The financial impact of the DMAA crackdown

The financial impact of the DMAA crackdown

On Tuesday, Bloomberg Businessweek reported that publicly traded sports nutrition retailers GNC Holdings Inc. and Vitamin Shoppe Inc. recorded drops in share price following news that the U.S. Food & Drug Administration (FDA) had sent warning letters to companies selling DMAA-containing workout products.

On Friday, April 27, FDA sent warning letters to 10 of these manufacturers and marketers, instructing them cease sale of DMAA products since the ingredient holds no New Dietary Ingredient clearance. GNC and Vitamin Shoppe both sell DMAA-containing preworkouts in their stores. 

In afternoon trading yesterday, GNC shares fell 4.4 percent to $39.20, while Vitamin Shoppe dropped 3.1 percent to $47.37.

Nevertheless, things are going swimmingly for these two retailers. Last week, GNC reported reported a revenue increase of 23 percent to $624 million in the first quarter of 2012, with same-store sales up 16 percent. Vitamin Shoppe won't report Q1 results until next week, but finished off fiscal 2011 with Q4 net sales up 19 percent to $215 million and same-store sales up 7 percent.

Deutshce Bank analyst Charles Grom estimated that DMAA products make up about 2 percent of GNC's revenue—off of Q1 results that's about $13 million, and off of 2011 net revenue of $2.1 billion that's about $40 million. That's no pittance, but in the scheme of things it's just a blip on GNC's radar. The retailer felt a similar 4 percent dent in share price in October 2011 after the highly publicized SELECT Trial implied vitamin E increased risk of prostate cancer.

The real impact of the DMAA crackdown will be on the manufacturers and marketers. To date, many DMAA sellers have dealt with class action lawsuits, including USPlabs, VPX Sports and BPI. Now a new wave of lawsuits has landed on SEI Pharmaceuticals, iSatori, Nutrex Research and Gaspari Nutrition.

As Nutrition Business Journal suggested in the cover story to our February 2012 Sports Nutrition & Weight Loss Issue, though, GNC and Vitamin Shoppe may have to answer to lawsuits as well. If DMAA takes a few more wrong turns and the marketers crumble under the weight of litigation expenses, a host of smaller retailers may face a growing, ugly problem.

Who do you think will lose out during the DMAA crackdown? Leave a comment.

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