Store sales at GNC’s domestic company-owned locations decreased by 0.7%, while franchise locations saw decreases of 3.2% in the first quarter of 2014, with the company’s CEO attributing the decline to a combination of bad weather in January and February and negative media reports about supplements.
“January and February were affected by severe weather across large parts of the country, resulting in a delayed start to the workout season,” said Joe Fortunato, GNC’s chairman, president & CEO. “Recent trends have also been affected by an unusually significant amount of negative media, and year-over-year sales hurdles in the third-party diet and pre-workout categories. Based on our current information it looks like these recent trends will persist for the next few quarters.”
Multivitamins and fish oil
In a conference call with investors, Fortunato said that negative media around vitamins that has significantly escalated since mid-2013 has been more persistent and impactful than the company had historically experienced.
“As a result, we have seen weakness in multivitamin sale coinciding with market trends more generally,” he said.
“Similarly, fish oil has been declines in both, specialty and mass channels following studies published last year. Negative media thought the explosive growth of our proprietary Vitapaks over the last several years has been an important differentiator for us, but also gives us a harder challenge in this subcategory as we hurdle successful product introductions.
“Third, although our proprietary diet business driven by Total Lean and GenetixHD continues to be strong, the rest of the diet category lacks a major third-party catalyst, which historically has enhanced the growth rate in this category. For example, Garcinia Cambogia is trending positively in 2014, and general offsets Raspberry Ketones and Green Coffee Bean (Inaudible) from last year, but is not generating incremental growth.”
‘They are not going to stop pre-workout’
“Customers are […] still very focused on health and wellness,” said Fortunato in response to a question about whether there has been any fundamental change in the way consumers think about supplementation for managing health.
“I think that's why you are seeing a lot of companies that want to get into the business, they want to participate. The question is do they really know how to participate in the business - in a number of mergers and acquisitions. I really think that the market is still very strong.
“I think in the pre-workout market, I have always been most confident that's why we are seeing our sports fitness business still up even in spite of the whether implications in January-February and accelerated significantly in March, because that consumer is the one that is most loyal, would not go away and they are not going to stop pre-workout.”
Consolidated revenue was up 1.9% to $677.3 million from $664.7 million for the first quarter of 2013. For Q1 2014, the company reported retail segment revenue growth of 3.1% to $509 million, compared to $493.5 million for the first quarter of 2013. The main diver for this growth was the company’s e-commerce businesses, including both GNC.com and LuckyVitamin.com, said the company.
Despite the weather and disappointing store sales, the company continued its opening of new stores, to reach 8,678 store locations worldwide. During Q1, GNC opened 33 net new domestic company-owned stores, 27 net new international franchise locations, 14 net new domestic franchise locations, 8 net new Rite Aid franchise store-within-a-store locations, and 3 new company-owned stores in Canada.
Last month, the company expanded its international presence with the acquisition of The Health Store, a nine-store chain based in Dublin, Ireland. The Health Store generated revenue of approximately €10 million - or approximately $13 million - in 2013, representing a double-digit market share in the Irish health and wellness market. GNC expects to begin selling its own label products in The Health Store locations this year.