The global retailer of health and wellness products reported $621 million in sales in the quarter, a 15.5% increase year-over-year, and posted an adjusted earnings per share of 61 cents, a 32.6% increase over 2011 figures. In addition, the company revised upward it projectiosn for fiscal 2012. It now predicts consolidated revenue of approximately $2.45 billion for the full year 2012, an 18.0% increase over 2011 consolidated revenue of $2.07 billion, and consolidated adjusted earnings per diluted share of approximately $2.29 for the full year 2012, a 50.7% increase over 2011 adjusted EPS of $1.52.
Churning the shelves
One of the key drivers of that growth is the sales of new products. GNC has always been known for a rapid changeover on the shelves; as Fortunato said in a March, 2011 earnings conference call, “It's a churn industry as far as products go. Things come, things go very quickly. When something goes, something replaces it very quickly.”
But the company is planning to press that particular pedal right to the metal in 2013.
“We will be launching more products than we’ve every launched going into a year, and we will be launching some of them several months early,” Fortunato said. “Almost all of the new products that will hit the stores will do so in December. A couple will linger into January and February.”
“That hasn’t been the case in the past. Product launches lingered until March and April and sometimes even into May,” he said. “Second to that is we have a pipeline already getting loaded up for 2013.”
“These product introductions, as I’ve said over and over, compound your growth,” he said. Fortunato cited the sales growth of Pro Performance Amp whey protein and Total Lean meal replacement shakes, which have boosted growth in the U.S. market and did so as well in Canada where they were introduced in the last year.
New pricing strategy
Fortunato said that GNC has been generally been competitive in their pricing, but it wasn’t always apparent to the customer.
“We were very competitive with our pricing going out the door, but you needed a calculator to figure it out,” he said.
GNC, like many other retailers, has a loyalty program, the so-called Gold Card that, for an annual fee, gives members a 20% discount on products purchased in the first week of the month. The criticism from customers from the start was that they couldn’t use their cards whenever they wanted.
There were some drawbacks for GNC, too. First, the discount applied evenly to all products, even to some products that customers would have bought at full price, according to Michael Nuzzo, vice president and CFO for GNC. And, Fortunato said, the company has been losing some sales in those final weeks of the month.
“We were getting people in weeks two, three and four who wanted to buy a product and it just wasn’t competitive at GNC in those weeks so they went somewhere else to buy it. We do know that customers in this industry shop two, three, four locations for their various supplement needs,” Fortunato said.
The company has conducted successful experiments of a new form of the program in markets like Kansas City and Denver. Members still pay a yearly fee, for which they receive a discounted, “member price” on many, but not all products. The member discount is clearly marked on the shelf, unlike in the past, and the company can strategically manipulate the discounts to both keep customers happy and increase margins, Nuzzo said.
The program was recently extended to four additional markets including New York and Chicago, with plans to roll it out nationally in 2013.