GNC Holdings Domestic Revenues Soft, Global Growth Strong
On Nov 15 2018, we issued an updated research report on GNC Holdings, Inc. GNC. We are upbeat about this Zacks Rank #3 (Hold) company’s significant progress with e-commerce business over the last few quarters. However, cut-throat competition is a persistent concern.
This leading global specialty retailer of products for health and wellness including vitamins, minerals and herbal supplement, sports nutrition and diet, has underperformed its industry in the past year. The stock has plummeted 46.7% against the industry's 13.7% growth.
Notably, GNC Holdings exited the third quarter of 2018 on a mixed note with earnings lagging the Zacks Consensus Estimate while revenues exceeding the mark. However, both metrics declined year over year, which is dampening to the stock.
GNC Holdings, Inc. Price
GNC Holdings, Inc. Price | GNC Holdings, Inc. Quote
In the third quarter of 2018, revenues decreased 5.4% year over year. This downside was primarily attributable to the sale of LuckyVitamin in September 2017 (this resulted in a $20.8-million reduction in revenues) and lower sales associated with store closures at the end of the respective lease term, which is a component of the company's store portfolio optimization strategy.
Within same store, the company performed disappointingly in domestic franchise locations. Revenues from U.S. & Canada segment contracted 3.2% on the impact of company-owned net store closures, which resulted in a $9-million decline in revenues and negative same store sales of 2.1% that caused a revenue decrease of $7.7 million. Additionally, domestic franchise revenues deteriorated $3.6 million due to weak retail same store sales and less franchise stores. Although the company is focusing on its ‘New GNC’ plans pertaining to new products and pricing at stores, any immediate improvement is still quite uncertain.
On a positive note, GNC Holdings made major changes in e-commerce pricing and promotion strategy in August 2016. This in turn, eliminated channel conflict and bulk sales. Further, these alterations allowed the company to launch its entire product line on Amazon (sales from the same are included in the GNC.com business unit) in January 2017. Per management, the e-commerce business consistently grows ahead of expectations.
Moreover, the company is optimisitc about the website’s shift of control from a third party to a cloud-based, company-controlled platform. This offers the company more flexibility and control over new features and enhancements including advanced personalization capability, improved merchandising and opportunity for omnichannel expansion.
The company’s growing international business has also been a major plus. Revenues at the international segment increased 6.1% in the reported quarter, driven by higher cross-border e-commerce sales in China and India. According to the company, the Guardian Healthcare Services Pvt. Ltd, new partner in India, is extending distribution through additional channel such as pharmacy, fitness centers and e-commerce. Lately in China, GNC Holdings entered into a joint venture agreement with Harbin Pharmaceutical Group Holding (Hayao). The company expects its Chinese business revenues to reach a value of $200 million over the next three years.
Moreover, GNC Holdings’ business is particularly subject to changing consumer trends and preferences. So the company’s continued success depends partly on its ability to anticipate and respond to changes.
Key Picks
A few better-ranked stocks in the broader medical space are Stryker Corporation SYK, Masimo Corporation MASI and Veeva Systems VEEV.
Stryker has an expected long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Masimo’s long-term earnings growth rate is projected at 14.6%. The stock carries a Zacks Rank of 2.
Veeva Systems’ long-term earnings growth rate is estimated at 19.3%. The stock is a Zacks #2 Ranked player.
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