PITTSBURGH, Oct. 27, 2016 /PRNewswire/ -- GNC Holdings, Inc. (NYSE: GNC) (the "Company") reported consolidated revenue of $628.0 million, a decrease of 8.1% as compared with consolidated revenue of $683.4 million for the third quarter of 2015. As previously announced, beginning in the second quarter of 2016 the Company changed its reportable segments. Revenue in the U.S. & Canada segment decreased by 7.0%, revenue in the International segment decreased 18.7%, and revenue in the Manufacturing / Wholesale segment, excluding intersegment sales decreased 0.5%.

Same store sales decreased 8.5% in domestic company-owned stores (including GNC.com sales) in the third quarter of 2016. In domestic franchise locations, same store sales decreased 8.9% in the third quarter of 2016.

For the third quarter of 2016, the Company reported net income of $32.4 million compared with net income of $45.8 million in the third quarter of 2015. Diluted earnings per share ("EPS") was $0.47 for the third quarter of 2016, compared with $0.54 in the third quarter of 2015. Adjusted diluted EPS was $0.59 for the third quarter of 2016 compared with adjusted diluted EPS of $0.75 in the comparable prior year quarter.

Robert F. Moran, Interim Chief Executive Officer, commented, "Our results for the quarter fell short of our expectations, but we have been moving quickly to address the key issues that are critical to returning GNC to growth. We are focused on eliminating confusion regarding our product pricing, providing customers with an improved loyalty program, enhancing the customer experience in our stores and reinvigorating the GNC branded product innovation pipeline. During the quarter we made several key management changes to better align our internal resources to address the issues and we launched a pilot program in seven markets where we have radically changed our pricing methodology and launched a free loyalty program. These changes are not quick fixes but are designed to fundamentally change the way GNC engages with its customers. While it's early in the test, we are excited about the results that we are seeing in the pilot markets and look forward to sharing more details over the next several quarters."

Segment Operating Performance

U.S. & Canada (Includes: Company-owned stores in the U.S., Puerto Rico and Canada, franchise stores in the U.S. and e-commerce)

Revenues in the U.S. and Canada segment decreased $39.8 million, or 7.0%, to $525.5 million for the three months ended September 30, 2016 compared with $565.3 million in the prior year quarter. Negative domestic retail same store sales of 8.5%, which includes GNC.com, resulted in a $35.2 million decrease in revenue year-over-year. Negative same store sales were primarily due to lower sales in the protein, vitamins and food/drink categories and a significant decrease in e-commerce sales due in part to better aligning web promotions to the Company's stores. E-commerce sales were 6.8% of consolidated revenue during the current quarter compared with 7.3% of consolidated revenue in the prior year quarter. In addition, corporate stores decreased from 3,546 at September 30, 2015 to 3,512 at September 30, 2016 in connection with the Company's refranchising strategy.

Domestic franchise revenue decreased $2.4 million to $85.8 million in the current quarter compared with $88.2 million in the prior year quarter primarily due to lower wholesale sales associated with lower retail same store sales of franchisees as well as the earlier timing of the Company's annual franchise convention, which resulted in $6.3 million of lower sales in the current quarter as compared with the prior year quarter. Partially offsetting the above was an increase in the number of franchise stores from 1,062 at September 30, 2015 to 1,169 at September 30, 2016. Franchisees did not participate in all corporate promotions and the Company's expanded assortment initiative has been adopted by slightly more than half of the franchise stores compared with the significant majority of corporate stores as of September 30, 2016; as a result, franchisees reported negative retail same store sales of 8.9% in the third quarter of 2016 as compared with negative 6.4% in domestic corporate stores (excluding GNC.com).

Operating income decreased $28.4 million, or 30.4%, to $65.3 million for the three months ended September 30, 2016 compared with $93.7 million for the same period in 2015. Operating income as a percentage of segment revenue was 12.4% in the current quarter compared with 16.6% in the prior year quarter. Gains on refranchising were $0.4 million and $0.9 million in the current quarter and prior year quarter, respectively. Excluding these gains and a $3.0 million long-lived asset impairment charge recorded in the current quarter, operating income decreased from 16.4% of segment revenue in the prior year quarter to 13.0% of segment revenue in the current quarter primarily due to expense deleverage in occupancy and salaries expense associated with negative same store sales.

International (Includes: Franchise locations in approximately 50 countries, The Health Store and China operations)

Revenues in the International segment decreased $9.5 million, or 18.7%, to $41.1 million in the current quarter compared with $50.6 million in the prior year quarter. Despite international franchisees reporting an increase in retail same store sales of 3.9% in the current quarter (excluding the impact of foreign exchange rate changes relative to the U.S. dollar), revenue from franchisees decreased $11.3 million primarily relating to challenges in Chile, Saudi Arabia and Mexico, the termination of the Company's franchise agreement in Turkey, which resulted in the closing of 85 stores and the earlier timing of the annual franchise convention, which resulted in $4.0 million in lower sales in the current quarter compared with the prior year quarter. Partially offsetting the above decrease was an increase in revenue of $1.8 million associated with the Company's China business.

Operating income decreased $1.4 million, or 8.9%, to $14.7 million for the three months ended September 30, 2016 compared with $16.1 million in the prior year quarter. Operating income was 35.7% of segment revenue in the current quarter compared with 31.9% in the prior year quarter. The increase in operating income percentage was primarily due to higher product margin rate as a result of a higher mix of proprietary sales.

Manufacturing / Wholesale (Includes: Manufactured product sold to other segments, third-party contract manufacturing and sales to wholesale partners)

Revenues in the Manufacturing / Wholesale segment, excluding intersegment sales, decreased $0.3 million, or 0.5%, to $61.3 million for the three months ended September 30, 2016 compared with $61.6 million in the prior year quarter. Third-party contract manufacturing sales increased $2.2 million, or 6.3%, to $36.6 million in the current quarter compared with $34.5 million in the prior year quarter. This increase was partially offset by a decrease in wholesale sales of $2.4 million, or 9.0% from $27.1 million in the prior year quarter to $24.7 million in the current quarter. Intersegment sales decreased $14.5 million from $67.5 million in the prior year quarter to $53.0 million in the current quarter primarily due to lower proprietary sales.

Operating income decreased $5.1 million, or 22.8%, to $17.4 million for the three months ended September 30, 2016 compared with $22.5 million in the prior year quarter. Operating income as a percentage of segment revenue decreased from 17.4% in the prior year quarter to 15.2% in the current quarter primarily due to lower intersegment sales, which resulted in unfavorable manufacturing variances, and a higher mix of third-party contract manufacturing sales, which generally contribute lower margins.

Year-to-Date Performance

For the first nine months of 2016, the Company reported consolidated revenue of $1,970.1 million, a decrease of 4.1% compared with consolidated revenue of $2,054.2 million for the first nine months of 2015. Revenue in the U.S. & Canada segment decreased by 3.2%, revenue in the International segment decreased 9.9%, and revenue in the Manufacturing / Wholesale segment increased 2.7%, excluding intersegment sales.

For the first nine months of 2016, the Company reported net income of $147.2 million, compared with net income of $176.4 million for the first nine months of 2015. Diluted EPS was $2.10 for the first nine months of 2016, compared with diluted EPS of $2.05 in the first nine months of 2015. Adjusted diluted EPS was $2.07 for the first nine months of of 2016 compared with adjusted diluted EPS of $2.27 in the comparable prior year period.

Operating Metrics

As of September 30, 2016, the Company had 3,512 corporate stores in the U.S. and Canada, 1,169 domestic franchise locations, 2,347 Rite Aid franchise store-within-a-store locations and 1,991 international stores. The Company now has 9,019 store locations worldwide.

For the first nine months of 2016, the Company generated net cash from operating activities of $169.7 million and invested $35.4 million in capital expenditures. The Company generated free cash flow of $162.8 million, which includes $30.3 million of proceeds associated with refranchising transactions (which it defines as cash provided by operating activities less cash used in investing activities excluding acquisitions). As of September 30, 2016, the Company's cash and cash equivalents were $37.2 million and long-term debt was $1.54 billion.

Dividends

The Company's Board of Directors declared a cash dividend of $0.20 per share of its common stock for the fourth quarter of 2016. The dividend will be payable on or about December 30, 2016 to stockholders of record at the close of business on December 16, 2016. 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.

Conference Call

GNC has scheduled a live webcast to report its third quarter 2016 financial results on October 27, 2016 at 8:30 a.m. Eastern time. To participate on the live call listeners in North America may dial (888) 312-9837 and international listeners may dial (719) 785-1760; the conference identification number for all callers is 2723783. In addition, a live webcast of the call will be available on www.gnc.com via the Investor Relations section under "About GNC." A replay of this webcast will be available through November 24, 2016.

About Us

GNC Holdings, Inc. (NYSE: GNC) - Headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer.

The Company's foundation is built on 80 years of superior product quality and innovation. GNC connects customers to their best selves by offering a premium assortment of health, wellness and performance products, including protein, performance supplements, weight management supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise. This assortment features proprietary GNC - including Mega Men®, Ultra Mega®, Total LeanTM, Pro Performance®, Pro Performance® AMP, Beyond Raw®, GNC Puredge®, GNC GenetixHD®, Herbal Plus® - and nationally recognized third-party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third-party contract manufacturing, e-commerce and corporate partnerships. As of September 30, 2016, GNC had more than 9,000 locations, of which more than 6,700 retail locations are in the United States (including 2,347 Rite Aid franchise store-within-a-store locations) and franchise operations in approximately 50 countries.

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 regarding our dividend, share repurchase plan, 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 any failure on our part to comply with new and existing governmental regulations governing our products; limitations of or 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 inability 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, 2015.

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 as an operational metric same store sales, which is a commonly used statistical measure in the retail industry and is important to the understanding of the Company's performance. Same store sales growth represents the percentage change in same store point-of-sale retail sales in the period presented compared with the prior year period. Same store sales are calculated on a daily basis for each store and exclude the net sales of a store for any period if the store was not open during the same period of the prior year. The Company includes its internet sales of GNC.com in the domestic retail company-owned same store sales calculation. When a store's square footage has been changed as a result of reconfiguration or relocation in the same mall or shopping center, the store continues to be treated as a same store. If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchise store of a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year. The Company excludes sales during the period presented that occurred on or after the date of relocation to a different mall or shopping center or the date of a conversion.

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 net income and earnings per share, adjusted to exclude gains on refranchising and certain other expenses as reflected in this release, 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. However, these measures are not measurements of the Company's performance under GAAP and should not be considered as alternatives to earnings per share, net income or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, or as a measure of the Company's profitability or liquidity. For more information, see the attached reconciliations of non-GAAP financial measures.

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share amounts)



Three months ended

September 30,

Nine months ended

September 30,

2016

2015

2016

2015

(unaudited) Revenue $ 627,964



$ 683,358



$ 1,970,087



$ 2,054,187

Cost of sales, including warehousing, distribution and

occupancy 412,556



432,714



1,280,136



1,297,778

Gross profit 215,408



250,644



689,951



756,409

Selling, general, and administrative 148,392



141,155



430,448



421,013

Gains on refranchising (383)



(945)



(18,283)



(2,436)

Long-lived asset impairments 3,045



28,333



3,045



28,333

Other (income) loss, net (539)



(49)



(441)



106

Operating income 64,893



82,150



275,182



309,393

Interest expense, net 15,360



13,753



45,078



36,912

Income before income taxes 49,533



68,397



230,104



272,481

Income tax expense 17,179



22,647



82,907



96,104

Net income $ 32,354



$ 45,750



$ 147,197



$ 176,377

Earnings per share:













Basic $ 0.47



$ 0.55



$ 2.11



$ 2.06

Diluted $ 0.47



$ 0.54



$ 2.10



$ 2.05

Weighted average common shares outstanding:













Basic 68,190



83,669



69,808



85,663

Diluted 68,315



83,958



69,939



85,930



Note: The presentation of certain amounts in the consolidated financial statements of prior periods have been revised to conform to the current periods presented with no impact on previously reported net income or stockholders' equity.



GNC HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted Diluted EPS

(in thousands, except per share data)

(Unaudited)



Three months ended

September 30,

2016

2015

Net

Income

Diluted

EPS

Net

Income

Diluted

EPS Reported $ 32,354



$ 0.47



$ 45,750



$ 0.54

Gains on refranchising (383)



—



(945)



(0.01)

Long-lived asset impairments 3,045



0.04



28,333



0.34

Legal settlements 5,073



0.07



—



—

Severance 4,453



0.07



—



—

Tax effect (4,394)



(0.06)



(10,325)



(0.12)

Adjusted $ 40,148



$ 0.59



$ 62,813



$ 0.75

















Weighted average diluted common shares outstanding 68,315







83,958









Nine months ended

September 30,

2016

2015

Net

Income

Diluted

EPS

Net

Income

Diluted

EPS Reported $ 147,197



$ 2.10



$ 176,377



$ 2.05

Gains on refranchising (18,283)



(0.26)



(2,436)



(0.03)

Long-lived asset impairments 3,045



0.05



28,333



0.33

Other SG&A related to legal accruals and reversal of international franchise receivable reserve 5,073



0.07



1,187



0.02

Severance 4,453



0.06



—



—

Correction of an immaterial error —



—



2,762



0.03

Tax effect 3,261



0.05



(11,172)



(0.13)

Adjusted $ 144,746



$ 2.07



$ 195,051



$ 2.27

















Weighted average diluted common shares outstanding 69,939







85,930







GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)



September 30,

December 31,

2016

2015

(unaudited) Current assets:





Cash and cash equivalents $ 37,203



$ 56,462

Receivables, net 143,494



142,486

Inventory 621,865



555,885

Deferred income taxes 10,925



10,916

Prepaid and other current assets 32,553



27,114

Total current assets 846,040



792,863

Long-term assets:





Goodwill 647,806



649,892

Brands 720,000



720,000

Other intangible assets, net 113,197



119,204

Property, plant and equipment, net 221,775



230,535

Deferred income taxes 3,358



3,358

Other long-term assets 32,472



38,555

Total long-term assets 1,738,608



1,761,544

Total assets $ 2,584,648



$ 2,554,407

Current liabilities:





Accounts payable $ 185,286



$ 152,099

Current portion of long-term debt 4,550



4,550

Deferred revenue and other current liabilities 133,023



121,062

Total current liabilities 322,859



277,711

Long-term liabilities:





Long-term debt 1,544,038



1,444,628

Deferred income taxes 307,921



304,491

Other long-term liabilities 57,251



59,016

Total long-term liabilities 1,909,210



1,808,135

Total liabilities 2,232,069



2,085,846

Stockholders' equity:





Common stock 114



114

Additional paid-in capital 921,794



916,128

Retained earnings 1,163,406



1,058,148

Treasury stock, at cost (1,725,349)



(1,496,180)

Accumulated other comprehensive loss (7,386)



(9,649)

Total stockholders' equity 352,579



468,561

Total liabilities and stockholders' equity $ 2,584,648



$ 2,554,407



GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)



Nine months ended

September 30,

2016

2015

(unaudited) Cash flows from operating activities:





Net income $ 147,197



$ 176,377

Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization expense 43,547



43,100

Amortization of debt costs 9,419



3,538

Stock-based compensation 7,191



4,747

Long-lived asset impairments 3,045



28,333

Gains on refranchising (18,283)



(2,436)

Changes in assets and liabilities:





Decrease (increase) in receivables 3,519



(6,275)

(Increase) decrease in inventory (71,760)



12,037

(Increase) in prepaid and other current assets (5,342)



(9,084)

Increase in accounts payable 35,700



14,691

Increase in deferred revenue and accrued liabilities 13,515



11,635

Other operating activities 1,999



(1,924)

Net cash provided by operating activities 169,747



274,739









Cash flows from investing activities:





Capital expenditures (35,368)



(30,432)

Refranchising proceeds 30,306



1,888

Store acquisition costs (1,918)



(2,607)

Net cash used in investing activities (6,980)



(31,151)









Cash flows from financing activities:





Borrowings under revolving credit facility 197,000



—

Payments on revolving credit facility (103,000)



—

Payments on term loan facility (3,412)



(167,901)

Proceeds from issuance of convertible senior notes —



287,500

Debt issuance costs (1,712)



(8,225)

Proceeds from exercise of stock options 343



1,597

Gross excess tax benefits from stock-based compensation 162



597

Minimum tax withholding requirements (1,126)



(381)

Cash paid for treasury stock (229,169)



(279,798)

Dividends paid to shareholders (41,613)



(45,904)

Net cash used in financing activities (182,527)



(212,515)









Effect of exchange rate changes on cash and cash equivalents 501



(833)

Net (decrease) increase in cash and cash equivalents (19,259)



30,240

Beginning balance, cash and cash equivalents 56,462



133,834

Ending balance, cash and cash equivalents $ 37,203



$ 164,074



GNC HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

(in thousands)



Nine months ended

September 30,

2016

2015

(unaudited) Net cash provided by operating activities $ 169,747



$ 274,739

Capital expenditures (35,368)



(30,432)

Refranchising proceeds 30,306



1,888

Store acquisition costs (1,918)



(2,607)

Free cash flow $ 162,767



$ 243,588











GNC HOLDINGS, INC. AND SUBSIDIARIES

Segment Financial Data

(in thousands)



Three months ended

September 30,

Nine months ended

September 30,

2016

2015

2016

2015

(unaudited) Revenue:













U.S. and Canada $ 525,505



$ 565,252



$ 1,671,048



$ 1,726,774

International 41,118



50,568



121,037



134,351

Manufacturing / Wholesale:













Intersegment revenues 53,016



67,511



172,603



206,749

Third-party 61,341



61,620



178,002



173,377

Subtotal Manufacturing / Wholesale 114,357



129,131



350,605



380,126

Total reportable segment revenues 680,980



744,951



2,142,690



2,241,251

Other —



5,918



—



19,685

Elimination of intersegment revenues (53,016)



(67,511)



(172,603)



(206,749)

Total revenue $ 627,964



$ 683,358



$ 1,970,087



$ 2,054,187

Operating income:













U.S. and Canada $ 65,292



$ 93,745



$ 256,142



$ 299,818

International 14,676



16,118



41,428



48,025

Manufacturing / Wholesale 17,395



22,521



53,719



63,589

Total reportable segment operating income 97,363



132,384



351,289



411,432

Unallocated corporate and other costs:













Corporate costs (33,161)



(20,643)



(76,787)



(69,967)

Other 691



(29,591)



680



(32,072)

Subtotal unallocated corporate and other costs (32,470)



(50,234)



(76,107)



(102,039)

Total operating income $ 64,893



$ 82,150



$ 275,182



$ 309,393

















Segment operating income %:













U.S. and Canada 12.4 %

16.6 %

15.3 %

17.4 % International 35.7 %

31.9 %

34.2 %

35.7 % Manufacturing / Wholesale 15.2 %

17.4 %

15.3 %

16.7 % Consolidated 10.3 %

12.0 %

14.0 %

15.1 %















Comp store sales - domestic, including GNC.com (8.5) %

(0.3) %

(4.9) %

(2.5) %

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Store Count Activity



Nine months ended

September 30,

2016

2015 U.S. & Canada





Company-owned(a):





Beginning of period balance 3,584



3,487

Store openings 46



64

Acquired franchise stores(b) 16



33

Franchise conversions(c) (96)



(12)

Store closings (38)



(26)

End of period balance 3,512



3,546

Domestic Franchise:





Beginning of period balance 1,084



1,070

Store openings 21



18

Acquired franchise stores(b) (16)



(33)

Franchise conversions(c) 96



12

Store closings (16)



(5)

End of period balance 1,169



1,062

International(d):





Beginning of period balance 2,095



2,150

Store openings 61



89

Store closings (165)



(124)

End of period balance 1,991



2,115

Store-within-a-store (Rite Aid):





Beginning of period balance 2,327



2,269

Store openings 29



51

Store closings (9)



(1)

End of period balance 2,347



2,319

Total Stores 9,019



9,042

____________________________ (a) Includes Canada. (b) Stores that were acquired from franchisees and subsequently converted into company-owned stores. (c) Company-owned store locations sold to franchisees. (d) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made) and company-owned stores located in Ireland (The Health Store) and China.

Contacts:

Investors: Amy Greene, Vice President - Investor & Government Relations, (412) 288-4744; or

John Mills, Partner - ICR, (646) 277-1254

Logo - http://photos.prnewswire.com/prnh/20150805/255701LOGO

SOURCE GNC Holdings, Inc.

Related Links

http://www.gnc.com

