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GNC’s Q1: ‘Customers are coming back to our stores’

By Stephen Daniells+

19-Apr-2017

© iStock
© iStock

Shares in GNC rose Tuesday after its first quarter results beat Wall Street's expectations. The improvements were linked to the company’s One New GNC model that introduced a new pricing structure and loyalty programs.

Despite consolidated revenue falling to $644.8 million in Q1 2017, down from $668.9 million for the same quarter of 2016, share prices closed 24% up after the company results exceeded expectations. Net income was $23.9 million, compared with $50.8 million in the prior year quarter.

The results are seen as a sign of success for the One New GNC model launched at the end of December 2016, which created a single pricing structure across brick-and-mortar and dotcom channels. The company also launched a new loyalty program called My GNC Rewards to replace its old Gold Card system.

“Looking at the first quarter results from the ONE New GNC, we are encouraged and excited by the progress of the business,” Bob Moran, Interim CEO of GNC, told financial analysts during the company’s April 18 earnings call. “The New GNC leaves the old, broken model behind.   We're confident it will have a positive impact on the business, but it will take time for the changes to take hold and translate to improved financial results.”

“It's clear that customers are coming back to our stores,” he added.

The company reported that transactions in company-owned stores increased 9.3% during the first quarter. However, same store sales in these stores decreased 3.9% (including GNC.com sales), while same store sales in domestic franchise locations decreased 4.6%.

E-commerce through GNC.com decreased 7%, but this was a “significant improvement compared to the down 49% that we experienced in the fourth quarter”, said Moran. E-commerce sales, including GNC.com and Lucky Vitamin, were 9.3% of U.S. and Canada revenue, added the company.

E-mail lists

“Negative same store sales were primarily due to lower sales in the Protein, Vitamins, Food/Drink and Weight Management categories, partially offset by the Health and Beauty and Performance Supplements categories,” said the company.

Image © iStock/Lecic

During the earnings call, a lot of attention was paid to the company’s new loyalty programs.

“[M]ost encouraging is the performance of our new myGNC Rewards loyalty program which puts us in a strong position as we head into the rest of 2017,” said Moran. “We now have 5.4 million members enrolled in the new myGNC Program, and in the first quarter, loyalty customers shopped more frequently. We are pleased that we are seeing former Gold Card members signing up for the new loyalty program while also attracting large numbers of new members.”

The company also recently launched its PRO Access program – which offers free shipping, points incentives, and premium, tailored offerings – and already has almost 100,000 new members. “The program […] is resonating with our core and most profitable customer segment, the health enthusiast,” said Moran.

All registrants to these programs must provide a workable email address, giving the company a significantly more powerful database compared to the previous Gold Card program, which, despite boasting 6 million members  only had workable email addresses for about 30% of them, explained Moran.

“In an industry where consumers are looking for trusted advice, something that just can't get online with mass competitors, personalization matters and creates significant opportunities for our business.”

Amazon storefront

Another Q1 development that appears to be benefiting sales was the launch of a GNC storefront on Amazon (sales from which are included in the GNC.com business unit).

“Our Amazon.com Marketplace is outperforming our sales expectation and is leading with strong sales of GNC branded products,” said Moran.

International & manufacturing

International revenues increased 7% to $39.4 million in Q1, compared to Q1 2016, with the China increasing $1.2 million.

On the manufacturing and wholesale sides, the company announced an 8.6% decrease in revenues, which fell to $52.5 million, compared to $57.5 million in the prior year quarter. Third-party contract manufacturing sales increased $0.3 million, or 0.9%, to $30.7 million, while sales to wholesale partners decreased 19.3% from $27.1 million in Q1 2016 to $21.8 million this quarter. 

“We are also focused on reinvigorating private-label innovation, which has historically been a competitor strength,” said Moran. “This work includes developing new products and formulas that address unmet customer needs and expanding customer brands like Beyond Raw, Mega Men, Women's Ultra Mega and GNC Probiotics. Innovation is the key to our product assortment and we are working to optimize the assortment and have projects underway to improve product turns, in stocks and right-size inventories in stores, our DCs and manufacturing.”

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