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GNC CEO: Expect more closures

GNC Holdings Inc.
CEO Ken Martindale says retailer will focus on digital growth as mall stores’ sales continue to drop.

Second-quarter sales in the U.S. and Canada dropped 4.6%, but adjusted net income rose 8.3% compared to a year ago, GNC Holdings Inc. reported Monday morning.

The company, which makes, sells and distributes dietary supplements around the world, also said sales dropped 18.9% internationally, but explained that decrease was because its business in China was transferred to Harbin in February when the joint venture agreement was completed.

“While it’s taking a bit longer than expected, we’re happy with our progress and continue to feel good about our opportunities in the $25 billion market,” CEO Ken Martindale said during the early morning earnings call.

On the domestic side, the fall of same-store sales accounted for $17.5 million of the $41.2 million revenue decrease, while store closings triggered a loss of $14.9 million. Martindale said decreasing sales in mall stores will lead to additional closings, pushing the total number of closures toward 900—the high end of a previously announced estimate.

Operating income in U.S. and Canada increased to $49.2 million—10.3% of the domestic segment’s revenue—due to lower costs compared to the second quarter of 2018.

For the three months ending June 30 in all segments, the company reported;

  • Revenue of $534 million, down 13.6% percent from the second quarter of 2018.
  • Gross profit of $193.7 million, a 6.7% drop from Q2 2018.
  • Operating income of $48.7 million, just 0.3% less than operating income of $48.9 million in Q2 2018.
  • Net income of $16.1 million, a 20.4% increase from Q2 2018.

Meeting customer’s changing needs

Going forward, Martindale said the company will focus on customers who belong to the MyGNC Pro Access loyalty program. Pro Access members pay to join, and they spend 3.5 times more per year than customers who belong to the free GNC Rewards program, the company reported.

“As we continue to reposition the business, we are learning a great deal about the consumer and continue to test ways to drive sales growth and optimize our profitability,” Martindale said.

One million customers are enrolled in  Pro Access, and approximately 9 million GNC Rewards customers have shopped at a store in the past year, according to GNC.

During the third quarter, GNC will be able to send personalized text messages to loyalty members and by the first quarter of 2020, it will have an improved ordering program, Martindale said.

GNC also has entered into partnerships with two well-known U.S. companies, Dick’s Sporting Goods and Hudson News. A pilot program put 50 GNC products at 10 Dick’s Sporting Goods locations; another 35 sites were added by the end of May, Martindale said.

At Hudson News—the newsstand and sundries store location in major airports around the U.S.—GNC has put travel aids in 250 stores. Both ventures are about targeting specific products to specific customers “where they are,” he said.

A partnership with Albertson’s is expected to be in place by the end of the third quarter.

While GNC offers subscription sales and home delivery of products ordered at brick-and-mortar stores, it plans to enhance it services next year with click-and-collect, ship from store and mobile point-of-sale that could be used at events such as races, health fairs and more.

GNC’s digital sales are about 8% of the U.S. and Canada segment’s total, but the goal is to increase that share to 15%, according to the presentation slides that accompanied the earnings release. The company did not specify a date by which it wants to achieve that goal.

GNC also has, in the six quarters since the end of fiscal 2017, reduced its debt to about $882 million from $1.5 billion.

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