Like a lot of its customers,GNCHoldings (
) is looking fitter than ever.
All bulked up with popular proprietary products and new
offerings, the vitamin and nutrition store operator will likely
deliver a healthy showing when it reports third-quarter results
GNC has posted double-digit sales and earnings growth every
quarter since its market debut on April 1, 2011. It's also topped
Wall Street's sales and earnings forecasts every quarter over
If followers are right, GNC kept up the pace in the third
quarter. Analysts polled by Thomson Reuters estimate earnings
will pop 26% to 58 cents a share. They see sales rising 15% to
"I don't see any reason why the third quarter won't be as
strong as the other ones they've reported this year," said Brian
Sozzi, chief equities analyst at NBG Productions. "I think
they're going to beat big as they have been doing consistently.
They are one of the best specialty retail marketers in the
He says constant online and in-store promotions consistently
drive strong traffic into both retail channels. And proprietary
products like its Vitapak pocket-sized pack of nutritional
supplements differentiate GNC from rivals likeVitamin Shoppe (
"People should be watching the revenue momentum we're seeing
at GNC," added Great Lakes Review analyst Elliott Schlang. "I
don't think many companies are seeing 14% or 15% revenue
increases in this environment. If they come up with that in the
third quarter, we'll be very pleased."
GNC's proprietary products are its biggest sellers and drive
the strongest margins, says Sozzi, since they're the company's
These brands represent 57% of total retail sales at
company-owned stores. They include Mega Men, Ultra Mega, GNC
Total Lean and Pro Performance.
The company has evolved and extended the reach of its
proprietary flagship brands through ongoing reformulations, brand
development and line extensions, said Chief Executive Joe
Fortunato on the second-quarter conference call.
Wedbush Securities analyst Kurt Frederick expects new product
offerings helped GNC keep up its strong momentum in the third
"I think it's going to be another good quarter based on
favorable feedback from conversations with store employees
regarding recent product launches," he said.
Helping to drive that growth are recent new offerings, such as
GNC Total Lean Lean Shake 25 meal replacement product, and
GenetixHD Meta-Ignite metabolism booster, which have gotten
positive reviews, Frederick says.
Also on the new product front, in August GNC announced the
nationwide availability of Marked, a new line of performance
nutrition products developed by GNC in partnership with actor
Mark Wahlberg. The line, which consists of seven sports and
active nutrition products, is available in GNC stores and
GNC.com. GNC expects it to be widely available through other
retailers in the U.S. and abroad this year. A portion of all
sales will benefit the Mark Wahlberg Youth Foundation.
Frederick says the Marked line is providing incremental sales
increases and noted in a report that it should see continued
growth over the next several quarters.
GNC has more than 7,800 locations, of which more than 6,000
retail locales are in the U.S. That includes 933 franchise and
2,157Rite Aid (
) franchise store-within-a-store locations, and franchise
operations in 55 countries. It generates retail revenue by sales
at company-owned stores and its websites -- GNC.com and
LuckyVitamin.com. It gets franchise revenue from product sales to
franchisees, royalties on franchise retail sales and franchise
Manufacturing/wholesale revenue is generated by sales of
manufactured products to third parties, generally for third-party
private-label brands; the sale of proprietary and third-party
products to and through Rite Aid and drugstore.com; and the sale
of GNC proprietary products to and throughPetSmart (
) and Sam's Club, owned byWal-Mart Stores (
In the second quarter, 74.1% of sales came from its retail
segment; 16.7% from its franchise segment and 9.2% from
GNC's biggest business is in sports nutrition products, which
generate roughly 45% of retail revenue. Vitamins, minerals,
herbal and specialty supplements account for about 39%.
And customers go in for its products in a big way.
The company enjoys a customer base that's very committed to
brand, says BMO Capital Markets analyst Karen Short.
"They have huge customer loyalty," she said. "That customer is
resilient and committed regardless of income."
GNC's customers are "regimented and consistent" with fitness
as the key element of their lifestyle, the company said at the
Goldman Sachs Global Retailing Conference in September.
Customers tend to cross-shop with nearly 50% of sports
customers buying vitamins and 25% of vitamin customers buying
A Robust Q2
Prospects for a healthy third quarter come after an impressive
second quarter. Earnings rose 59% to 62 cents a share. Sales grew
19% to $619.1 million. Same-store sales in U.S. company-owned
stores popped 12.9%, including GNC.com sales.
Frederick expects third-quarter same-store sales at U.S.
company-owned stores to rise 9% vs. a year earlier. While that
would be less than the second quarter's gain, it's still very
robust growth, he says.
Analysts polled by Thomson Reuters see full-year earnings
rising 49% to $2.26 a share. They expect an 18% gain in 2013.
The overall climate for GNC's business remains as healthy as
ever, watchers say.
"People are absolutely obsessed with health and wellness, and
this is a pure play in that market," said Schlang.
And GNC's customer base is younger and better educated and
more affluent than the general shopper, he adds.
The environment is very good for GNC's business, given the
secular trends in favor of increased interest in fitness, adds
He says the recession has left a lot of Americans without
health insurance or with coverage that's not as good as they had
in the past. As a result, there's a big push to stay healthy by
taking vitamins, supplements and other products GNC sells.