GNC Holdings, Inc., a leading global specialty retailer of health and wellness products, reported its financial results for the quarter ended March 31, 2012.
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 an offering of 19.55 million shares of Class A common stock by certain of the Company's stockholders (the "Offering") in the first quarter of 2012 and the Company's Initial Public Offering (the "IPO") and debt refinancing (the "Refinancing") in the first quarter of 2011.
First Quarter Performance
For the first quarter of 2012, the Company reported consolidated revenue of $624.3 million, an increase of 23.4% over consolidated revenue of $506.0 million for the first quarter of 2011. Revenue increased in each of the Company's segments: retail by 22.4%, franchise by 31.1%, and manufacturing/wholesale by 17.9%. Same store sales increased 15.8% in domestic company-owned stores (including GNC.com sales), representing the Company's 27th consecutive quarter of positive same store sales growth. In domestic franchise locations, same store sales increased 18.4%.
Adjusted EBITDA, which the Company defines as net income before interest, income taxes, depreciation, amortization, sponsor obligation payments, and transaction related costs, for the first quarter of 2012 was $125.1 million, a $43.2 million, or 52.7%, increase over adjusted EBITDA of $81.9 million for the first quarter of 2011. Adjusted EBITDA was 20.0% of revenue for the first quarter of 2012, compared to 16.2% for the first quarter of 2011.
For the first quarter of 2012, the Company reported net income of $63.9 million, compared to $9.9 million for the first quarter of 2011. Net income for the first quarter of 2012 included $0.7 million of expenses associated with the Offering. Excluding these expenses, adjusted net income for the first quarter of 2012 was $64.5 million, a $29.6 million or 84.9% increase from adjusted net income of $34.9 million for the first quarter of 2011. Diluted earnings per share, also adjusted for expenses associated with the Offering in 2012 and the IPO and Refinancing in 2011, were $0.60 for the first quarter of 2012, an 81.8% increase as compared to adjusted diluted earnings per share of $0.33 in 2011.
In April, 2012, the Company announced a partnership with Academy Award-nominated actor/producer Mark Wahlberg to develop, market and sell MARKED, a new nutritional supplement line designed to meet the demanding lifestyles of active, results-driven fitness consumers who want to get the most out of their workout and improve overall health. MARKED will launch in GNC stores and on GNC.com, and is expected to be widely available through other leading retailers. A portion of all sales are being donated to the Mark Wahlberg Youth Foundation, whose mission is to improve the quality of life for inner city youth.
Joe Fortunato, President & CEO, said, "The foundation for our success is centered around our continued evolution from a leading specialty retailer to a highly respected global brand. We have distinctive product development and innovation capabilities that create key differentiation for GNC in the marketplace by providing exclusive products and an enhanced shopping experience for our unique customer base. These strengths are reflected in our results, as we continue to accelerate growth across many channels. Domestically, we achieved our fourth consecutive quarter of double-digit retail same store sales growth, fueled by proprietary new products, increased traffic, and an elite service model that promotes brand loyalty. We are positioned for continued market share growth opportunities in each of our segments."
First Quarter Segment Operating Performance
For the first quarter of 2012, retail segment revenue grew 22.4% to $469.8 million, compared to $383.7 million for the first quarter of 2011, driven primarily by a 15.8% domestic same store sales increase, including 34.1% growth in GNC.com revenue, the addition of LuckyVitamin.com (acquired August 31, 2011) and 139 net new stores from the end of the first quarter of 2011. Operating income increased by 46.5%, from $63.6 million to $93.2 million, and was 19.8% of segment revenue for the first quarter 2012 compared to 16.6% for the first quarter of 2011. The increase in operating income percentage was driven by expense leverage on the same store sales increase in occupancy, payroll, and marketing.
For the first quarter of 2012, franchise segment revenue grew 31.1% to $101.5 million, compared to $77.4 million for the first quarter of 2011, driven primarily by increased wholesale sales and royalty income in both domestic and international franchise operations. Operating income increased 35.8%, from $25.4 million to $34.4 million, and was 33.9% of segment revenue for the first quarter of 2012 compared to 32.8% for the first quarter of 2011. The increase in operating income percentage was driven by a higher gross product margin percentage on wholesale sales.
For the first quarter of 2012, manufacturing/wholesale segment revenue, excluding intersegment revenue, grew 17.9% to $53.0 million, compared to $44.9 million for the first quarter of 2011, driven primarily by a 12.7% increase in 3rd party manufacturing contract sales, and wholesale partnership sales. Operating income increased 38.0% from $16.6 million to $22.8 million and was 43.1% of segment revenue for the first quarter of 2012 compared to 36.9% for the first quarter of 2011. The increase in operating income percentage was driven by a higher gross product margin rate resulting from improved wholesale margins and an increase in proprietary product sales.
Total operating income for the first quarter of 2012 was $112.1 million, a $54.4 million, or 94.3%, increase over operating income of $57.7 million for the first quarter of 2011. Operating income for the first quarter of 2012 included $0.7 million of expenses associated with the Offering, and for the first quarter of 2011 included $12.4 million of costs related to the IPO and the Refinancing and $0.4 million of sponsor obligation expenses.
In the first quarter of 2012, the Company opened 35 net new domestic company-owned stores, 34 net new international franchise locations, 21 net new franchise store-within-a-store Rite Aid locations, 4 net new domestic franchise locations, and closed 2 company owned stores in Canada.
Quarterly Dividend, Share Repurchase Program
The Company's Board of Directors has authorized and declared a cash dividend of $0.11 per share of its common stock for the second quarter of 2012, payable on or about June 29, 2012 to stockholders of record at the close of business on June 15, 2012. 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.
In January, 2012 the Company repurchased 204,323 shares of common stock, completing the initial share repurchase program announced in December, 2011. In April 2012, the Company initiated and completed the repurchase of one million shares of common stock under a repurchase program announced in February, 2012. Subsequently, the Company's Board of Directors extended the repurchase program for up to an additional 500,000 shares over the forthcoming year, in a continuing effort to mitigate the dilutive effect of employee stock option exercises.
Current 2012 Outlook
The Company's current outlook for 2012 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.
Below is the Company's current outlook for 2012, which is being revised since the Company provided its initial Outlook for 2012 on February 16, 2012:
- Consolidated revenue of approximately $2.37 billion for the full year 2012, a 14.5% increase over 2011 consolidated revenue of $2.07 billion. This is based on achieving an increase of approximately 10% in domestic retail same store sales for the full year 2012 (or approximately 8% for the second through fourth quarter of 2012), including the impact of GNC.com. This compares to our previous outlook of an increase of approximately 10% in consolidated revenue, based on achieving a mid-single digit domestic retail same store sales increase for the full year 2012, excluding the impact of GNC.com.
- Consolidated adjusted earnings per diluted share ("EPS") of approximately $2.05 for the full year 2012, a 35% increase over 2011 Adjusted EPS of $1.52. This compares to our previous outlook of $1.82. Quarterly EPS comparisons are affected by an approximately $0.02 non-recurring income tax benefit in the third quarter of 2011.