FitLife Brands says it will weather GNC bankruptcy storm

FitLife Brands is an Omaha-NE based marketer of a variety of dietary supplements under a variety of brand names, including NDS Nutrition, PMD, SirenLabs, CoreActive and others. 

Going all in with GNC

More than five years ago the company chose to switch to captive distribution through GNC’s extensive franchise store network​​.  Most of its products are now sold this way.

The reasoning was that while the company could not charge as much per unit, the easier and wider distribution more than made up the difference.  While there have been some bumps along the way for the company, including an ill fated acquisition of Denver-based sports nutrition brand iSatori, the company had generally prospered under the arrangement.

But FitLife has suffered along with other brands that had hitched their wagon to the GNC star. GNC had been on a downward slope for a number of years before it filed for bankruptcy earlier this summer.  Falling revenues coupled with looming debt payments signaled an end for the company.  The most recent report is that Chinese company Harbin’s $760 million stalking horse bid for the firm has been approved.

Part of GNC’s issues have had to do with corporate owned stores located in underperforming shopping malls.  Even before the pandemic lockdowns had hamstrung that retail model, malls had been declining, and the company had announced a plan to shutter as many as 900 of these locations.

Franchise stores better positioned to weather bankruptcy storm

Those issues have affected the franchise outlets less. FitLife said in a statement that the closure of company-owned stores may actually benefit the franchise locations.

“While a small number of franchisees have also elected to close their stores as part of the bankruptcy process, the Company believes that the closure of a significant number of corporate locations may drive increased traffic to the remaining franchise locations, benefitting our franchise-exclusive brands,”​ the company said.

FitLife said it expects to be paid for most of what it is owed by GNC for products delivered in the 20 days immediately proceeding the bankruptcy filing, which occurred on June 24​​.  The company has at the moment more than $3 million in accounts receivable.  About $350,000 is still owed on products delivered to GNC prior to the 20-day window,  which thus fall under a different provision of bankruptcy law.  FitLife has decided to write this off, rather than stand in line with other unsecured creditors.

Earnings details

FitLife said its second quarter revenue plunged more than 40% year over year to $2.7 million as a result of the impact of COVID-19 lockdowns on foot traffic at retail locations, both within the GNC network and elsewhere that the company’s products are sold.   Including the GNC write-off, the company recorded a loss of about $100,000 for the quarter, as opposed to the $500,000 profit it made in the same period a year previously.  Looking forward, the company underlying demand for its products remains strong and said revenue has picked up as lockdown restrictions ease and GNC franchisees restock.