GNC Holdings' (GNC) Q4 Earnings Miss Estimates, Margins Fall

GNC Holdings, Inc. (NYSE:GNC) reported fourth-quarter 2018 adjusted loss per share of 13 cents against the year-ago quarter’s adjusted earnings of 26 cents. The Zacks Consensus Estimate was pegged at 2 cents. Reported earnings per share for the quarter came in at 62 cents against loss of $3.03 cents a year ago.

For full-year 2018, the company reported adjusted earnings of 34 cents, reflecting a decline of 75.3% from 2017. This figure missed the Zacks Consensus Estimate by 27.7%.

Revenues

Revenues for the fourth quarter came in at $547.9 million, down 2.6% year over year. This figure missed the Zacks Consensus Estimate by 1.1%.

For the full year, the company reported revenues of $2.35 billon, marking a decline of 8% from 2017. The top line, however, matched the consensus estimate.

Segmental Details

GNC Holdings reports operations under three segments: U.S. & Canada (including company-owned stores in the United States, Puerto Rico and Canada, franchise stores in the United States and e-commerce), International (inclusive of franchise locations in approximately 50 countries, The Health Store and China operations) and Manufacturing/Wholesale (comprising manufactured products sold to other segments, third-party contract manufacturing and sales to wholesale partners).

During the reported quarter, GNC Holdings’ revenues from the U.S. & Canada segment fell 3.7% year over year to $444.9 million. Notably, e-commerce sales accounted for 9.3% of U.S. and Canada revenues, increasing from 8.4% in the prior-year quarter.

Company-owned net store closures negatively impacted revenues by $10 million. This apart, there was a 0.6% decline in same store sales, which contributed to a fall of $1.9 million in revenues within this segment. Moreover, domestic franchise revenues fell $5 million from the year-ago period owing to reduction in same store sales as well as the number of franchise stores.

Revenues in the International segment rose 12.1% to $51.3 million for the quarter under review. Higher cross border e-commerce sales contributed to a surge in revenues from China. Despite a 3% reduction in retail same store sales (in local currency), revenues from international franchisees saw growth of $2.3 million.

Revenues in the Manufacturing / Wholesale segment registered a decline of 6.1% year over year to $51.6 million, excluding intersegment sales. This was mainly on account of a $2.5 million adjustment related to previously reported revenues for specialty manufacturing. Banking on the company’s increased focus on proprietary products, intersegment revenues surged $14.4 million in the fourth quarter of 2018.

Margins

Gross profit declined 6% year over year to $172.4 million. Accordingly, gross margin contracted 112 basis points (bps) to 31.5% in the fourth quarter.

Selling, general and administrative expenses climbed 6.4% to $151.7 million. Accordingly, adjusted operating profit fell 49.2% to $20.7 million and adjusted operating margin contracted 347 bps to 3.8%.

Financial Position

GNC Holdings exited 2018 with cash and cash equivalents of $67.2 million, up from $64 million at the end of the 2017. Long-term debt was $993.6 million in the quarter under consideration, down from $1.29 billion at the end of the previous year. At the end of 2018, net cash flow from operating activities totaled $95.8 million compared with $149.6 million a year ago.

Further, the company generated free cash flow of $95.7 million in the year compared with $196.7 million in 2017.

Our Take

GNC Holdings exited 2018 on a dismal note with fourth-quarter earnings and revenues lagging the respective Zacks Consensus Estimate. While revenues from manufacturing and domestic segments reported year-over-year decline, it registered impressive sales growth in its international business as well as International segment. However escalating costs and expenses weighed on the bottom line.

Despite the negatives, we are upbeat about some recent developments that had taken place during the fourth quarter. For instance, GNC Holdings closed a joint venture deal with Hong Kong-based e-commerce company, Harbin Pharmaceutical Group. This joint venture is slated to accelerate the company’s cross-border e-commerce business with China. GNC Holdings has also undertaken a strategic joint venture with International Vitamin Corporation, which is expected to strengthen its product innovation and supply chain sector.

Zacks Rank & Key Picks

GNC Holdings currently carries a Zacks Rank #3 (Hold). A few top-ranked medical stocks that have reported quarterly results recently are ABIOMED, Inc. (NASDAQ:ABMD) , AngioDynamics Inc. (NASDAQ:ANGO) and CONMED Corporation (NASDAQ:CNMD) .

ABIOMED, Inc. reported fourth-quarter fiscal 2018 earnings per share of 80 cents, which beat the Zacks Consensus Estimate by 25%. Revenues came in at $174.4 million, beating the consensus mark by 6.3%. The stock carries a Zacks Rank of 2 (Buy).

AngioDynamics’ fiscal second-quarter adjusted earnings of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, beating the consensus estimate by 2.9%. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED reported fourth-quarter adjusted earnings of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the consensus estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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