GNC Q2 revenue up 9%

GNC Q2 revenue up 9%

China expansion, member pricing ... GNC gambles pay off.

GNC Holdings Inc. (NYSE: GNC), a leading global specialty retailer of health and wellness products, reported its financial results for the quarter and year-to-date period ended June 30, 2013.

In addition to presenting the Company's financial results in conformity with U.S. generally accepted accounting principles (GAAP), the Company is also presenting results on an "adjusted" basis to exclude the impact of certain expenses related to the Company's secondary offering in the first quarter of 2012.

Second quarter performance
For the second quarter of 2013, the Company reported consolidated revenue of $676.3 million, an increase of 9.2 percent over consolidated revenue of $619.1 million for the second quarter of 2012. Revenue increased in each of the Company's segments: retail by 9.6 percent, franchise by 6.8 percent and manufacturing/wholesale by 11.1 percent.

Same store sales increased approximately 6.8 percent in domestic company-owned stores (including GNC.com sales) in the second quarter of 2013, excluding a negative impact of approximately 280 basis points or 2.8 percent from the planned giveaway of Gold Cards during the Company's chain-wide Member Pricing rollout. In domestic franchise locations, same store sales increased approximately 5.2 percent excluding an approximately 90 basis point negative impact from Gold Card giveaways.

For the second quarter of 2013, the Company reported GAAP net income of $71.7 million, compared to $66.7 million for the second quarter of 2012. Diluted earnings per share were $0.73 for the second quarter of 2013, a 17.7 percent increase over diluted earnings per share of $0.62 for the second quarter of 2012.

Joe Fortunato, chairman, president and CEO, said, "GNC continues to consistently deliver strong year-over-year results, while making meaningful investments in the business. We had an exemplary execution of our transition to Member Pricing, our new products are delivering above expectations, and our web businesses are both growing the top and bottom line. Internationally, our commitment to increasing the penetration of GNC products—along with other efforts—continues as we seek to gain market share globally. And, we opened our first standalone store in China. We are well positioned for sustained long-term growth—capitalizing on our leadership position in the marketplace—and continue to execute a strong capital return to shareholder program."

Member pricing update
The Company successfully completed the rollout of the new Gold Card Member Pricing program. The early results include a meaningful increase in the Gold Card member database, a more consistent spread of sales over each week of the month, and significant positive feedback based on customer surveys. The anticipated financial impact of this rollout is unchanged from the Company's previous expectations, and is included in the "Current 2013 Outlook" presented in this release.

Business update
The Company is expanding its retail presence in China—opening a standalone store in Shanghai—as part of a multi-channel distribution strategy. Additional stores are expected, complementing the Company's existing store-within-a-store and e-commerce presence.

Second quarter segment operating performance
For the second quarter of 2013, retail segment revenue grew 9.6 percent to $502.5 million, compared to $458.6 million for the second quarter of 2012, driven primarily by a same store sales increase, and the addition of 151 net new stores since the end of the second quarter of 2012. Operating income increased by 2.8 percent, from $97.6 million to $100.3 million, and was 20.0 percent of segment revenue for the second quarter 2013, compared to 21.3 percent for the second quarter of 2012. Operating income was negatively impacted by planned investments related to the Member Pricing rollout.

For the second quarter of 2013, franchise segment revenue grew 6.8 percent to $110.6 million, compared to $103.5 million for the second quarter of 2012, driven primarily by increased wholesale product sales and royalty income in both domestic and international franchise operations. Operating income increased 13.5 percent, from $32.3 million to $36.7 million, and was 33.1 percent of segment revenue for the second quarter of 2013, compared to 31.2 percent for the second quarter of 2012. The increase in operating income percentage was driven by higher gross profit margin.

For the second quarter of 2013, manufacturing/wholesale segment revenue, excluding intersegment revenue, increased 11.1 percent to $63.2 million, compared to $56.9 million for the second quarter of 2012. Operating income increased 6.9 percent from $23.9 million to $25.5 million and was 40.3 percent of segment revenue for the second quarter of 2013 compared to 41.9 percent for the second quarter of 2012. The decrease in operating income percentage was driven primarily by a lower mix of proprietary product sales.

Total operating income for the second quarter of 2013 was $123.7 million, a $6.6 million, or 5.6 percent, increase over operating income of $117.1 million for the second quarter of 2012. Second quarter operating income in 2013 was negatively impacted by planned investments related to the Member Pricing rollout.

Year-to-date performance
For the first six months of 2013, the Company reported consolidated revenue of $1,341.0 million, an increase of 7.9 percent over consolidated revenue of $1,243.4 million for the first six months of 2012. Revenue increased in each of the Company's segments: retail by 7.3 percent, franchise by 6.5 percent, and manufacturing/wholesale by 15.2 percent.

For the first six months of 2013, the Company reported net income of $144.3 million, 10.8 percent of revenue and a 10.0 percent increase compared to $131.2 million for the first six months of 2012, after adjusting for expenses related to the Offering. Diluted earnings per share were $1.46 for the first six months of 2013, a 19.7 percent increase over 2012 adjusted results of $1.22.

For the first six months of 2013, the Company opened 76 net new domestic company-owned stores, 96 net new international franchise locations, 20 net new domestic franchise locations, 8 net new Rite Aid franchise store-within-a-store locations, and 1 net new company-owned store in Canada.

For the first six months of 2013, the Company generated net cash from operating activities of $126.8 million, incurred capital expenditures of $21.5 million, repurchased $181.3 million in common stock under the previously authorized $250 million share repurchase program, and paid $29.1 million in common stock dividends. The Company generated $104.2 million in free cash flow (which it defines as cash provided by operating activities less cash used in investing activities) and at June 30, 2013, the Company's cash balance was $64.0 million.

 

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