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4Q15: How Did GNC Holdings’ Segments Perform?

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Total sales

GNC Holdings (GNC) reported revenue of $618.2 million, a rise of 1.8% over the corresponding period last year. Its retail segment reported revenue of $451.9 million, a rise of 1.8% over the prior year due to an increase in same-store sales and the opening of 97 new company-owned stores since the end of fiscal 4Q14. Operating income fell to $63.6 million from $69.1 million, which includes the loss on sales of $2.7 million. Operating income also fell due to higher advertising spending, which was partially offset by improvements in the domestic retail product margin rate.

The franchise segment reported revenue of $104.0 million, a fall of 1.0% from the prior year due to lower royalties. Operating income rose to $42.2 million from $37.7 million, which includes $5.1 million in gains from the conversion of 21 company-owned stores to franchise locations.

The manufacturing/wholesale segment reported revenue of $62.3 million, a rise of 7.2% from the prior year. Operating income rose from $20.6 million to $23.6 million.

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Performance of GNC Holdings’ competitors

Walgreens Boots Alliance (WBA) reported fiscal 1Q16 net sales of $29.0 billion, a rise of 48.5% over the net sales of $19.6 billion in fiscal 1Q15. Its net income and EPS (earnings per share) rose to $1.1 billion and $1.01, respectively, in fiscal 1Q16, compared with $850.0 million and $0.89, respectively, in fiscal 1Q15.

WBA has declared a quarterly dividend of $0.36 per share on its common stock. The dividend will be paid on March 11, 2016, to shareholders on record at the close of business on February 18, 2016.

Rite Aid (RAD) reported fiscal 3Q16 revenues of $8.2 billion, a rise of 21.8% over the revenues of $6.7 billion in fiscal 3Q15. Its net income and EPS fell to $59.5 million and $0.06, respectively, in fiscal 3Q16, from $106.2 million and $0.10, respectively, in fiscal 3Q15.

GNC’s key activities in 4Q15

  • GNC Holdings filed a motion to move the lawsuit filed against it by Oregon’s attorney general to federal court. It stated that “GNC believes that the lawsuit filed by the Oregon Attorney General is without merit, and the company intends to defend itself vigorously against this unfair action. In response to FDA statements regarding the regulatory status of BMPEA and picamilon, GNC promptly took action to remove from sale all products containing those ingredients.”
  • It has suspended the sales of all products manufactured by USPlabs due to recent enforcement actions taken against USPlabs and its principals by the US Department of Justice and other federal agencies.

GNC’s key activities in 2016

  • GNC Holdings has engaged ICR to enhance its strategic financial communications program.
  • The company has declared a quarterly cash dividend of $0.20 per share on its common stock, a rise of 11.1% over its dividend in the prior quarter. The dividend will be paid on or around March 25, 2016, to shareholders on record at the close of business on March 11, 2016.
  • In February 2016, it entered into a settlement agreement involving two California wage and break class action lawsuits against the company, including the Brewer case and another case raising similar claims. Under the terms of the settlement agreement, it agreed to pay up to $9.5 million, including plaintiffs’ attorney fees and costs, to resolve these claims. This resulted in a pre-tax settlement charge of $6.3 million, or a reduction of $0.07 per share in fiscal 4Q15.

The iShares Morningstar Small Value ETF (JKL) invests 0.55% of its holdings in GNC. The Vanguard Small-Cap Growth ETF (VBK) invests 0.31% of its holdings in GNC.

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