GNC Corporation Reports Second Quarter and First Half 2004 Financial Results

PITTSBURGH, Aug 2, 2004 /PRNewswire via COMTEX/ -- GNC Corporation ("GNC" or the "Company"), the largest global specialty retailer of nutritional supplements, today reported its financial results for the quarter and six-month period ended June 30, 2004.

The Company reported consolidated revenues of $347.7 million for the quarter ended June 30, 2004 compared to consolidated revenues of $372.0 million for the same quarter of the prior year, a decrease of 6.5%. The decrease in revenues of $24.3 million was primarily the result of decreases in domestic same store sales as well as an overall reduction in GNC's domestic store base. As of June 30, 2004, GNC's company-owned and franchised domestic store base had declined by 233 stores, or 5.7%, from the second quarter of 2003. For the second quarter of 2004, same store sales decreased by 3.2% in domestic company-owned stores and 3.6% for domestic franchised stores from the prior year period. The primary reason for the decline in domestic same store sales was weakness in the diet category, which has been precipitated by the proliferation of low-carb product offerings in the marketplace. Internationally, same store sales increased by 7.4% for the second quarter of 2004 in company-owned stores in Canada (in Canadian dollars) and by 5.9% in international franchised stores (in US dollars) from the prior year period.

For the quarter ended June 30, 2004, consolidated operating income increased 3.5% to $31.2 million compared to $30.2 million in the prior year period. Consolidated operating income for the second quarter of 2003 included $2.6 million of currency translation income and $2.5 million of legal settlement income as compared to a $0.6 million currency translation loss in the second quarter of 2004. Despite a decline in revenues, the Company's growth in consolidated operating income resulted primarily from increased gross margins at company-owned store locations, partially offset by higher advertising expenditures of $12.7 million in the second quarter of 2004 compared to $5.1 million in the second quarter of 2003. Increased gross margin in the company-owned stores was the result of lower levels of sales of low-margin third-party diet products and a higher percentage of sales of higher margin GNC brand proprietary products.

For the quarter ended June 30, 2004, the Company generated consolidated net income of $14.4 million compared to a consolidated net loss of $7.2 million for the comparable quarter ended June 30, 2003.

For the six months ended June 30, 2004, consolidated revenue decreased by less than 1% to $720.3 million from $723.2 million in the comparable period of 2003. Operating income for the six months ended June 30, 2004 increased by 56.7% from the prior year period to $65.3 million from $41.7 million, and net income for the six months ended June 30, 2004 increased to $30.6 million from a loss of $29.6 million in the prior year period.

In addition, the Company recently extended its alliance with Rite Aid through April 30, 2009, with a commitment from Rite Aid to open an additional 300 new store-within-a-store locations by December 31, 2006.

"We're proud that we were able to achieve a dramatic increase in operating income despite challenging market conditions, particularly in the diet category," said Lou Mancini, President and Chief Executive Officer. "Despite weakness in the diet category, we have been able to successfully shift a greater percentage of our total sales to GNC branded product offerings, which has substantially benefited our gross margin and profitability."

GNC also intends to seek an amendment to its senior credit agreement to obtain a lower interest rate and additional flexibility under its restricted payments covenant.

As of June 30, 2004, GNC Corporation, headquartered in Pittsburgh, Pennsylvania, operated 2,649 company-owned stores in the U.S. and Canada and had 1,324 domestic franchised locations, 994 Rite Aid "store-within-a-store" locations and 699 international franchised locations. The Company has substantially completed its program to close underperforming stores with 87 stores closed as of June 30, 2004. GNC is the largest global specialty retailer of nutritional supplements, which includes vitamin, mineral and herbal supplements (VMHS), sports nutrition products, diet and energy products and specialty supplements.

GNC will be hosting a conference call to report the second quarter 2004 financial results on Monday afternoon, August 2, at 4:00 pm EDT. To listen to this call inside the U.S. dial: 1-800-471-6718, Confirmation # 9582613, and outside the U.S. dial: 1-630-691-2735, Confirmation # 9582613. Following the completion of the call, a replay will be available until August 12, 2004 by dialing 1-888-843-8996, Confirmation # 9582613 inside the U.S. and: 1-630-652-3044, Confirmation # 9582613 outside the U.S.

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. All of these forward- looking statements, which can be identified by the use of terminology such as "subject to," "believes," "expects," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy which, although believed to be reasonable, are inherently uncertain. Factors which may materially affect such forward-looking statements include, among others:

-- slow or negative growth in the nutritional supplement industry
-- the incurrence of material products liability
-- interruption of business or negative impact on sales and earnings due to
acts of war, terrorism, bio-terrorism, civil unrest or disruption of
mail service
-- the failure of our franchisees to conduct their operations profitably
-- unfavorable publicity or consumer perception of our products
-- increased competition
-- cost of compliance with governmental regulations
-- our failure to respond to changing consumer preferences and the demand
for new products and services
-- loss or retirement of key members of management
-- increases in the cost of borrowings and unavailability of additional
debt or equity capital
-- our failure to comply with FTC regulations and existing consent decrees
-- limitations from franchise regulations to terminate or replace under-
performing franchises
-- the inability of GNC to gain and/or hold market share of its wholesale
and/or retail customers anywhere in the world
-- economic, political and other risks associated with our international
-- unavailability of electricity in certain geographical areas
-- the inability of GNC to obtain and/or renew insurance
-- our reliance on our manufacturing operations to produce nearly all of
the proprietary products we sell
-- exposure to, and expense of defending and resolving, product liability
claims and the failure to adequately protect or enforce our intellectual
property rights against competitors;
-- the impact of our substantial indebtedness on our operating income and
growth prospects; and
-- the impact of restrictions and covenants under our indebtedness on our
ability to grow and fully pursue business strategies.

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