GNC ends tumultuous 2015 with year-over-year net income dip

By Adi Menayang

- Last updated on GMT

Related tags Net income Income statement Revenue

Photo: Mike Mozart/Flickr
Photo: Mike Mozart/Flickr
The company reported an adjusted net income of $49.9 million, a decrease of 7.6% compared with the adjusted net income of $53.9 million in Q4 2014.

It’s been a rough year for supplements retailing giant GNC. The first quarter was described as “disappointing,”​ the second quarter’s revenues stalled​, and stock prices took a 28% plunge in Q3​.

For the full year 2015, the Company reported consolidated revenue of $2,639.2 million, an increase of 1% compared to the full year of 2014. Revenue increased in the company’s retail and franchise segments by 0.3% and 5.9% respectively, but decreased in the company’s manufacturing/wholesale segment by 2.3%.

Net income didn’t fare so well, decreasing 5.7% to $246.5 million from $261.3 million for the full year 2014.

Shares increase despite hard blows

For the quarter, adjusted diluted earnings per share was $0.63, an increase of 3.3% from 2014 Q4’s $0.61. For the full year, the increase is 2.1% to an adjusted diluted earnings per share of $2.93.

GNC sold all the assets of Discount Supplements to a pre-tax loss of $2.7 million, which resulted in the reduction of $0.02 per diluted share.

Additionally, the company reached a settlement agreement involving two California wage and break class action lawsuits against it​. The company has agreed to pay up to $9.5 million for all costs, resulting in a pre-tax settlement charge of $6.3 million, or a reduction of $0.07 per diluted share in the fourth quarter.

A focus on advertising and promotions

It’s been a year since CEO Michael Archbold talked about weaning off excessive promotions under former CEO Joe Fortunato’s watch. During the most recent earnings call, GNC announced that it plans to boost sluggish sales with… promotions. But Chief Financial Officer and Executive Vice President Tricia Tolivar was quick to add that GNC will be focusing on “profitable promotions.”

“The all-store BOGO [buy one get one] is a perfect example of that where we will be promotional, but it’ll be profitable promotions,”​ she said. The company is approaching its BOGO differently this time around.

Tested out in December, GNC stores saw a lot more cross-merchandising. “Typically, when we would do a BOGO, it was a sports BOGO or it was a wellness BOGO. This was an all-store BOGO, so that you could mix and match across the different categories. That created a lot more cross-shopping which we’re actually happy about,” ​Archbold said.

He added: “We’re putting big pieces, big portions of the store on sale. And as we pull back on that, we’ve got the product margin improvement and that’s been critical to the transition that we’ve gone through, obviously impacting the comps in the near-term, but actually improving margin.”

Advertising expenses went up to 2.6% of revenue compared with 1.8% a year ago, which Archbold describes as an effort to restore marketing expense to more normalized levels. This impacted a decrease in operating income from $69.1 million to $63.6 million.

Archbold said the company already sees the impact of some of its strategies, and Tolivar is optimistic with these investment moves. “I’m confident the disciplined approach we’re taking to our business, the predictability of our strong cash flows, coupled with the strategies discussed [position] us to meet our financial objective for 2016, and maximize shareholder value over the long-term,”​ she said.

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