GNC: DMAA saga has had ‘no impact whatsoever’ on sales

By Elaine Watson

- Last updated on GMT

Related tags: New product development, Gnc

GNC: DMAA saga has had ‘no impact whatsoever’ on sales
The furor surrounding the safety and legal status of DMAA (1,3-Dimethylamylamine) - a stimulant used in several pre-workout supplements - has not dented sales at supplements giant GNC, bosses have revealed.

GNC recently agreed to recall 18 third-party products containing DMAA from GNC stores on US military bases while the Department of Defense conducts a probe into its safety following the deaths of two soldiers. However, it still sells these products in its other stores.

No causal relationship between DMAA and AERs

Asked whether the military recall and the ongoing press coverage over the safety and legal status of DMAA had hit revenues during an earnings call yesterday, GNC boss Joe Fortunato said: “No we haven’t seen any impact.

“You guys know this industry, it’s a churn industry so things come and things go very quickly so when something goes, something replaces it very quickly.”

He added: “The military continues its review, we’ve had ongoing discussions with them, but no causal relationship has been found ​[between DMAA and adverse medical conditions or deaths].

“And from a perspective of sales, we see no impact whatsoever.”

Accelerating the NPD cycle in 2012

GNC, which posted a 43.3% hike in adjusted pre-tax earnings to $82.5m in the three months to December 31, 2011, and a 16.9% rise in revenues to $509.6m, was expected to “continue to outperform industry growth rates” ​this year, predicted Fortunato.

There would also be more focus on innovation, he said. “We are accelerating the new product development cycle both domestically and internationally.

“We have advanced the proprietary pipeline of innovation about three months so the goal is to get about 15 months’ worth of new product introductions into 2012 and get them in earlier in the year which will help give us momentum as we go into 2013."

15 months’ worth of new products crammed into 12 months

He added: “Innovation continues to drive this business – I’ve been saying it for years. We’ve dedicated teams, we’ve hired additional resources.”

He would not give details of new launches scheduled for 2012 but said they were likely to include line extensions of ranges that had been successful in 2011, notably Beyond Raw, Total Lean and Vitapaks, which were generating “strong double-digit growth rates​”.

He added: “In January we launched GenetixHD featuring advanced formulas designed to maximize muscle definition and weight management… We are pleased with the early results.”

Meanwhile, phase two of GNC’s new marketing campaign is likely to kick in around in June, and is designed to attract people in their 30s, 40s and 50s as well as the 18-30 age-group targeted in the monochrome Live Well, Live Hot, Live Healthy etc ads that hit billboards last year.

E-commerce plans

GNC, which acquired discount supplement retailer LuckyVitamin.com last year, would also be introducing new products to the LuckyVitamin.com range now that the supply chain integration process was complete, said Fortunato.

“We are pleased with the momentum in this business. We are now focused on delivering profit synergies and increasing market share by expanding the assortment in the sports nutrition category and introducing select private label products.”

He added: “They had great conversation rates, way higher than ours, a very loyal following. But they didn’t have a lot of sports products. We obviously trade extremely well in that market, so we think we can take a share of that e-commerce sports nutrition market off players heavily in that market right now.”

Q4 2011 results breakdown

In the three months to December 31, 2011, retail revenues were up 16.9% to $365.5m, driven primarily by a 12.1% rise in like-for-like sales in company-owned US stores and a 35.1% rise in e-commerce sales via GNC.com.

Franchise sales were up 17.6% to $83.7m while manufacturing/wholesale revenues were up 16.4% to $60.7m driven by an 11.1% increase in third party manufacturing contract sales, plus strong sales to PetSmart and Sam's Club stores.

Outlook for 2012

GNC, which began trading on the New York Stock Exchange last year, has more than 5,900 stores in the US and 1,700 overseas selling a range of products under GNC proprietary brands including Mega Men, Ultra Mega, GNC Wellbeing, Pro Performance, and third party brands.

The Pittsburgh-based firm, which also has a manufacturing and wholesale arm, reported consolidated sales of $2.072bn in the full year for 2011, up 13.7% compared with calendar year 2010.

Adjusted EBITDA was up30.9% to $346.7m in 2011.

GNC is predicting sales of approximately $2.28bn for the full year 2012, a 10% increase over 2011.

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