GNC sales fall as China partnership hits bump in road

By Hank Schultz contact

- Last updated on GMT

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Getty Images
Struggling retailer GNC reported first quarter 2019 earnings that included an ‘unexpected decrease in revenue’ from its new China ecommerce joint venture.

GNC has been struggling with falling sales for a number of years now. A breakneck pace of expansion that culminated in the 2012-2013 time frame has left the company saddled with a huge number of stores, both corporate owned and operated by franchisees. Some of these are located in shopping malls and other locations that are withering on the vine.

To compensate, the company has been closing underperforming stores. GNC reported closing 87 stores in the first quarter. And, to boost liquidity, earlier this year the company sold off its manufacturing arm to IVC​. That deal was reported worth as much as $170 million.

Partnership stumbles out of the gate

The company also entered into a partnership with Harbin Pharmaceutical Co. for ecommerce sales into the potentially huge Chinese market. While the company’s earnings press release said the partnership is on track and meeting expectations, CFO Tricia Tolivar said, “The transfer of the China e-commerce business to the joint venture resulted in an unexpected decrease in revenue.”

CEO Ken Martindale put a more nuanced spin on the apparently difficult birth of the project.

“We are working closely with Harbin Pharmaceutical Group to position our China joint venture for success. Our teams have been hard at work aligning on priorities, solidifying our management team, and executing the first steps of the joint venture business plan. We continue to believe that the Harbin partnership will accelerate our presence and maximize our opportunities for growth in the $25 billion Chinese supplement market,”​ he said.

Martindale and Tolivar made their remarks during an earnings call with analysts.  The call was posted in transcript form on the site seekingalpha.com​.

CBD topicals, women’s products launched

Martindale pointed to positive trends for the company.  A new line of CBD-infused topical products has launched, which can be expected to capitalize on the wild popularity of the ingredient in the US market.  And a line of women’s supplements branded as Alani Nu launched in March.

GNC recorded $564.8 million in sales in its first quarter of fiscal 2019. That represented about a 7% drop from the $607.5 million the company recorded a year earlier.  International sales were up, though, when the Chinese market was excluded. Same store sales fell almost 2% and the company reported a net loss of Net loss of $15.3 million for the quarter.

GNC’s fall from grace has been stunning when viewed in the long term. The company’s stock traded at more than $60 a share in late 2013.  It is trading at $2.39 a share today, which is off the 52-week high of $4.59.  

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