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Private label important GNC growth driver

GNC revenue has declined as the company changes it strategies and seeks a new majority partner. Yet its focus on innovating private label brands seems to be working.

The sale of LuckyVitamin and ending of the Gold Card customer promotion program hit GNC's first-quarter revenue numbers as the supplement company reached $607.5 million in 2018, compared with $654.9 million in the first quarter of 2017.

The Lucky Vitamin sale on Sept. 30 resulted in a $22.7 million revenue reduction, while the pricing promo change showed a $23 million decrease, the company reported via press release.                  

Leaders on the first-quarter earnings call, however, touted a return to same-store sales increases, with this quarter marking the third consecutive in positive territory. Same store sales increased 0.5 percent in domestic company-owned stores (including GNC.com) in the first quarter. Yet decreases reached 1.9 percent at domestic franchise locations. As of  March 31, GNC had 3,385 corporate stores in the U.S. and Canada, 1,083 domestic franchise locations, 2,428 Rite Aid franchise store-within-a-store locations and 2,009 international locations. 

"During the first quarter of 2018, we continued to see the business improve, and were pleased with the progress of our strategic growth initiatives," CEO Ken Martindale said via press release. "Notably, we delivered meaningful gross margin growth, driven primarily by increased penetration of our private label brands. We continue to work to leverage our strength in innovation, expand our international presence and deliver a consistent, compelling experience at every customer touch point." 

Private label sales reached 50 percent of total sales, compared with 43 percent in Q1 2017. A key driver was the launch of Slimvance, a GNC branded weight loss product, Martindale said, which attracted new customers and drove larger basket sizes. The company also recently relaunched its AMP sports performance line with new packaging and products and continues to promote its Beyond Raw brand. The company's focus on innovation and quality, and how it communicates benefits to customers are key to success, noted Tricia Tolivar, chief financial officer and executive vice president. 

Additional first-quarter highlights include: 

  • Net income of $6.2 million compared with $24.7 million in the prior year quarter.  
  • Diluted earnings per share was 7 cents in the current quarter compared with 36 cents in the prior year quarter.   
  • The company recorded a $16.7 million loss on debt refinancing. Excluding this item and other expenses, adjusted net income was $20.1 million in the current quarter compared with $26 million in the prior year quarter, and adjusted EPS was 24 cents in the current quarter compared with 38 cents in the prior year quarter. 
  • Adjusted EBITDA, as defined and reconciled, was $59.3 million in the current quarter compared with $73.7 million in the prior year quarter. The prior year quarter includes the impact of $23 million in revenue and gross profit associated with the termination of the Gold Card Member Pricing program, as well as higher marketing expense of approximately $6 million in connection with the launch of the media campaign around the One New GNC.

Meanwhile, GNC's proposed $300 million joint venture with China's Harbin Pharmaceutical Group Holding Co. suffered a delay this week when GNC didn’t get a quorum for its stockholder meeting. More than 92 percent of proxies received authorized a vote in favor issuing convertible preferred shares that would give Harbin a 40 percent stake in the company. The next vote takes place May 9. 

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