GNC announced earlier this week during an earnings call with analysts that it faced the prospect of having to file for Chapter 11 bankruptcy protection if it could not pay its outstanding notes down below $50 million by May 16. The company said during the call that it did not have enough cash to make the required payment and that it was in negotiation with lenders to come up with a short term solution.
GNC has struggled with market changes and a now burdensome brick and mortar store footprint for years. The last time the company showed a sales gain in a trailing 12 month period was back in 2015. The company has had recurring tense negotiations with its lenders starting in May 2017.
Crisis hit GNC at inopportune time
The latest phase of debt brinkmanship has been exacerbated by the pandemic crisis. As many as 900 of GNC’s more than 3,500 company owned and franchise stores are located in shopping malls and were slated for phased closure before the virus crisis hit. Stay at home orders and accompanying retail closures have transformed those underperforming outlets into zombie locations. Other stores in states like Nevada and Colorado have been forced to close because of local interpretations of what constitutes an ‘essential’ business or because weak foot traffic meant they were costing more to keep open than they were bringing in.
GNC is now being starved of revenue at a time when it needs it most. And this is happening during a period when other parts of the dietary supplement industry are recording record sales. Stock traders responded enthusiastically to GNC’s news, sending its share price up more than 12% in a few minutes after the announcement on Thursday.
But the price receded later, and settled where it opened the day’s trading at 42 cents a share. That points to the next big hurdle GNC faces in its bid to claw back from the precipice. The company received a notice on April 22 from the New York Stock Exchange that it was out of compliance with its rules. GNC was given 45 days to boost its share price over $1 per share or face being delisted from the exchange.