GNC Holdings Hit By Dismal Q2 Results, Competition Rife

On Aug 30, we issued an updated research report on Pittsburgh, PA-based GNC Holdings, Inc. (NYSE:GNC) , a leading global specialty retailer of products for health and wellness, including vitamins, minerals, herbal supplement, sports nutrition and diet. The company currently carries a Zacks Rank #4 (Sell).

GNC Holdings ended second-quarter 2016 on a disappointing note as its revenue figure failed to meet the Zacks Consensus Estimate. Although earnings surpassed the same, it was on the back of considerably lower number of weighted average common shares outstanding and not due to any strong fundamental on the company’s part.

The nutritional supplements industry is characterized by rapid and frequent changes in demand for products and new product introductions. On any condition if GNC Holdings fails to accurately predict these changing demand trends and provide the stores with the latest products, it can impact customer relationships and hamper the company’s market share.

Moreover, GNC Holdings’ international competitors include large international pharmacy chains, major international supermarket chains and other large U.S.-based companies with international operations. Management fears that in the face of stiff competition, the company may fail to function effectively and its attempts to do so may require it to reduce prices, which in turn may result in lower margins.

Further, currency devaluation in Mexico adversely affected consumer demand within GNC Holdings’ international business. However, to recover from the situation, management is currently working with vendors and franchisees to make sure the company has more differentiated and exclusive products.

On a brighter note, GNC Holdings’ refranchising strategy has boosted the company’s profit substantially. By the end of the second quarter, the company refranchised 90 of its company-owned stores and recorded refranchising gains of $16.9 million in the quarter. The company also holds a strong cash balance position.

Key Picks in the Sector

Some better-ranked medical stocks are Lantheus Holdings, Inc. (NASDAQ:LNTH) , GW Pharmaceuticals plc (NASDAQ:GWPH) and Quidel Corp. (NASDAQ:QDEL) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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