face of stiff competition, the company may fail to function effectively and its attempts to do so may require price reduction, which in turn may hurt margins.
Key Picks
A few better-ranked medical stocks are Edwards Lifesciences Corporation EW, Lantheus Holdings, Inc. LNTH and IDEXX Laboratories, Inc. IDXX. Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 26% over the last six months.
Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has gained 25.8% over the last six months.
IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 35.8% over the last year.
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