GNC’s Q3: Return to positive for same store sales, but drop in revenue

By Adi Menayang

- Last updated on GMT

GNC’s Q3: Return to positive for same store sales, but drop in revenue

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The third quarter of GNC saw same store sales up by 1.3% as well as “continued strong growth” in its new Amazon Storefront, according to company executives—but revenue was down 2.9% at $609.5 million compared to the same quarter last year.

Net income also dropped, to $21.5 million compared to $32.4 million in Q3 2016. Diluted earnings per share was $0.31 this quarter compared to $0.47 in 2016.

There were three unique challenges the retailer faced that greatly impacted its Q3 performance: The hurricanes in Texas, Florida, and Puerto Rico; a reduction in advertising, which may have affected traffic; and a wave of promotion redemptions.

“We experienced a one time comp hit in September, resulting from our decision to activate the accounts of all of our loyalty members who had not yet activated their accounts to our website,”​ said Tricia Tolivar, CFO of GNC, during the company’s Q3 earnings call.

“Given that there were millions of members who had accumulated reward points but had not used them given their accounts were not yet activated, we experienced an unusual volume of redemptions in September and October after we automatically activated all of the accounts.”

Less reliant on promotions and discounts

Even with the unusual wave of redemptions, the company’s stores had 75% fewer items on sale, promotion, or BOGO than there were during Q3 2016, according to GNC’s new CEO Ken Martindale, who replaced interim CEO Bob Moran last month.

“Our business is no longer as reliant on promotions and discounts as a means of driving traffic, which we believe is very important as we continue to position GNC for the long term,”​ he said during the earnings call.

Martindale attributed the improvements in this area to changes that have been made this year​, which included reviewing and revamping the company’s pricing strategy for consistency throughout platforms and improvements on in-store infrastructure.

These changes, dubbed the One New GNC model, was also lauded as the cause of the company’s strong performance​ Q1 of this year. “We’re on the right track and we like the trends we’re seeing,” ​Martindale added.

Positive performance online and in China

In the summer, amid the industry whirlwind caused by online retail giant Amazon’s acquisition of Whole Foods​, interim CEO Bob Moran said​ that “Amazon is not a death knell for brick-and-mortars, but a great advertising platform,”​ during the second quarter earnings call.

Sales from the storefront, which are included in results for the business unit, have exceeded expectations of executives and analysts alike.

During this quarter’s earnings call, Martindale said that re-platforming the Amazon storefront by moving from a third-party to a company-controlled platform allowed GNC to “introduce new features resulting in more flexibility to add enhancements including advanced personalization and improved merchandising, the benefits which are evident in our sales results.”

“Additionally, we made major adjustments to promotional cadence and pricing in the third quarter of 2016, thereby eliminating bulk sales and opening the door for a successful launch on Amazon.”

Its entire online business comparables increased 41.9% in the third quarter, but the company remained tight-lipped about the individual contributions of the Amazon Storefront and to this increase.

Growth was also seen in its international business, with a 19.3% increase in revenue and a 14.3% increase in operating income, driven by growth from e-commerce in China.

“We continue to evaluate options to further penetrate the market in China where we see significant opportunity for long-term growth. At this time, we cannot share details on how we intend to accelerate this growth but will do so when appropriate,”​ Tolivar said.

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