General Nutrition Centers, Inc. Reports Fourth Quarter and Full Year 2008 Results
Pittsburgh, // PRNewswire // -- General Nutrition Centers, Inc. ("GNC" or the "Company"), the largest global specialty retailer of nutritional supplements, today reported its financial results for the quarter and year ended December 31, 2008.
General Nutrition Centers, Inc. is an indirect wholly owned subsidiary of GNC Parent LLC, which was acquired by affiliates of Ares Management LLC ("Ares") and Ontario Teachers' Pension Plan Board ("Teachers") through a merger (the "Merger") on March 16, 2007. As a result, the financial results presented in this press release represent the aggregate of the financial results of the Company from January 1, 2007, through March 15, 2007, predecessor, and the results from March 16, 2007 to December 31, 2007, and for the year ended December 31, 2008, successor.
For the fourth quarter of 2008, the Company reported consolidated revenues of $391.7 million, an increase of 4.2% over the consolidated revenues of $376.1 million for the same quarter of 2007. Revenue increased in each of the Company's business segments: retail by 2.2%; franchise by 6.8% and manufacturing/wholesale by 13.8%. Same store sales improved 2.5% in domestic company-owned stores (including internet sales) and 3.2% in Canadian company-owned stores (in local currency).
For the fourth quarter of 2008, the Company reported earnings before income taxes, depreciation and amortization (EBITDA) of $45.8 million compared to $45.6 million for the same quarter of 2007, an increase of $0.2 million. Included as part of compensation expense for the fourth quarters of 2008 and 2007 was $0.4 million and $0.5 million, respectively, of non-cash stock-based compensation expense. Excluding this non-cash expense, adjusted EBITDA increased $0.1 million or 0.4% over the adjusted EBITDA of $46.1 million in the same quarter of 2007.
Revenue for the year ended December 31, 2008, was $1.657 billion, an increase of 6.7% over the consolidated revenues of $1.553 billion for the same period of 2007. Same store sales improved 2.7% in domestic company-owned stores (including internet sales) and 4.1% in Canadian company-owned stores (in local currency).
EBITDA was $212.2 million for 2008, compared to $125.5 million in 2007. Included in 2007, as a result of the acquisition, was $65.3 million of transaction related costs, including $34.6 million of transaction fees and expenses; $15.3 million of compensation expense (including $3.8 million of non-cash, stock-based compensation resulting from the cancellation of all outstanding stock options), and $15.4 million of non-cash purchase accounting adjustments included in cost of sales. Also included as part of compensation expense for 2008 and 2007 was $2.6 million and $2.2 million respectively, of non-cash stock-based compensation expense. Excluding non-cash compensation expense and merger-related transaction costs, adjusted EBITDA increased $21.8 million or 11.3% to $214.8 million in 2008, compared to $193.0 million in 2007.
EBITDA and adjusted EBITDA are non-GAAP financial measures within the meaning of the Securities and Exchange Commission's Regulation G. Management has included this information because it believes it represents a more effective means by which to measure the Company's operating performance. This press release contains a reconciliation of the non-GAAP measure to the financial measure calculated and presented in accordance with GAAP which is most directly comparable to the applicable non-GAAP financial measure.
GNC, headquartered in Pittsburgh, Pa., is the largest global specialty retailer of nutritional products; including vitamin, mineral, herbal and other specialty supplements and sports nutrition, diet and energy products. As of December 31, 2008, GNC has more than 5,200 retail locations throughout the United States (including 954 franchise and 1,712 Rite Aid store-within-a-store locations) and franchise operations in 44 international markets. The company - which is dedicated to helping consumers Live Well - also offers products and product information online at www.gnc.com.
GNC has scheduled a conference call and webcast to report its fourth quarter and full year 2008 financial results on Thursday, March 19, 2009 at 11:00 am EDT. To listen to this call dial 1-866-468-1032 inside the U.S. and dial 1-832-445-1665 outside the U.S. The conference identification number for all callers is 88543953. A webcast of the call will also be available through the "About GNC" link on www.gnc.com.
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain, and the Company may not realize its expectations and its beliefs may not prove correct. GNC undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. Factors that may materially affect such forward-looking statements include, among others:
- general economic conditions, including weakening of the economy and consumer purchases;
- significant competition in our industry;
- unfavorable publicity or consumer perception of our products;
- the incurrence of material products liability and product recall costs;
- costs of compliance and our failure to comply with governmental regulations;
- the failure of our franchisees to conduct their operations profitably and limitations on our ability to terminate or replace under-performing franchisees;
- economic, political and other risks associated with our international operations;
- our failure to keep pace with the demands of our customers for new products and services;
- the lack of long-term experience with human consumption of some of our products with innovative ingredients;
- disruptions in our manufacturing system or losses of manufacturing certifications;
- increases in the frequency and severity of insurance claims, particularly for claims for which we are self-insured;
- loss or retirement of key members of management;
- increases in the cost of borrowings and unavailability of additional debt or equity capital;
- the impact of our substantial indebtedness on our operating income and our ability to grow;
- the failure to adequately protect or enforce our intellectual property rights against competitors;
- changes in applicable laws relating to our franchise operations; and
- our inability to expand our franchise operations to attract new franchisees.
Results of Operations
(Dollars in millions and percentages expressed as a percentage of
total net revenues)
Successor
---------
Three Months Ended December 31,
2008 2007
---- ----
(unaudited)
Revenues:
Retail $284.7 72.7% $278.6 74.1%
Franchise 60.5 15.4% 56.6 15.0%
Manufacturing / Wholesale 46.5 11.9% 40.9 10.9%
---- ---- ---- ----
Total net revenues 391.7 100.0% 376.1 100.0%
Operating expenses:
Cost of sales, including
warehousing, distribution and
occupancy costs 259.5 66.2% 246.4 65.5%
Compensation and related
benefits 62.0 15.8% 63.5 16.9%
Advertising and promotion 9.7 2.5% 7.2 1.9%
Other selling, general and
administrative expenses 22.6 5.8% 20.4 5.4%
Amortization expense 2.6 0.7% 3.1 0.8%
Foreign currency loss (gain) 0.6 0.1% (0.1) 0.0%
--- --- --- ---
Total operating expenses 357.0 91.1% 340.5 90.5%
Operating income:
Retail 29.2 7.5% 35.5 9.4%
Franchise 19.7 5.0% 16.3 4.3%
Manufacturing / Wholesale 15.4 3.9% 15.2 4.0%
Unallocated corporate and other
costs:
Warehousing and distribution
costs (13.1) -3.3% (13.3) -3.4%
Corporate costs (16.5) -4.2% (18.1) -4.8%
--- --- --- ---
Subtotal unallocated corporate and
other costs, net (29.6) -7.5% (31.4) -8.2%
----- ---- ----- ----
Total operating income 34.7 8.9% 35.6 9.5%
Interest expense, net 20.8 23.9
---- ----
Income (loss) before income taxes 13.9 11.7
Income tax expense 5.8 4.4
--- ---
Net income (loss) $8.1 $7.3
==== ====
Successor Combined
--------- --------
Year Ended December 31,
2008 2007
---- ----
(unaudited)
Revenues:
Retail $1,219.3 73.6% $1,168.6 75.3%
Franchise 258.0 15.6% 241.1 15.5%
Manufacturing / Wholesale 179.4 10.8% 143.1 9.2%
----- ---- ----- ---
Total net revenues 1,656.7 100.0% 1,552.8 100.0%
Operating expenses:
Cost of sales, including
warehousing, distribution and
occupancy costs 1,082.6 65.3% 1,026.4 66.1%
Compensation and related
benefits 249.8 15.1% 260.1 16.7%
Advertising and promotion 55.1 3.3% 55.5 3.6%
Other selling, general and
administrative expenses 87.8 5.3% 78.6 5.1%
Amortization expense 10.9 0.7% 10.0 0.6%
Foreign currency loss (gain) 0.7 0.0% (0.5) 0.0%
Transaction related costs - - 34.6 2.2%
--- --- ---- ---
Total operating expenses 1,486.9 89.7% 1,464.7 94.3%
Operating income:
Retail 140.9 8.5% 134.7 8.7%
Franchise 80.8 4.9% 69.5 4.5%
Manufacturing / Wholesale 67.4 4.1% 49.2 3.1%
Unallocated corporate and other
costs:
Warehousing and distribution
costs (54.2) -3.3% (51.4) -3.3%
Corporate costs (65.1) -3.9% (79.3) -5.1%
Merger related costs - - (34.6) -2.2%
--- --- --- ---
Subtotal unallocated corporate and
other costs, net (119.3) -7.2% (165.3) -10.6%
------ ---- ------ -----
Total operating income 169.8 10.3% 88.1 5.7%
Interest expense, net 83.0 118.5
---- -----
Income (loss) before income taxes 86.8 (30.4)
Income tax expense 32.0 1.9
---- ---
Net income (loss) $54.8 $(32.3)
===== ======
Note: The numbers in the above table have been rounded to millions. All calculations related to the Results of Operations for the year-over-year comparisons below were derived from unrounded data and could occasionally differ immaterially if you were to use the table above for these calculations.
We define EBITDA as net income (loss) before interest expense (net), income tax expense, depreciation, and amortization. Management uses EBITDA as a tool to measure operating performance of the business. We use EBITDA as one criterion for evaluating our performance relative to our competitors and also as a measurement for the calculation of management incentive compensation. Although we primarily view EBITDA as an operating performance measure, we also consider it to be a useful analytical tool for measuring our liquidity, our leverage capacity, and our ability to service our debt and generate cash for other purposes.
We also use EBITDA as defined in our 2007 Senior Credit Facility, and the indentures governing our Senior Toggle Notes and 10.75% Senior Subordinated Notes to determine compliance with the terms of the facility and the Notes. The reconciliation of EBITDA as presented below is different than that used for purposes of the covenants under the indentures governing the Senior Notes and 10.75% Senior Subordinated Notes and it is also different than that used in our 2007 Senior Credit Facility. Historically, we have highlighted our use of EBITDA as a liquidity measure and for related purposes because of our focus on the holders of our debt. At the same time, however, management has also internally used EBITDA as a performance measure. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income, or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, as a measure of our profitability or liquidity.
Adjusted EBITDA is presented as additional information, as management also uses Adjusted EBITDA to evaluate the operating performance of the business and as a measurement for the calculation of management incentive compensation. Adjusted EBITDA is defined as EBITDA further adjusted for certain Merger-related expenses and non-cash stock compensation. Management believes that EBITDA and Adjusted EBITDA are commonly used by securities analysts, lenders, and others; however, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies, limiting their usefulness as comparative measures.
Some of the limitations of EBITDA and Adjusted EBITDA are as follows:
- EBITDA and Adjusted EBITDA do not reflect cash expenditures, future requirements for capital expenditures, or contractual commitments;
- EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for working capital needs;
- EBITDA and Adjusted EBITDA does not reflect interest expense or the cash requirement necessary to service interest or principal payments on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
- EBITDA and Adjusted EBITDA reflect the impact of earnings on income resulting from matters we consider not to be indicative of our ongoing operations, certain of which income we eliminated in our computation of EBITDA and Adjusted EBITDA.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only for supplemental purposes.
For the three months ended December 31, 2008 and December 31, 2007, the year ended December 31, 2008 and the combined predecessor and successor periods ended December 31, 2007, the following table presents EBITDA reconciled to our cash from operations for such periods and Adjusted EBITDA reconciled to EBITDA for such periods.
CASH FROM OPERATIONS RECONCILIATION TO EBITDA AND ADJUSTED EBITDA
(in millions)
(unaudited)
Successor Successor Combined
--------- --------- --------
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------ ------------
2008 2007 2008 2007
---- ---- ---- ----
Net cash provided by operating
activities $13.6 $41.0 $77.4 $41.1
Cash paid for interest (excluding
deferred financing fees) 10.7 20.6 80.1 95.5
Cash paid (received) for taxes 8.6 (14.8) 18.1 (18.5)
Increase (decrease) in accounts
receivable 2.4 (2.7) 5.1 9.5
Increase (decrease) in inventory 0.4 8.8 33.8 (4.1)
Decrease (increase) in accounts
payable (1.9) 2.8 (22.1) 1.4
Increase (decrease) in other assets 8.2 7.6 6.3 4.9
Decrease (increase) in other
liabilities 3.8 (17.7) 13.5 (4.3)
--- ----- ---- ----
EBITDA $45.8 $45.6 $212.2 $125.5
===== ===== ====== ======
Transaction costs - - - 34.6
Compensation expense related to
transaction - - - 15.3
Non-cash stock based compensation
expense 0.4 0.5 2.6 2.2
Purchase accounting adjustments - - - 15.4
--- --- --- ----
Adjusted EBITDA $46.2 $46.1 $214.8 $193.0
===== ===== ====== ======
For the three months ended December 31, 2008 and December 31, 2007, the year ended December 31, 2008 and the combined predecessor and successor periods ended December. 31, 2007, the following table presents EBITDA reconciled to our net income for such periods and Adjusted EBITDA reconciled to EBITDA for such periods.
NET INCOME (LOSS) RECONCILIATION TO EBITDA AND ADJUSTED EBITDA
(in millions)
(unaudited)
Successor Successor Combined
--------- --------- --------
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------ ------------
2008 2007 2008 2007
---- ---- ---- ----
Net income (loss) $8.1 $7.3 $54.8 $(32.3)
Interest expense, net 20.8 23.9 83.0 118.5
Income tax expense 5.8 4.4 32.0 1.9
Depreciation and amortization 11.1 10.0 42.4 37.4
---- ---- ---- ----
EBITDA $45.8 $45.6 $212.2 $125.5
===== ===== ====== ======
Transaction costs - - - 34.6
Compensation expense related to
transaction - - - 15.3
Non-cash stock based compensation
expense 0.4 0.5 2.6 2.2
Purchase accounting adjustments - - - 15.4
--- --- --- ----
Adjusted EBITDA $46.2 $46.1 $214.8 $193.0
===== ===== ====== ======
SOURCE: General Nutrition Centers, Inc.
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