Eminence Capital starts position in GNC
Eminence Capital initiated a position in GNC Holdings (GNC) during 3Q14. The position accounts for 2.40% of the fund’s 3Q14 portfolio.
About GNC Holdings
GNC is headquartered in Pittsburgh, Pennsylvania. It’s a leading global specialty retailer of health and wellness products—including vitamins, minerals, herbal supplement products, sports nutrition products, and diet products.
The company operates a diversified, multi-channel business model. It gets revenue from product sales through:
- company-owned retail stores
- domestic and international franchise activities
- third-party contract manufacturing
- corporate partnerships
As of September 30, 2014, GNC had more than 8,800 locations. Over 6,500 of the locations are retail locations in the US.
Third quarter revenue missed estimates
For 3Q14, GNC reported consolidated revenue of $656.3 million. This was a decrease of 2.7%—compared to consolidated revenue of $674.5 million for 3Q13. Revenue fell in each of the company’s segments. Retail fell by 1.4%. Franchise fell by 3.1%. Manufacturing and Wholesale fell by 11.4%.
In 3Q14, same-store sales—as measured on a product-only basis—decreased 6.9% in domestic company-owned stores, including GNC.com sales. In contrast, these sales increased by 8.2% in 3Q13. Including the sales of Gold Card—that GNC offered to customers free of charge during the member pricing launch in May and June 2013—same-store sales decreased 5.8% in domestic company-owned stores in 3Q14. This included GNC.com sales. In domestic franchise locations, same-store sales decreased 4.5% in 3Q14.
Business segment revenues declined
For 3Q14, Retail segment revenue declined 1.4% to $480.7 million. It declined due to negative same-store sales. In comparison, Retail segment revenue was $487.3 million for 3Q13. The decline was partially offset by the addition of 151 net new company-owned GNC stores since the end of 3Q13. It also acquired Discount Supplements in October 2013. It acquired nine The Health Store locations in Ireland. It acquired the locations in April 2014.
Operating income decreased by 3.5%. It was 18.6% of segment revenue for 3Q14—compared to 19% for 3Q13. Operating income was impacted negatively. It was mainly impacted by higher media advertising spend and expenses associated with negative same-store sales.
Franchise segment revenue declined 3.1% to $114.1 million—compared to $117.8 million for 3Q13. This was due to fewer wholesale product sales from international franchise operations. Operating income decreased 3.1%. It was 35.3% of segment revenue for 3Q14. This was equal to 3Q13.
Manufacturing and Wholesale segment revenue, excluding inter-segment revenue, declined 11.4% to $61.5 million. It declined due to lower third-party contract manufacturing revenue. The segment’s revenue was $69.5 million for 3Q13. Operating income decreased 19.4%. It was 37.2% of segment revenue for 3Q14—compared to 40.9% for 3Q13. The decrease in the operating income percentage was mainly driven by lower proprietary product sales.
On November 24, GNC launched its GNC PUREDGE line of health, wellness, and performance supplements. The supplements are based on whole foods. None of the supplements contain artificial additives, colors, or sweeteners. They don’t have any GMOs (genetically modified organisms), added ingredients, or gluten-added ingredients.
Eminence Capital’s other 3Q14 positions
During 3Q14, Eminence Capital also initiated new positions in Apple (AAPL), McDonald’s (MCD), Cognizant Technology Solutions (CTSH), and Zimmer Holdings Inc. (ZMH). It raised positions in TIBCO Software Inc. (TIBX) and CBS Outdoor Americas Inc. (CBSO). It sold its position in Ralph Lauren (RL). It decreased positions in National Oilwell Varco (NOV), Dollar General (DG), Cadence Design Systems, Inc. (CDNS), Kar Auction Services, Inc. (KAR), and VCA Antech, Inc. (WOOF).
The next part of this series will explore Eminence Capital’s position change in AAPL.