Why Is GNC Holdings (GNC) Up 1.4% Since Its Last Earnings Report?

It has been about a month since the last earnings report for GNC Holdings, Inc. (NYSE:GNC) . Shares have added about 1.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is GNC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

GNC Holdings reported fourth-quarter 2017 adjusted earnings per share (EPS) of 25 cents, reflecting a massive 257.1% year-over-year increase. Adjusted EPS also surpassed the Zacks Consensus Estimate by a penny.

Full-year 2017 adjusted EPS of $1.35, compared to $2.16 of 2016. Adjusted EPS also surpassed the Zacks Consensus Estimate of $1.29.

Revenues

Revenues (which now exclude Lucky Vitamin in all periods) in the reported quarter dropped 2.1% year over year to $557.7 million. The figure also missed the Zacks Consensus Estimate of $558.4 million.

The company reported full-year revenues of $2.45 billion, compared with the year-ago $2.54 billion. The figure missed the Zacks Consensus Estimateof $2.46 billion.

Same-store sales increased 5.7% in domestic company-owned stores (including GNC.com sales) in the quarter under review. In domestic franchise locations, same-store sales declined 2%.

Segments in 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 (including 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 inched up 1% to $456.2 million, primarily driven by the increase in same-store sales of 5.7% for company-owned stores, including GNC.com, partially offset by the $12-million decrease due to the discontinuation of the Gold Card program in the United States and the introduction of loyalty programs. In domestic franchise locations as well, revenues declined 2.2% due to lower wholesale sales, including the impact of retail sales comp of negative 3%.

Revenues at the international segment increased 14.1% to $45.3 million driven by higher cross-border e-commerce sales in China.

Revenues at the manufacturing/wholesale segment (excluding intersegment revenues) declined 2.4% to $56.3 million. Within this segment, third-party contract manufacturing sales fell 1.4% to $33.4 million. Sales to wholesale partners decreased 3.8% year over year to $22.9 million in the quarter. However, Intersegment sales increased to $56.2 million from the year-ago $46.2 million on the company's increased focus on proprietary products.

After the asset sale of Lucky Vitamin on Sep 30, 2017, Lucky Vitamin is now included within Other segment for applicable prior periods to ensure comparability, which resulted in a $20.7-million drop in fourth-quarter revenues from the prior-year quarter.

Margin

Gross profit increased 4.3% in the reported quarter to $177.5 million. As a result, gross margin expanded 198 basis points (bps) to 31.8%.

Selling, general and administrative expenses contracted 4.7% to $137.9 million. Accordingly, adjusted operating margin expanded 264 bps to 7.1%.

Financial Position

GNC Holdings exited 2017 with cash and cash equivalents of $64 million, up from $34.5 million at the end of 2016. Long-term debt was $1.29 billion at the end of 2017, compared with $1.53 billion at 2016-end. Net cash flow from operating activities totaled $220.5 million, compared with $208.2 million a year ago.

Further, the company generated free cash flow of $196.7 million as compared with $185.8 million in the previous year.

One New GNC Plan Update

Earlier, management had announced plans to revamp its existing business model, dubbed as the ‘One New GNC'. The company has been seeing transformational changes in the fourth quarter of 2017 as well. Transaction growth was up 11.7% in the fourth quarter. In 2017, more than 11 million consumers had joined the company's loyalty programs, including approximately 850,000 customers enrolled in the PRO Access membership.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted downward by 52.6% due to these changes.

GNC Holdings, Inc. Price and Consensus

VGM Scores

At this time, GNC has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Notably, GNC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.