General Nutrition Centers, Inc. Reports Second Quarter 2008 Financial Results
PITTSBURGH, Aug. 7 /PRNewswire/ -- General Nutrition Centers, Inc. ("GNC" the "Company" or "we"), the largest global specialty retailer of nutritional supplements, today reported its financial results for the second quarter ended June 30, 2008.
The Company is an indirect wholly owned subsidiary of GNC Parent LLC, which was acquired by affiliates of Ares Management LLC ("Ares") and Ontario Teachers' Pension Plan Board ("Teachers") through a merger (the "Merger") on March 16, 2007. As a result, the financial results presented in this press release represent the aggregate of the financial results of the Company from January 1, 2007 through March 15, 2007, predecessor, and the results from March 16, 2007 to June 30, 2007 and for the six months ended June 30, 2008, successor.
For the second quarter of 2008, the Company reported revenues of $422.7 million, an 8.5% increase over the same quarter in 2007. This increase was the result of increased revenues in each of the Company's business segments: Retail by 6.3%; Franchise by 8.6%; and Manufacturing/Wholesale by 28.0%. Same store sales improved 4.5% in domestic company-owned stores (including internet sales), and 5.2% in Canadian stores. Domestic same store sales were positively impacted by approximately 0.5% due to the shift of the Easter holiday to the first quarter in 2008, compared to the second quarter in the prior year.
For the second quarter of 2008, the Company reported earnings before interest, income taxes, depreciation and amortization (EBITDA) of $57.2 million compared to $40.1 million for the same quarter in 2007. Included in the second quarter of 2007 was $6.8 million of non-cash purchase accounting adjustments resulting from the Merger. Included as part of compensation expense for the second quarters of 2008 and 2007 was $0.8 million and $0.6 million, respectively, of non-cash stock-based compensation expense. Excluding these non- cash expenses, Adjusted EBITDA was $58.0 million for the second quarter of 2008, a 22.1% increase over Adjusted EBITDA of $47.5 million for the second quarter of 2007, a result of significant improvements in all operating businesses.
Revenue for the first six months of 2008 was $850.8 million, an 8.9% increase over the same period in 2007. For the first six months of 2008, the Company reported EBITDA of $112.1 million compared to $35.9 million for the same period in 2007. Compensation expense for the first six months of 2008 and 2007 included $1.5 million and $1.1 million, respectively, of non-cash stock-based compensation expense. EBITDA for the first six months of 2007 reflected $58.2 million of transaction costs related to the Merger. Excluding non-cash compensation expense and Merger-related transaction costs, Adjusted EBITDA was $113.6 million for the first six months of 2008 compared to $95.2 million in the same period of 2007, a 19.3% increase.
The transaction costs and Merger-related expenses incurred in the first six months of 2007 included: $34.6 million of transaction fees and expenses; $15.3 million of compensation expenses (including $3.8 million of non-cash stock-based compensation resulting from the cancellation of all outstanding stock options); and $8.3 million of non-cash purchase accounting adjustments recorded as part of cost of sales.
GNC, headquartered in Pittsburgh, Pa., is the largest global specialty retailer of nutritional products including vitamin, mineral, herbal and other specialty supplements and sports nutrition, diet and energy products. GNC has more than 5,000 retail locations throughout the United States (including more than 950 franchise and 1,550 Rite Aid store-within-a-store locations) and franchise operations in 44 international markets. The company -- which is dedicated to helping consumers Live Well -- also offers products and product information online at http://www.gnc.com/.
GNC has scheduled a conference call and webcast to report its second quarter financial results on Thursday, August 7, 2008 at 11:00 am ET. To listen to this call dial 1-800-446-2782 inside the U.S. and dial 1-847-413-3235 outside the U.S. The conference identification number for all callers is 22273806. A webcast of the call will also be available through the "About GNC" link on http://www.gnc.com/.
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our 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. GNC believes there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain, we may not realize our expectations and our beliefs may not prove correct. We undertake 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. Factors that may materially affect such forward-looking statements include, among others:
-- significant competition in our industry; -- unfavorable publicity or consumer perception of our products; -- the incurrence of material products liability and product recall costs;
-- costs of compliance and our failure to comply with governmental regulations;
-- the failure of our franchisees to conduct their operations profitably and limitations on our ability to terminate or replace under-performing franchisees;
-- economic, political and other risks associated with our international operations;
-- our failure to keep pace with the demands of our customers for new products and services;
-- the lack of long-term experience with human consumption of some of our products with innovative ingredients;
-- disruptions in our manufacturing system or losses of manufacturing certifications;
-- increases in the frequency and severity of insurance claims, particularly for claims for which we are self-insured;
-- loss or retirement of key members of management;
-- increases in the cost of borrowings and unavailability of additional debt or equity capital;
-- the impact of our substantial indebtedness on our operating income and our ability to grow;
-- the failure to adequately protect or enforce our intellectual property rights against competitors;
-- changes in applicable laws relating to our franchise operations; and
-- our inability to expand our franchise operations to attract new franchisees.
Successor Three Months Ended June 30, 2008 2007 Revenues: Retail $314.5 74.4% $295.9 76.0% Franchise 65.1 15.4% 60.0 15.4% Manufacturing / Wholesale 43.1 10.2% 33.6 8.6% Total net revenues 422.7 100.0% 389.5 100.0% Operating expenses: Cost of sales, including warehousing, distribution and occupancy costs 274.3 64.9% 260.5 66.9% Compensation and related benefits 62.9 14.9% 60.4 15.5% Advertising and promotion 13.6 3.2% 14.3 3.7% Other selling, general and administrative expenses 22.3 5.3% 20.6 5.3% Amortization expense 2.6 0.6% 2.4 0.5% Foreign currency loss (gain) - 0.0% (0.1) 0.0% Transaction related costs - 0.0% - 0.0% Total operating expenses 375.7 88.9% 358.1 91.9% Operating income: Retail 42.2 10.0% 33.5 8.6% Franchise 18.7 4.4% 15.5 4.0% Manufacturing / Wholesale 17.3 4.1% 11.1 2.9% Unallocated corporate and other costs: Warehousing and distribution costs (13.8) -3.3% (12.5) -3.2% Corporate costs (17.4) -4.1% (16.2) -4.2% Merger related costs - 0.0% - 0.0% Subtotal unallocated corporate and other costs, net (31.2) -7.4% (28.7) -7.4% Total operating income (loss) 47.0 11.1% 31.4 8.1% Interest expense, net 19.4 23.6 Income (loss) before income taxes 27.6 7.8 Income tax expense (benefit) 10.6 3.1 Net income (loss) $17.0 $4.7 Successor Combined Six Months Ended Six Months Ended June 30, June 30, 2008 2007 Revenues: Retail $635.8 74.7% $600.6 76.9% Franchise 130.0 15.3% 118.7 15.2% Manufacturing / Wholesale 85.0 10.0% 62.1 7.9% Total net revenues 850.8 100.0% 781.4 100.0% Operating expenses: Cost of sales, including warehousing, distribution and occupancy costs 553.2 65.0% 515.5 66.0% Compensation and related benefits 124.5 14.6% 134.8 17.3% Advertising and promotion 31.7 3.7% 35.0 4.5% Other selling, general and administrative expenses 44.1 5.2% 40.1 5.1% Amortization expense 5.7 0.7% 3.6 0.5% Foreign currency loss (gain) 0.1 0.0% (0.3) 0.0% Transaction related costs - 0.0% 34.6 4.4% Total operating expenses 759.3 89.2% 763.3 97.8% Operating income: Retail 79.0 9.3% 67.1 8.5% Franchise 38.5 4.5% 32.9 4.2% Manufacturing / Wholesale 33.1 3.9% 23.4 3.0% Unallocated corporate and other costs: Warehousing and distribution costs (27.6) -3.2% (25.2) -3.2% Corporate costs (31.5) -3.7% (45.5) -5.9% Merger related costs - 0.0% (34.6) -4.4% Subtotal unallocated corporate and other costs, net (59.1) -6.8% (105.3) -13.5% Total operating income (loss) 91.5 10.8% 18.1 2.2% Interest expense, net 42.5 70.9 Income (loss) before income taxes 49.0 (52.8) Income tax expense (benefit) 18.7 (7.1) Net income (loss) $30.3 $(45.7)
Note: The numbers in the above table have been rounded to millions. All calculations related to the Results of Operations for the year-over-year comparisons were derived from the table above and could occasionally differ immaterially if you were to use the unrounded data for these calculations.
We define EBITDA as net income (loss) before interest expense (net), income tax expense, depreciation, and amortization. Management uses EBITDA as a tool to measure operating performance of the business. We use EBITDA as one criterion for evaluating our performance relative to our competitors and also as a measurement for the calculation of management incentive compensation. Although we primarily view EBITDA as an operating performance measure, we also consider it to be a useful analytical tool for measuring our liquidity, our leverage capacity, and our ability to service our debt and generate cash for other purposes.
We also use EBITDA as defined in our 2007 Senior Credit Facility, and the indentures governing our Senior Toggle Notes and 10.75% Senior Subordinated Notes to determine compliance with the terms of the facility and the Notes. The reconciliation of EBITDA as presented below is different than that used for purposes of the covenants under the indentures governing the Senior Toggle Notes and 10.75% Senior Subordinated Notes, and it is also different than that used in our 2007 Senior Credit Facility. Historically, we have highlighted our use of EBITDA as a liquidity measure and for related purposes because of our focus on the holders of our debt. At the same time, however, management has also internally used EBITDA as a performance measure. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative 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 our profitability or liquidity.
Adjusted EBITDA is presented as additional information, as management also uses Adjusted EBITDA to evaluate the operating performance of the business and as a measurement for the calculation of management incentive compensation. Management believes that EBITDA and Adjusted EBITDA are commonly used by security analysts, lenders and others; however, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies, limiting their usefulness as comparative measures.
Some of the limitations of EBITDA and Adjusted EBITDA are as follows:
-- EBITDA and Adjusted EBITDA do not reflect cash expenditures, future requirements for capital expenditures or contractual commitments;
-- EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for working capital needs;
-- EBITDA and Adjusted EBITDA do not reflect interest expense or the cash requirement necessary to service interest or principal payments on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
-- EBITDA and Adjusted EBITDA reflect the impact of earnings on income resulting from matters we consider not to be indicative of our ongoing operations, certain of which income we eliminated in our computation of EBITDA and Adjusted EBITDA.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only for supplemental purposes.
For the three months ended June 30, 2008 and June 30, 2007, the six months ended June 30, 2008 and the combined predecessor and successor periods ended June 30, 2007, the following table presents EBITDA reconciled to our net income for such periods and Adjusted EBITDA reconciled to EBITDA for such periods.
NET INCOME (LOSS) RECONCILIATION TO EBITDA AND ADJUSTED EBITDA (in millions) (unaudited) Successor Successor Combined Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income (loss) $17.0 $4.7 $30.3 $(45.7) Interest expense, net 19.4 23.6 42.5 70.9 Income tax expense (benefit) 10.6 3.1 18.7 (7.1) Depreciation and amortization 10.2 8.7 20.6 17.8 EBITDA $57.2 $40.1 $112.1 $35.9 Transaction costs - - - 34.6 Compensation expense related to transaction - - - 15.3 Non-cash stock based compensation expense 0.8 0.6 1.5 1.1 Purchase accounting adjustments - 6.8 - 8.3 Adjusted EBITDA $58.0 $47.5 $113.6 $95.2
For the three months ended June 30, 2008 and June 30, 2007, the six months ended June 30, 2008 and the combined predecessor and successor periods ended June 30, 2007, the following table presents EBITDA reconciled to our cash from operations for such periods and Adjusted EBITDA reconciled to EBITDA for such periods.
CASH FROM OPERATIONS RECONCILIATION TO EBITDA AND ADJUSTED EBITDA (in millions) (unaudited) Successor Successor Combined Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net cash provided by (used in) operating activities $44.9 $39.0 $52.0 $(5.6) Cash paid for interest (excluding deferred financing fees) 10.1 2.5 43.5 41.3 Cash paid for taxes 5.0 0.5 6.4 1.8 Increase (decrease) in accounts receivable (0.8) 5.7 (1.3) 7.6 Increase (decrease) in inventory (13.0) (8.3) 8.5 (12.9) Decrease (increase) in accounts payable 23.5 2.9 (2.0) (1.5) Increase (decrease) in other assets (1.5) (3.1) (2.1) (2.7) Decrease (increase) in other liabilities (11.0) 0.9 7.1 7.9 EBITDA $57.2 $40.1 $112.1 $35.9 Transaction costs - - - 34.6 Compensation expense related to transaction - - - 15.3 Non-cash stock based compensation expense 0.8 0.6 1.5 1.1 Purchase accounting adjustments - 6.8 - 8.3 Adjusted EBITDA $58.0 $47.5 $113.6 $95.2
SOURCE: General Nutrition Centers, Inc.
CONTACT: Greg Miller for General Nutrition Centers, Inc.,
Web site: http://www.gnc.com/