GNC Holdings, Inc. Reports Third Quarter 2013 Results
Revenue Increases 8.7% in the Third Quarter
Same Store Sales Increase 8.2% Excluding Gold Card Giveaway Impact
EPS Increases 24.6% to $0.76 as Compared to Adjusted Third Quarter 2012 EPS of $0.61
Oct 24, 2013
PITTSBURGH, Oct. 24, 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 September 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 offerings in the first and third quarters of 2012 (each, an "Offering") and incremental term loan (the "Incremental Term Loan") in the third quarter of 2012. For more information, see the attached reconciliations of non-GAAP financial measures.
Third Quarter Performance
For the third quarter of 2013, the Company reported consolidated revenue of $675.6 million, an increase of 8.7% over consolidated revenue of $621.6 million for the third quarter of 2012. Revenue increased in each of the Company's segments: retail by 9.5%, franchise by 9.3% and manufacturing/wholesale by 2.4%.
Same store sales increased approximately 8.2% in domestic company-owned stores (including GNC.com sales) in the third quarter of 2013, excluding a negative impact of approximately 150 basis points or 1.5% from the sale of fewer Gold Cards following the Gold Card giveaways associated with the chain-wide member pricing launch in the second quarter of 2013. Including this impact, same store sales increased 6.7% in domestic company-owned stores (including GNC.com sales). In domestic franchise locations, same store sales increased 5.9%.
For the third quarter of 2013, the Company reported GAAP net income of $73.0 million, compared to $62.2 million for the third quarter of 2012. GAAP net income for the third quarter of 2012 included $0.9 million non-recurring expenses associated with the Offering conducted during the quarter and the Incremental Term Loan. Excluding these expenses and the related tax impact, net income for the third quarter of 2013 increased $9.9 million or 15.6% over adjusted net income of $63.2 million for the third quarter of 2012. Diluted earnings per share were $0.76 for the third quarter of 2013, a 24.6% increase over adjusted diluted earnings per share of $0.61 for the third quarter of 2012.
Joe Fortunato, Chairman, President & CEO, said, "I am encouraged by GNC's ability to once again generate growth across all channels, make progress on key strategic initiatives, and deliver strong results despite pressures on the consumer. The successful evolution of our Member Pricing program continues, as we drive customers into the stores on an incremental basis. In addition, we are consistently exhibiting strong new store productivity, and expanding our e-commerce businesses at a pace that exceeds market growth rates. This quarter's performance is a testament to the strength of GNC's business model, whereby our brand, exclusive product offerings, a consumer demographic base which is aligned with the fastest growing segments of the industry and great execution provide the platform for consistent performance. This allows us to continually invest in initiatives that enable GNC to gain market share and expand our global industry leadership position."
Supply Chain Update
In support of ongoing growth and efficiencies, the Company is making the following supply chain investments, the net effect of which is expected to be neutral to marginally accretive, beginning in 2014.
On October 2, 2013, the Company acquired A1 Sports Limited (d/b/a Discount Supplements), the leading multi-brand sports nutrition e-commerce retailer in the United Kingdom. Discount Supplements is expected to generate approximately £20 million, or approximately $31 million, in revenue for the calendar year 2013, and generate positive operating income margin. The Company expects the acquisition to be earnings neutral in 2013, as the operating income contribution is offset by deal costs and amortization of intangibles. The Company expects to begin selling GNC sub-brand products on the site in 2014.
Third Quarter Segment Operating Performance
For the third quarter of 2013, retail segment revenue grew 9.5% to $487.3 million, compared to $445.0 million for the third quarter of 2012, driven primarily by a 6.7% same store sales increase and the addition of 148 net new stores since the end of the third quarter of 2012. Operating income increased by 7.3%, from $86.3 million to $92.6 million, and was 19.0% of segment revenue for the third quarter 2013, compared to 19.4% for the third quarter of 2012. Operating income was negatively impacted primarily by planned gross product margin investments related to the Member Pricing rollout.
For the third quarter of 2013, franchise segment revenue grew 9.3% to $118.9 million, compared to $108.8 million for the third quarter of 2012, driven primarily by increased wholesale product sales and royalty income in both domestic and international franchise operations. Operating income increased 14.6%, from $36.3 million to $41.6 million, and was 35.0% of segment revenue for the third quarter of 2013, compared to 33.4% for the third quarter of 2012. The increase in operating income percentage was driven by higher gross profit margin.
For the third quarter of 2013, manufacturing/wholesale segment revenue, excluding intersegment revenue, increased 2.4% to $69.5 million, compared to $67.8 million for the third quarter of 2012. Operating income increased 7.5% from $26.5 million to $28.4 million and was 40.9% of segment revenue for the third quarter of 2013 compared to 39.0% for the third quarter of 2012. The increase in operating income percentage was driven primarily by higher gross profit margin.
Total operating income for the third quarter of 2013 was $126.0 million, a $14.8 million, or 13.3%, increase over operating income of $111.2 million for the third quarter of 2012. Operating income was 18.6% of revenue for the third quarter of 2013, compared to 17.9% for the third quarter of 2012. Included in third quarter 2013 operating income are approximately $0.4 million in transaction costs associated with the Discount Supplements acquisition.
For the first nine months of 2013, the Company reported consolidated revenue of $2,016.6 million, an increase of 8.1% over consolidated revenue of $1,865.0 million for the first nine months of 2012. Revenue increased in each of the Company's segments: retail by 8.0%, franchise by 7.5%, and manufacturing/wholesale by 10.3%.
During the first nine months of 2013, the Company reported net income of $217.4 million, 10.8% of revenue and an 11.8% increase compared to $194.4 million for the first nine months of 2012, after adjusting for expenses related to the Offerings and Incremental Term Loan. Diluted earnings per share were $2.22 for the first nine months of 2013, a 22.0% increase over 2012 adjusted results of $1.82.
For the first nine months of 2013, the Company opened 108 net new domestic company-owned stores, 124 net new international franchise locations, 35 net new domestic franchise locations, 25 net new Rite Aid franchise store-within-a-store locations, 3 net new company-owned stores in Canada, and 1 new company-owned store in China.
For the first nine months of 2013, the Company generated net cash from operating activities of $215.4 million, incurred capital expenditures of $33.6 million, repurchased $238.4 million in common stock under the previously authorized $250 million share repurchase program, and paid $43.3 million in common stock dividends. The Company generated $180.7 million in free cash flow (which it defines as cash provided by operating activities less cash used in investing activities) and at September 30, 2013, the Company's cash balance was $77.7 million.
The Company's Board of Directors declared a cash dividend of $0.15 per share of its common stock for the fourth quarter of 2013. The dividend will be payable on or about December 27, 2013 to stockholders of record at the close of business on December 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 third quarter of 2013, diluted shares outstanding were approximately 95.8 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 July 25, 2013:
GNC Holdings, Inc., headquartered in Pittsburgh, PA, is a leading global specialty retailer of health and wellness products, including vitamins, minerals, and herbal supplement products, sports nutrition products and diet products, and trades on the New York Stock Exchange under the symbol "GNC."
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. As of September 30, 2013, GNC has more than 8,400 locations, of which more than 6,300 retail locations are in the United States (including 984 franchise and 2,206 Rite Aid franchise store-within-a-store locations) and franchise operations in 54 countries (including distribution centers where retail sales are made).
GNC has scheduled a conference call and webcast to report its third quarter 2013 financial results on October, 24, 2013 at 10:00 am Eastern time. To listen to this call, dial 1-877-232-1784 inside the U.S. and 706-679-4448 outside the U.S. The conference identification number for all participants is 87482867. A webcast of the call will also be available on www.gnc.com in the Investor Relations section under "About GNC" through November 25, 2013.
Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company's financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions, or by discussions of strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain. The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward looking statements, including but not limited to unfavorable publicity or consumer perception of our products; costs of compliance and our failure to comply with new and existing governmental regulations governing our products, including, but not limited to, proposed dietary supplement legislation and regulations; disruptions in our manufacturing system or losses of manufacturing certifications; disruptions in our distribution network; or failure to successfully execute our growth strategy, including any inability to expand our franchise operations or attract new franchisees, any inability to expand our company owned retail operations, any inability to grow our international footprint, any inability to expand our e-commerce businesses, or any ability to successfully integrate businesses that we acquire. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward- looking statements. For a listing of factors that may materially affect such forward -looking statements, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and subsequent our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission.
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 and, as applicable, Rule 10b-5 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.