GNC Holdings, Inc. Reports Second Quarter 2015 Results

2015 Second Quarter EPS of $0.79
Same Store Sales decrease 2.8% in the Second Quarter 2015

PITTSBURGH - July 30, 2015 // PRNewswire // - GNC Holdings, Inc. (NYSE: GNC) (the "Company"), a leading global specialty health, wellness and performance retailer, today reported its financial results for the quarter and year-to-date periods ended June 30, 2015.

Second Quarter Performance

For the second quarter of 2015, the Company reported consolidated revenue of $678.5 million, an increase of 0.5% as compared with consolidated revenue of $675.2 million for the second quarter of 2014. Revenue increased in the Company's franchise segment by 7.5%. Revenue decreased in the Company's retail and manufacturing/wholesale segments by 0.3% and 5.6%, respectively.

Same store sales decreased 2.8% in domestic company-owned stores (including GNC.com sales) in the second quarter of 2015. In domestic franchise locations, same store sales decreased 2.4% in the second quarter of 2015.

Operating Results

For the second quarter of 2015, the Company reported net income of $67.4 million, a decrease of 3.6% as compared with net income of $69.9 million for the second quarter of 2014. Diluted earnings per share were $0.79 for the second quarter of 2015, an increase of 2.6% as compared with diluted earnings per share of $0.77 for the second quarter of 2014.

Mike Archbold, Chief Executive Officer noted, "Our retail business delivered improving trends as the second quarter progressed, which are a result of the sales recapture initiatives identified and implemented earlier in the quarter. We expect the benefits of these initiatives to continue to contribute in the second half of 2015. We also delivered another quarter of improved retail product gross margin rate. Collectively, these results are a reflection of the disciplined, customer-centric approach we are applying to our brand evolution, and to executing our strategic plan."

Company-owned vs. Franchise Store Strategy

As a result of the Company's ongoing evaluation of strategies to maximize shareholder value - including a quantitative and qualitative assessment of the relative value created based on the ownership structure of domestic retail locations - the Company expects to increase the percentage of domestic franchise locations by executing the following strategies: (i) increasing the proportion of new stores that are franchise locations, and (ii) transition certain company-owned stores in select markets to franchise locations by executing a re-franchising strategy, allowing for refinements in our pace and approach.

Segment Operating Performance

For the second quarter of 2015, retail segment revenue decreased 0.3% to $503.8 million, as compared with $505.5 million for the second quarter of 2014. The decrease was due primarily to negative same store sales, and was partially offset by the addition of 117 net new company-owned stores since the end of the second quarter of 2014. Operating income increased by 1.9%, from $95.1 million to $96.9 million, and was 19.2% of segment revenue for the second quarter of 2015, as compared with 18.8% for second quarter of 2014. Improved product gross margin and lower advertising spend were partially offset by expense deleverage associated with negative same store sales.

For the second quarter of 2015, franchise segment revenue increased 7.5% to $118.4 million, as compared with $110.1 million for the second quarter of 2014, due primarily to increased third-party wholesale product sales to domestic franchise operations. Operating income increased 0.6%, from $40.4 million to $40.6 million, and was 34.3% of segment revenue for the second quarter of 2015, as compared with 36.7% in the second quarter of 2014. Second quarter 2015 operating income includes a $1.1 million gain from the conversion of five company-owned stores to franchise stores, as compared with the conversion of nine stores, resulting in a $3.3 million gain, in the second quarter of 2014. Excluding these conversions, operating income increased $2.4 million, and was 33.3% of segment revenue for the second quarter of 2015, as compared with 33.7% in the second quarter of 2014. The decrease in operating income percentage was driven primarily by third-party wholesale product sales representing a higher portion of total revenue.

For the second quarter of 2015, manufacturing/wholesale segment revenue, excluding intersegment revenue, declined 5.6% to $56.2 million, as compared with $59.6 million for the second quarter of 2014, due to lower third party contract manufacturing revenue. Operating income decreased 3.7%, from $22.9 million to $22.1 million, and was 39.3% of segment revenue for the second quarter of 2015, as compared with 38.5% for the second quarter of 2014. The increase in operating income percentage was driven primarily by higher gross margin.

Year-to-Date Performance

For the first six months of 2015, the Company reported consolidated revenue of $1,348.8 million, a decrease of 0.1% as compared with consolidated revenue of $1,349.7 million for the first six months of 2014. Revenue increased in the Company's franchise segment by 7.5%. Revenue decreased in the Company's retail and manufacturing/wholesale segments, by 0.7% and 8.0% respectively.

For the first six months of 2015, the Company reported net income of $130.6 million, a decrease of 6.6% as compared with net income of $139.8 million for the first six months of 2014. Diluted earnings per share were $1.50 for the first six months of 2015, a decrease of 1.3% as compared with diluted earnings per share of $1.52 for the first six months of 2014.

Operating Metrics

For the first six months of 2015, the Company opened 32 net new domestic company-owned stores, 35 net new Rite Aid franchise store-within-a-store locations, 11 net new company-owned stores in Canada, one new company-owned store in China, opened 20 and closed 23 domestic franchise locations, and opened 35 and closed 83 international franchise locations. The Company now has 9,004 store locations worldwide.

For the first six months of 2015, the Company generated net cash from operating activities of $184.2 million, incurred capital expenditures of $20.1 million, repurchased $164.8 million in common stock in connection with its authorized share repurchase program, and paid $31.0 million in cash dividends on its common stock. The Company generated $164.2 million in free cash flow (which it defines as cash provided by operating activities less cash used in investing activities excluding acquisitions) as compared with $117.1 million for the first six months of 2014, and at June 30, 2015, the Company's cash balance was $100.8 million.

Capital Structure

The Company repurchased 2.3 million shares of its common stock at an average price of $45.04 in the second quarter of 2015. At the end of the second quarter of 2015, the Company had $242.0 million remaining on its previously authorized $500 million share repurchase authorization.

At the end of the second quarter of 2015, diluted shares outstanding were approximately 85.0 million.

The Company's Board of Directors declared a cash dividend of $0.18 per share of its common stock for the third quarter of 2015. The dividend will be payable on or about September 25, 2015 to stockholders of record at the close of business on September 11, 2015. The Company currently intends to pay regular quarterly dividends; however, the declaration of such future dividends is subject to the final determination of the Company's Board of Directors.

Current 2015 Outlook

The Company's current outlook for 2015 is based on current expectations and includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Following is the Company's current outlook for the full year 2015, which is being updated from the previous outlook provided on April 30, 2015: consolidated earnings per diluted share ("EPS") of approximately $3.00 - $3.10 for the full year 2015. The Company's EPS outlook excludes Unusual Items associated with an increase in a legal accrual, expense associated with the correction of an immaterial error related to a payroll accrual, and a decrease in the previously established allowance for bad debt expense associated with our international franchisees. As defined in the Company's first quarter 2015 earnings release, the combined effect of these Unusual Items is a $0.03 reduction of diluted earnings per share.

Key assumptions underlying the full year 2015 EPS outlook are unchanged from our previous outlook and are as follows:

  • A low single digit increase in consolidated revenue for the full year 2015.  This is based on the following expectations:
    • A low single digit increase in domestic company-owned same store sales for the remainder of 2015, including the impact of GNC.com.
    • Modest revenue growth internationally
    • Manufacturing / wholesale segment revenue generally in-line with 2014 levels
  • Retail product gross margin improvements
  • Share repurchases of approximately 5-6% of shares outstanding as of the beginning of 2015

About GNC Holdings, Inc.

GNC Holdings, Inc. (NYSE: GNC) - headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer.

The Company's foundation is built on 80 years of superior product quality and innovation. GNC connects customers to their best by offering a premium assortment of vitamins, minerals, herbal supplements, diet, sports nutrition and protein products. This assortment features proprietary GNC - including Mega Men®, Ultra Mega®, Total Lean™, Pro Performance®, Pro Performance® AMP, Beyond Raw®, GNC Puredge™, GNC GenetixHD®, Herbal Plus® - and nationally recognized third party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third party contract manufacturing, e-commerce and corporate partnerships. As of June 30, 2015, GNC had more than 9,000 locations, of which more than 6,700 retail locations are in the United States (including 1,067 franchise and 2,304 Rite Aid franchise store-within-a-store locations) and franchise operations in more than 50 countries.

Conference Call

GNC has scheduled a live webcast to report its second quarter 2015 financial results on July 30, 2015 at 9:00 am Eastern time. The webcast will be available on www.gnc.com via the Investor Relations section under "About GNC." A replay of this webcast will be available through August 28, 2015. You may also listen to the live call by dialing 1-877-232-1784 inside the U.S. and 706-679-4448 outside the U.S.; the conference identification number for all callers is 86307078.

Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company's 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 regarding our dividend, share repurchase plan, strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain. The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to unfavorable publicity or consumer perception of our products; costs of compliance and any failure on our part to comply with new and existing governmental regulations governing our products; limitations of or disruptions in our manufacturing system or losses of manufacturing certifications; disruptions in our distribution network; or failure to successfully execute our growth strategy, including any inability to expand our franchise operations or attract new franchisees, any inability to expand our company-owned retail operations, any inability to grow our international footprint, any inability to expand our e-commerce businesses, or any inability to successfully integrate businesses that we acquire. The Company 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. For a listing of factors that may materially affect such forward-looking statements, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions. The Company may finance any repurchases with cash, potential financing transactions, or a combination of the foregoing. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the program. The Company intends to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-18 and, as applicable, Rule 10b-5 of the Securities Exchange Act of 1934, as amended.

GNC HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share data)

                         
     

 Three months ended

 

Six months ended

     

June 30,

 

June 30,

     

2015

 

2014

 

2015

 

2014

     

(unaudited)

                             

Revenue

 

$

678,520

 

$

675,216

 

$

1,348,767

 

$

1,349,673

   Cost of sales, including warehousing,

                   
 

distribution and occupancy

422,188

 

416,636

 

843,002

 

837,374

                         

Gross profit

 

256,332

 

258,580

 

505,765

 

512,299

                         

   Selling, general and administrative

140,090

 

140,844

 

279,858

 

275,456

   Other income, net

(1,396)

 

(3,315)

 

(1,336)

 

(5,463)

Operating income

117,638

 

121,051

 

227,243

 

242,306

                         
                         

    Interest expense, net

11,644

 

11,675

 

23,159

 

23,206

                         

Income before income taxes

105,994

 

109,376

 

204,084

 

219,100

                         

    Income tax expense

38,637

 

39,489

 

73,457

 

79,310

                         

Net income

$

67,357

 

$

69,887

 

$

130,627

 

$

139,790

                         
                       
                         

Earnings per share:

                   
 

 Basic

$

0.79

 

$

0.77

 

$

1.51

 

$

1.52

 

 Diluted

$

0.79

 

$

0.77

 

$

1.50

 

$

1.52

                                 
                         

Weighted average common shares outstanding:

                   
 

 Basic

 

85,501

 

90,414

 

86,677

 

91,687

 

 Diluted

 

85,777

 

90,931

 

86,934

 

92,265

Note: The presentation of certain amounts in the consolidated financial statements of prior periods have been revised to conform to the current periods presented with no impact on previously reported net income or stockholders' equity.

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

 

(in thousands)

   

June 30,

 

December 31,

   

2015

 

2014

   

(unaudited)

Current assets:

            
 

Cash and cash equivalents

$

100,778

   

$

133,834

 
 

Receivables, net

138,397

   

136,361

 
 

Inventories

566,554

   

569,132

 
 

Prepaids and other current assets

42,176

   

37,016

 
 

Total current assets

847,905

   

876,343

 
             

Long-term assets:

         
 

Goodwill, brands and other intangibles, net

1,520,897

   

1,525,285

 
 

Property, plant and equipment, net

227,373

   

232,397

 
 

Other long-term assets

42,388

   

43,775

 
 

Total long-term assets

1,790,658

   

1,801,457

 
             

Total assets

$

2,638,563

   

$

2,677,800

 
             

Current liabilities:

         
 

Accounts payable

$

144,975

   

$

129,064

 
 

Current portion, long-term debt

4,637

   

4,740

 
 

Deferred revenue and other current liabilities

119,143

   

106,539

 
 

Total current liabilities

268,755

   

240,343

 
             

Long-term liabilities:

         
 

Long-term debt

1,335,711

   

1,337,638

 
 

Other long-term liabilities

342,278

   

343,776

 
 

Total long-term liabilities

1,677,989

   

1,681,414

 
             
 

Total liabilities

1,946,744

   

1,921,757

 
             

Total stockholders' equity

691,819

   

756,043

 
             
 

Total liabilities and stockholders' equity

$

2,638,563

   

$

2,677,800

 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

Six months ended

   

June 30,

   

2015

 

2014

   

(unaudited)

Cash flows from operating activities:

        

Net income

$

130,627

 

$

139,790

Adjustments to reconcile net income to net cash provided

         

by operating activities:

         

Depreciation and amortization expense

28,628

 

27,401

Amortization of debt costs

925

 

895

(Increase) decrease in receivables

(459)

 

1,562

Increase in inventory

(10,652)

 

(49,791)

Increase in accounts payable

17,549

 

12,348

Other operating activities

17,577

 

20,623

       Net cash provided by operating activities

184,195

 

152,828

       

Cash flows from investing activities:

     

Capital expenditures

(20,131)

 

(36,100)

Cash paid for acquisitions, net of cash acquired

-

 

(6,402)

Other investing activities

89

 

350

      Net cash used in investing activities

(20,042)

 

(42,152)

       

Cash flows from financing activities:

     

Dividends paid to shareholders

(31,017)

 

(28,960)

Payments on long-term debt

(2,400)

 

(3,040)

Proceeds and excess tax benefit from stock-based compensation

1,550

 

3,454

Repurchase of treasury stock

(165,221)

 

(190,153)

      Net cash used in financing activities

(197,088)

 

(218,699)

           

Effect of exchange rate on cash and cash equivalents

(121)

 

351

Net decrease in cash and cash equivalents

(33,056)

 

(107,672)

Beginning balance, cash and cash equivalents

133,834

 

226,217

Ending balance, cash and cash equivalents

$

100,778

 

$

118,545

             

Segment Financial Data and Store Counts (unaudited)

Retail Segment - Company-owned stores in the U.S., Puerto Rico, Canada, and Ireland; e-commerce, both domestic and international

   

Three months ended

 

Six months ended

 
   

June 30,

 

June 30,

 

$ in thousands

 

2015

 

2014

 

2015

 

2014

 
                               

   Revenue

$

503,846

   

$

505,508

   

$

1,007,312

   

$

1,014,506

   

   Comp store sales- domestic, including GNC.com

-2.8%

   

-1.7%

   

-3.5%

   

-1.2%

   
                           

   Operating income

$

96,947

   

$

95,123

   

$

189,309

   

$

189,869

   

   % Revenue

19.2%

   

18.8%

   

18.8%

   

18.7%

   

Franchise Segment Franchise-operated domestic and international locations

   

Three months ended

 

Six months ended

 
   

June 30,

 

June 30,

 

$ in thousands

 

2015

 

2014

 

2015

 

2014

 
       

   Domestic

$

77,349

   

$

70,304

   

$

152,251

   

$

132,265

   

   International

41,092

   

39,838

   

77,447

   

81,392

   
                           

   Total revenue

$

118,441

   

$

110,142

   

$

229,698

   

$

213,657

   

   Operating income

$

40,646

   

$

40,418

   

$

80,329

   

$

79,999

   

   % Revenue

34.3

%

 

36.7

%

 

35.0

%

 

37.4

%

 

Manufacturing/Wholesale Segment - Third-party contract manufacturing; wholesale and consignment sales principally with Rite Aid, PetSmart,Sam's Club and www.drugstore.com 

   

Three months ended

 

Six months ended

 
   

June 30,

 

June 30,

 

$ in thousands

 

2015

 

2014

 

2015

 

2014

 
       

   Revenue

$

56,233

   

$

59,566

   

$

111,757

   

$

121,510

   

   Operating income

$

22,087

   

$

22,932

   

$

43,209

   

$

46,443

   

   % Revenue

39.3

%

 

38.5

%

 

38.7

%

 

38.2

%

 

 Consolidated unallocated costs (*)

   

Three months ended

 

Six months ended

 
   

June 30,

 

June 30,

 

$ in thousands

 

2015

 

2014

 

2015

 

2014

 
           

   Warehousing and distribution costs

$

(18,495)

   

$

(17,047)

   

$

(36,280)

   

$

(32,981)

   

   Corporate costs

$

(23,547)

   

$

(20,375)

   

$

(49,324)

   

$

(41,024)

   

(*) Part of consolidated operating income.

Consolidated Store Count Activity

 

Six Months Ended June 30, 2015

 

Company-

 

Franchised stores

           
 

owned (b)

 

Domestic

 

International (c)

 

Rite Aid

 

Total

Beginning of period balance

3,497

   

1,070

   

2,140

   

2,269

   

8,976

 

Store openings (a)

67

   

20

   

36

   

36

   

159

 

Store closings

(24)

   

(23)

   

(83)

   

(1)

   

(131)

 

End of period balance

3,540

   

1,067

   

2,093

   

2,304

   

9,004

 
                               
   

Six Months Ended June 30, 2014

   

Company-

 

Franchised stores

           
   

owned (b)

 

Domestic

 

International (c)

 

Rite Aid

 

Total

Beginning of period balance

3,342

   

1,012

   

2,024

   

2,215

   

8,593

 

Store openings (a)

114

   

58

   

89

   

22

   

283

 

Store closings

(33)

   

(20)

   

(37)

   

(5)

   

(95)

 

End of period balance

3,423

   

1,050

   

2,076

   

2,232

   

8,781

 
                               

(a)   openings include new stores, corporate/franchise conversion activity, and other acquisitions

 

(b)   including Canada and The Health Store

       

(c)   includes distribution centers where sales are made

       

SOURCE GNC Holdings, Inc.

Investor Contacts:

Tricia Tolivar
Executive Vice President
Chief Financial Officer
(412) 288-2029

Dennis Magulick
Vice President – Treasury
Investor Relations & Risk Management
(412) 288-4632

###

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