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Vitamins, Sports Nutrition Help GNC Move Away from 'Diet' Business

General Nutrition Centers Inc. (GNC), one of the largest U.S. retailers specializing in dietary supplements, reported a revenue increase of 2.3% and sales of $432.4 million for the second quarter of 2009, despite being negatively impacted by the Iovate Health Science’s voluntary recall of its Hydroxycut weight-loss products. Each of the company’s three divisions posted positive growth compared to the same period in 2008: retail by 0.8%, franchise by 6.3% and manufacturing/wholesale by 7.4%. Same-store sales improved by 0.3%, but would have grown by 3.8% were it not for refunds and lost sales associated with the Hydroxycut recall, the company reported.

This marks the 16th consecutive quarter that the company has posted positive same-store sales growth for its 5,300 retail locations in the United States. "Once again GNC's financial results were strong despite the continuing recession and the impact of the Hydroxycut recall,” CEO Joe Fortunado said in a prepared statement. “The strength of our brand and core product categories of vitamins and sports nutrition compensated for the short-term loss of sales and margin in the diet category as a result of the recall. Also, our performance highlights the fact that we are significantly less dependent on the diet portion of the business than in the past.”

While many retailers have experienced lackluster sales this year, GNC has grown its business by 2.5%, or $21.5 million, over the first six months of 2009. That figure would have been closer to 5%, but sales were negatively impacted in both quarters by the Hydroxycut recall.

The company’s manufacturing/wholesale division is up 3.5% for the first six months of 2009 compared to the same period in 2008 and is outpacing its other two divisions, something Fortunado said GNC has prioritized in a down economy. “If you remember back to the [Royal Numico N.V.] days, we cut out almost all contract manufacturing. That was a Numico decision and that was a very, very bad decision on their part,” Fortunado told Nutrition Business Journal in March 2009. “Today we’re doing over $125 million in contract manufacturing business. So that’s not only accelerating, but we’ve made a very pointed effort strategically to go after more contract manufacturing to get better absorption in our manufacturing facility.” Revenues increased over the first six months of 2009 in GNC’s other two business segments as well, retail by 2.3% and franchise by 2.8%.

Fortunado also pointed to a historically loyal base of dietary supplement consumers as part of GNC’s formula for success. “If you look back over history, we have developed tremendous brand loyalty at GNC. In the vitamin business, I think the brand loyalty is second to none,” he said. “The brand loyalty in the sports business is continuing to accelerate.”

NBJ will explore the sports nutrition retail landscape in more depth in our upcoming Sports Nutrition and Weight-Loss issue, which will be available in September. The issue will include a feature on Hydroxycut and the ramifications of that recall on the industry. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to NBJ’s subscriber page.

Related NBJ Links:

Q&A With Joseph Fortunato, Chief Executive Officer of GNC

2009 NBJ Summit Recap: Transforming Adversity into Opportunity

Sports Illustrated Slams Supplements and DSHEA

Related Natural Foods Merchandiser links:

FDA seeks recalls of “tainted weight loss pills”

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