GNC Holdings, Inc. Reports Second Quarter 2013 Results
Increases Outlook for Full Year 2013
Revenue Increases 9.2% in the Second Quarter
Same Store Sales Increase 6.8% excluding Gold Card giveaway impact
EPS Increases 17.7% to $0.73 as compared to Second Quarter 2012 EPS of $0.62
Jul 25, 2013
PITTSBURGH, July 25, 2013 /PRNewswire/ -- GNC Holdings, Inc. (NYSE: GNC) (the "Company"), a leading global specialty retailer of health and wellness products, today reported its financial results for the quarter and year-to-date period ended June 30, 2013.
In addition to presenting the Company's financial results in conformity with U.S. generally accepted accounting principles ("GAAP"), the Company is also presenting results on an "adjusted" basis to exclude the impact of certain expenses related to the Company's secondary offering (the "Offering") in the first quarter of 2012. For more information, see the attached reconciliations of non-GAAP financial measures.
Second Quarter Performance
For the second quarter of 2013, the Company reported consolidated revenue of $676.3 million, an increase of 9.2% over consolidated revenue of $619.1 million for the second quarter of 2012. Revenue increased in each of the Company's segments: retail by 9.6%, franchise by 6.8% and manufacturing/wholesale by 11.1%.
Same store sales increased approximately 6.8% in domestic company-owned stores (including GNC.com sales) in the second quarter of 2013, excluding a negative impact of approximately 280 basis points or 2.8% from the planned giveaway of Gold Cards during the Company's chain-wide Member Pricing rollout. In domestic franchise locations, same store sales increased approximately 5.2% excluding an approximately 90 basis point negative impact from Gold Card giveaways.
For the second quarter of 2013, the Company reported GAAP net income of $71.7 million, compared to $66.7 million for the second quarter of 2012. Diluted earnings per share were $0.73 for the second quarter of 2013, a 17.7% increase over diluted earnings per share of $0.62 for the second quarter of 2012.
Joe Fortunato, Chairman, President & CEO, said, "GNC continues to consistently deliver strong year-over-year results, while making meaningful investments in the business. We had an exemplary execution of our transition to Member Pricing, our new products are delivering above expectations, and our web businesses are both growing the top and bottom line. Internationally, our commitment to increasing the penetration of GNC products – along with other efforts – continues as we seek to gain market share globally. And, we opened our first standalone store in China. We are well positioned for sustained long-term growth - capitalizing on our leadership position in the marketplace – and continue to execute a strong capital return to shareholder program."
Member Pricing Update
The Company successfully completed the rollout of the new Gold Card Member Pricing program. The early results include a meaningful increase in the Gold Card member database, a more consistent spread of sales over each week of the month, and significant positive feedback based on customer surveys. The anticipated financial impact of this rollout is unchanged from the Company's previous expectations, and is included in the "Current 2013 Outlook" presented in this release.
The Company is expanding its retail presence in China - opening a standalone store in Shanghai – as part of a multi-channel distribution strategy. Additional stores are expected, complementing the Company's existing store-within-a-store and e-commerce presence.
Second Quarter Segment Operating Performance
For the second quarter of 2013, retail segment revenue grew 9.6% to $502.5 million, compared to $458.6 million for the second quarter of 2012, driven primarily by a same store sales increase, and the addition of 151 net new stores since the end of the second quarter of 2012. Operating income increased by 2.8%, from $97.6 million to $100.3 million, and was 20.0% of segment revenue for the second quarter 2013, compared to 21.3% for the second quarter of 2012. Operating income was negatively impacted by planned investments related to the Member Pricing rollout.
For the second quarter of 2013, franchise segment revenue grew 6.8% to $110.6 million, compared to $103.5 million for the second quarter of 2012, driven primarily by increased wholesale product sales and royalty income in both domestic and international franchise operations. Operating income increased 13.5%, from $32.3 million to $36.7 million, and was 33.1% of segment revenue for the second quarter of 2013, compared to 31.2% for the second quarter of 2012. The increase in operating income percentage was driven by higher gross profit margin.
For the second quarter of 2013, manufacturing/wholesale segment revenue, excluding intersegment revenue, increased 11.1% to $63.2 million, compared to $56.9 million for the second quarter of 2012. Operating income increased 6.9% from $23.9 million to $25.5 million and was 40.3% of segment revenue for the second quarter of 2013 compared to 41.9% for the second quarter of 2012. The decrease in operating income percentage was driven primarily by a lower mix of proprietary product sales.
Total operating income for the second quarter of 2013 was $123.7 million, a $6.6 million, or 5.6%, increase over operating income of $117.1 million for the second quarter of 2012. Second quarter operating income in 2013 was negatively impacted by planned investments related to the Member Pricing rollout.
For the first six months of 2013, the Company reported consolidated revenue of $1,341.0 million, an increase of 7.9% over consolidated revenue of $1,243.4 million for the first six months of 2012. Revenue increased in each of the Company's segments: retail by 7.3%, franchise by 6.5%, and manufacturing/wholesale by 15.2%.
For the first six months of 2013, the Company reported net income of $144.3 million, 10.8% of revenue and a 10.0% increase compared to $131.2 million for the first six months of 2012, after adjusting for expenses related to the Offering. Diluted earnings per share were $1.46 for the first six months of 2013, a 19.7% increase over 2012 adjusted results of $1.22.
For the first six months of 2013, the Company opened 76 net new domestic company-owned stores, 96 net new international franchise locations, 20 net new domestic franchise locations, 8 net new Rite Aid franchise store-within-a-store locations, and 1 net new company-owned store in Canada.
For the first six months of 2013, the Company generated net cash from operating activities of $126.8 million, incurred capital expenditures of $21.5 million, repurchased $181.3 million in common stock under the previously authorized $250 million share repurchase program, and paid $29.1 million in common stock dividends. The Company generated $104.2 million in free cash flow (which it defines as cash provided by operating activities less cash used in investing activities) and at June 30, 2013, the Company's cash balance was $64.0 million.
The Company's Board of Directors declared a cash dividend of $0.15 per share of its common stock for the third quarter of 2013. The dividend will be payable on or about September 27, 2013 to stockholders of record at the close of business on September 13, 2013. The Company currently intends to pay regular quarterly dividends; however, the declaration of such future dividends is subject to the final determination of the Company's Board of Directors.
At the end of the second quarter of 2013, diluted shares outstanding were approximately 96.6 million.
Current 2013 Outlook
The Company's current outlook for 2013 is based on current expectations and includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Below is the Company's current outlook for 2013, which is being updated from the previous outlook provided on April 26, 2013:
As of June 30, 2013, GNC has more than 8,300 locations, of which more than 6,200 retail locations are in the United States (including 969 franchise and 2,189 Rite Aid franchise store-within-a-store locations) and franchise operations in 55 countries (including distribution centers where retail sales are made). The Company – which is dedicated to helping consumers Live Well – has a diversified, multi-channel business model and derives revenue from product sales through company-owned retail stores, domestic and international franchise activities, third party contract manufacturing, e-commerce and corporate partnerships. GNC's broad and deep product mix, which is focused on high-margin, premium, value-added nutritional products, is sold under GNC proprietary brands, including Mega Men®, Ultra Mega®, Total Lean™, Pro Performance®, Pro Performance® AMP, Beyond Raw®, and under nationally recognized third party brands.
Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties
The Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions. The Company may finance any repurchases with cash, potential financing transactions, or a combination of the foregoing. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the program. The company intends to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
Management has included non-GAAP financial measures in this press release because it believes they represent an effective supplemental means by which to measure the Company's operating performance. Management believes that adjusted net income, adjusted diluted earnings per share and free cash flow are useful to investors as they enable the Company and its investors to evaluate and compare the Company's results from operations in a more meaningful and consistent manner by excluding specific items which are not reflective of ongoing operating results. Adjusted net income, adjusted diluted earnings per share and free cash flow are not measurements of the Company's financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, as a measure of the Company's profitability or liquidity. For more information, see the attached reconciliations of non-GAAP financial measures.
The following table provides a reconciliation of net income and EPS to adjusted net income and adjusted EPS for the periods shown:
SOURCE GNC Holdings, Inc.