GNC Holdings, Inc. (NYSE: GNC) (the “Company”) reported
consolidated revenue of $580.2 million in the third quarter of
2018, compared with consolidated revenue of $613.0 million in the
third quarter of 2017. Revenue in the prior year quarter
included $20.8 million related to Lucky Vitamin, which was sold on
September 30, 2017.
Same store sales decreased 2.1% in domestic
company-owned stores (including GNC.com) in the third quarter of
2018. Excluding the impact of higher loyalty points
redemption in the current quarter compared with the prior year
quarter as the program matures, same store sales decreased 1.3%.
In domestic franchise locations, same store sales decreased
4.1%.
For the third quarter of 2018, the Company
reported a net loss of $8.6 million compared with net income of
$21.1 million in the prior year quarter. Diluted loss per share was
$0.10 in the current quarter compared with diluted earnings per
share ("EPS") of $0.31 in the prior year quarter. Excluding
the non-cash long-lived asset impairment and other store closing
charges of $14.6 million in the current quarter and other expenses
outlined in the table below, adjusted net income was $2.1 million
in the current quarter compared with adjusted net income of $21.8
million in the prior year quarter, and adjusted EPS was $0.02 in
the current quarter compared with $0.32 in the prior year
quarter.
Adjusted EBITDA, as defined and reconciled to
net (loss) income in the table below, was $50.1 million in the
current quarter compared with $62.1 million in the prior year
quarter.
The Company also announced the completion of the
funding of a $100 million investment by Harbin Pharmaceutical Group
Co., Ltd. (“Harbin”) in GNC. GNC has issued 100,000 shares of
convertible preferred stock to Harbin in connection with the
funding of the first tranche of the previously announced $300
million strategic investment in GNC by Harbin. Harbin has
agreed to fund an additional $50 million investment by December 28,
2019 and the final tranche of approximately $150 million by
February 13, 2019. GNC and Harbin will complete the formation
of their previously announced joint ventures in Hong Kong and China
upon the funding of the final tranche of Harbin’s investment in
GNC.
“During the third quarter, although our
comparable same store sales were softer than Q2, we demonstrated
our ability to respond to market dynamics and drive sales
improvements progressively as we moved through the quarter,” said
Ken Martindale, GNC’s chairman and CEO. “With the finalized terms
of our partnership with Harbin, we have completed the first
important step in strengthening our capital structure and
accelerating our expansion in China. Moving forward we are
focusing on continuing the strategy of repositioning our business
and executing our strategic plan.”
Zhang Zhenping, Chairman of Harbin, commented,
“This partnership will enable us to leverage Harbin’s leadership
position in China to accelerate GNC’s growth and expansion and
deliver GNC products and solutions to millions.”
Key Updates
- As we focus on optimizing profitability, we performed a
detailed review of our store portfolio and identified approximately
700-900 stores in the U.S. and Canada that will be closed within
the next three years at the end of their lease terms. This review
also identified other stores in which we are considering
alternatives such as seeking lower rent or a shorter term.
- The International segment continued to grow with an increase in
sales of 6.1%, driven by 1.5% same store sales for our franchise
business.
- At the end of September, we launched the nature-inspired Earth
Genius product line that spans multiple categories and TamaFlex, an
exclusive blend of botanicals proven effective for joint health.
- GNC brand mix for domestic system-wide sales increased to 52%
compared with 45% in the third quarter of 2017, and 50% in the
second quarter of 2018.
- Increase in loyalty membership of 10.7% in the current quarter
compared to June 30, 2018; now 16.2 million members, including
approximately 1.0 million members enrolled in PRO Access.
Segment Operating
Performance
U.S. & Canada
Revenues in the U.S. and Canada segment
decreased $15.9 million, or 3.2%, to $476.5 million for the three
months ended September 30, 2018 compared with $492.4 million in the
prior year quarter. E-commerce sales were 7.2% of U.S. and Canada
revenue for the three months ended September 30, 2018 compared with
6.2% in the prior year quarter.
The decrease in revenue compared with the prior
year quarter was primarily due to the impact of company-owned net
store closures, which contributed an approximate $9 million
decrease in revenue, and negative same store sales of 2.1%, which
resulted in a revenue decrease of $7.7 million. In addition,
domestic franchise revenue declined $3.6 million due to a decrease
in retail same store sales as well as a reduction in the number of
franchise stores. Partially offsetting the above decreases was an
increase of $7.5 million relating to the Company’s loyalty
programs; PRO Access paid membership fees and the myGNC Rewards
change in deferred points liability.
Operating income decreased $20.4 million to
$11.5 million, or 2.4% of segment revenue, for the three months
ended September 30, 2018 compared with $31.9 million, or 6.5% of
segment revenue, for the same period in 2017. In the current
quarter we recorded long-lived asset impairment and other store
closing charges totaling $14.6 million, and in the prior year
quarter we recorded long-lived asset impairment charges of $3.9
million. Excluding these items and immaterial gains on
refranchising in the current quarter and prior year quarter,
operating income was $26.0 million, or 5.5% of segment revenue, in
the current quarter, compared with $35.6 million, or 7.2% of
segment revenue, in the prior year quarter. The decrease in
operating income percentage was primarily due to lower domestic
retail product margin rate as a result of adjustments to
promotional pricing in response to the competitive environment in
the early portion of the quarter, lower vendor funding and impacts
from the new loyalty program, partially offset by a higher sales
mix of proprietary product which contribute higher margins relative
to third-party sales.
International
Revenues in the International segment increased
$2.9 million, or 6.1%, to $51.4 million for the three months ended
September 30, 2018 compared with $48.5 million in the prior year
quarter primarily due to an increase in sales to our international
franchisees of $3.9 million with an increase in same store sales of
1.5%.
Operating income increased $0.3 million to $16.5
million, or 32.0% of segment revenue, for the three months ended
September 30, 2018 compared with $16.2 million, or 33.4% of segment
revenue for the same period in 2017. Excluding joint venture
start-up costs of $1.0 million in the current quarter, of which
$0.6 million related to costs incurred in the first six months of
2018 within corporate costs and was reclassified to International
in the current quarter, operating income was $17.4 million, or
33.9% of segment revenue, compared with $16.2 million, or 33.4% of
segment revenue, in the prior year quarter. The increase in
operating income percentage was primarily due to a higher mix of
franchise sales, which contribute higher margins relative to China
sales.
Manufacturing / Wholesale
Revenues in the Manufacturing / Wholesale
segment, excluding intersegment sales, increased $1.0 million, or
1.9%, to $52.3 million for the three months ended September 30,
2018 compared with $51.3 million in the prior year quarter
primarily due to an increase of $1.9 million in third-party
contract manufacturing sales. Intersegment sales increased $5.7
million reflecting the Company's increasing focus on proprietary
products.
Operating income decreased $2.3 million, or
12.0%, to $16.9 million for the three months ended September 30,
2018 compared with $19.2 million in the prior year quarter.
Operating income as a percentage of segment revenue decreased from
17.5% in the prior year quarter to 14.5% in the current quarter
primarily due to a lower margin rate from third-party contract
manufacturing, partially offset by higher intersegment sales, which
contribute higher margins.
Year-to-Date Performance
For the nine months ended September 30, 2018,
the Company reported consolidated revenue of $1,805.7 million, a
decrease of $112.4 million compared with consolidated revenue of
$1,918.1 million for the same period in 2017. Revenue in the prior
year period includes $66.2 million from Lucky Vitamin, which was
sold on September 30, 2017, and $23.0 million recognition of
deferred revenue related to the U.S. Gold Card Member Pricing
program, which was terminated in December 2016.
Same store sales decreased 0.6% in domestic
company-owned stores (including GNC.com sales) for the first nine
months of 2018, and excluding the impact of loyalty points redeemed
same store sales increased 0.8%. In domestic franchise locations,
same store sales decreased 3.3%.
For the nine months ended September 30, 2018,
the Company reported net income of $10.9 million and EPS of $0.13
compared with net income of $62.4 million and EPS of $0.91 for the
nine months ended September 30, 2017. Excluding the expenses
outlined in the table below, adjusted EPS was $0.47 and $1.12 for
the nine months ended September 30, 2018 and 2017,
respectively.
Cash Flow and Liquidity
Metrics
For the nine months ended September 30, 2018,
the Company generated net cash from operating activities of $55.7
million compared with $149.6 million for the nine months ended
September 30, 2017. The decrease was primarily due to the
comparative effect of a $48.8 million inventory reduction in the
prior year period as part of the Company's supply chain
optimization which was launched at the end of 2016. The
remaining decrease was primarily related to reduced operating
performance, the refinancing of the long-term debt, which resulted
in $16.3 million in fees paid to third-parties and higher interest
payments, partially offset by lower tax payments.
For the nine months ended September 30, 2018,
the Company generated $60.6 million in free cash flow, compared
with $124.8 million for the nine months ended September 30, 2017.
The Company defines free cash flow as cash provided by operating
activities (excluding fees relating to the debt refinancing) less
cash used in investing activities. At September 30, 2018, the
Company’s cash and cash equivalents were $33.3 million and debt was
$1.2 billion. No borrowings were outstanding on the Revolving
Credit Facility.
Conference Call
GNC has scheduled a live webcast to report its
third quarter 2018 financial results on November 9, 2018 at 4:30
p.m. ET. To participate on the live call, listeners in North
America may dial (888) 599-8686 and international listeners may
dial (323) 794-2551. 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 23, 2018.
About Us
GNC Holdings, Inc. (NYSE: GNC) - is a
global health and wellness brand that helps people live well. The
company is known and trusted for quality performance and
nutritional supplements, and its broad assortment features
innovative private-label products as well as national recognized
third-party brands, many of which are exclusive to GNC.
GNC’s diversified, multi-channel business model
has global reach and a well-recognized, trusted brand, and provides
customers with excellent service, product knowledge and solutions.
The company reaches consumers
worldwide through company-owned retail
locations, and domestic and international franchise
activities, and e-commerce. GNC also
has exceptional innovation and product development
capabilities, manufactures products for third parties and generates
revenue through corporate partnerships. As of September
30, 2018, GNC had approximately 8,500 locations, of which
approximately 6,400 retail locations are in the United States
(including approximately 2,200 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 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
the Company's products; costs of compliance and any failure on
management's part to comply with new and existing governmental
regulations governing our products; limitations of or disruptions
in the manufacturing system or losses of manufacturing
certifications; disruptions in the distribution network; conditions
to the subsequent closings of the Harbin transaction may not be
satisfied; the occurrence of any event, change or other
circumstances that could give rise to the termination of the
Securities Purchase Agreement with Harbin; other risks to
consummation of the Harbin transaction, including the risk that the
Harbin transaction, the first subsequent closing and/or the second
subsequent closing will not be consummated within the expected time
period or at all; or failure to successfully execute the Company's
growth strategy, including any inability to expand franchise
operations or attract new franchisees, any inability to expand
company-owned retail operations, any inability to grow the
international footprint, any inability to expand the e-commerce
businesses, or any inability to successfully integrate businesses
that are acquired. 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, 2017.
Same Store Sales
Same store sales for company-owned stores
include point-of-sale retail sales from all domestic stores which
have been operating for twelve full months following the opening
period. The Company is an omnichannel retailer with capabilities
that allow a customer to use more than one channel when making a
purchase, including in-store and through e-commerce channels which
include its wholly-owned website GNC.com and third party websites
(the sales from which are included in the GNC.com business unit)
where product assortment and price are controlled by the Company,
in which purchases are fulfilled by direct shipment to the customer
from one of the Company's distribution facilities as well as third
party e-commerce vendors. In-store sales are reduced by sales
originally consummated online or through mobile devices and
subsequently returned in-store. Sales of membership programs,
including the new PRO Access loyalty program and former Gold Card
program, which is no longer offered in the U.S., as well as the net
change in the deferred points liability associated with the myGNC
Rewards program, are excluded from same store sales.
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.
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 or 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. Corporate stores
are included in same store sales after the thirteenth month
following a relocation or conversion to a company-owned store.
The Company also provides retail comparable same
store sales of its franchisees as well as its Canada business if
meaningful to current results. While retail sales of franchisees
are not included in the Company's Consolidated Financial
Statements, the metric serves as a key performance indicator for
its franchisees, which ultimately impacts wholesale sales,
royalties and fees received from franchisees. The Company computes
same store sales for its franchisees and Canada business consistent
with the description of corporate same store sales above. Same
store sales for international franchisees and Canada exclude the
impact of foreign exchange rate changes relative to the U.S.
dollar.
Non-GAAP Measures
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, including adjusted net income, adjusted EPS,
adjusted EBITDA, segment operating income, and segment operating
income as a percentage of segment revenue, adjusted as reflected in
this release, and free cash flow. Adjusted EBITDA is defined
as net income plus interest expense, net, loss on debt refinancing,
income taxes and depreciation and amortization and certain other
items as reflected in this release.
Management believes that these measures 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 and that can
differ significantly from company to company depending on long-term
strategic decisions regarding capital structure, the tax
jurisdictions in which companies operate and capital
investments.
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
SUBSIDIARIESConsolidated Statements of
Operations(in thousands, except per share
amounts)
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Revenue |
$ |
580,185 |
|
|
$ |
612,953 |
|
|
$ |
1,805,662 |
|
|
$ |
1,918,139 |
|
Cost of
sales, including warehousing, distribution and occupancy |
395,483 |
|
|
411,661 |
|
|
1,206,351 |
|
|
1,277,202 |
|
Gross
profit |
184,702 |
|
|
201,292 |
|
|
599,311 |
|
|
640,937 |
|
Selling,
general, and administrative |
149,903 |
|
|
156,051 |
|
|
469,164 |
|
|
481,618 |
|
Long-lived asset impairments |
14,556 |
|
|
3,861 |
|
|
14,556 |
|
|
23,217 |
|
Other
loss (income), net |
282 |
|
|
1,579 |
|
|
357 |
|
|
(40 |
) |
Operating
income |
19,961 |
|
|
39,801 |
|
|
115,234 |
|
|
136,142 |
|
Interest
expense, net |
35,732 |
|
|
16,339 |
|
|
90,448 |
|
|
48,300 |
|
Loss on
debt refinancing |
— |
|
|
— |
|
|
16,740 |
|
|
— |
|
(Loss) income
before income taxes |
(15,771 |
) |
|
23,462 |
|
|
8,046 |
|
|
87,842 |
|
Income
tax (benefit) expense |
(7,181 |
) |
|
2,406 |
|
|
(2,895 |
) |
|
25,398 |
|
Net (loss)
income |
$ |
(8,590 |
) |
|
$ |
21,056 |
|
|
$ |
10,941 |
|
|
$ |
62,444 |
|
(Loss) earnings
per share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.10 |
) |
|
$ |
0.31 |
|
|
$ |
0.13 |
|
|
$ |
0.91 |
|
Diluted |
$ |
(0.10 |
) |
|
$ |
0.31 |
|
|
$ |
0.13 |
|
|
$ |
0.91 |
|
Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
Basic |
83,412 |
|
|
68,354 |
|
|
83,326 |
|
|
68,296 |
|
Diluted |
83,412 |
|
|
68,569 |
|
|
83,431 |
|
|
68,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net (Loss) Income
and Diluted EPS to Adjusted Net Income and Adjusted
EPS(in thousands, except per share
data)
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
Net (Loss)
Income |
|
Diluted EPS |
|
Net Income |
|
Diluted EPS |
|
Net Income |
|
Diluted EPS |
|
Net Income |
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Reported |
$ |
(8,590 |
) |
|
$ |
(0.10 |
) |
|
$ |
21,056 |
|
|
$ |
0.31 |
|
|
$ |
10,941 |
|
|
$ |
0.13 |
|
|
$ |
62,444 |
|
|
$ |
0.91 |
|
Gains on
refranchising |
(68 |
) |
|
— |
|
|
(190 |
) |
|
— |
|
|
(276 |
) |
|
— |
|
|
(314 |
) |
|
— |
|
Retention
(1) |
2,116 |
|
|
0.03 |
|
|
— |
|
|
— |
|
|
5,155 |
|
|
0.05 |
|
|
— |
|
|
— |
|
Loss on
debt refinancing |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16,740 |
|
|
0.20 |
|
|
— |
|
|
— |
|
Joint
venture start-up costs (2) |
341 |
|
|
— |
|
|
— |
|
|
— |
|
|
973 |
|
|
0.01 |
|
|
— |
|
|
— |
|
SG&A
(3) |
1,300 |
|
|
0.02 |
|
|
4,062 |
|
|
0.06 |
|
|
1,300 |
|
|
0.02 |
|
|
6,159 |
|
|
0.09 |
|
Long-lived asset impairments (4) |
14,556 |
|
|
0.17 |
|
|
3,861 |
|
|
0.06 |
|
|
14,556 |
|
|
0.17 |
|
|
23,217 |
|
|
0.34 |
|
Loss on
sale of Lucky Vitamin |
— |
|
|
— |
|
|
1,696 |
|
|
0.02 |
|
|
— |
|
|
— |
|
|
1,696 |
|
|
0.02 |
|
Tax
effect of items above |
(4,010 |
) |
|
(0.06 |
) |
|
(2,685 |
) |
|
(0.04 |
) |
|
(6,721 |
) |
|
(0.07 |
) |
|
(10,577 |
) |
|
(0.15 |
) |
Reduction
to valuation allowance on DTA (5) |
— |
|
|
— |
|
|
(5,953 |
) |
|
(0.09 |
) |
|
— |
|
|
— |
|
|
(5,953 |
) |
|
(0.09 |
) |
Discrete
tax benefit (6) |
(3,583 |
) |
|
(0.04 |
) |
|
— |
|
|
— |
|
|
(3,583 |
) |
|
(0.04 |
) |
|
— |
|
|
— |
|
Adjusted |
$ |
2,062 |
|
|
$ |
0.02 |
|
|
$ |
21,847 |
|
|
$ |
0.32 |
|
|
$ |
39,085 |
|
|
$ |
0.47 |
|
|
$ |
76,672 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average diluted common shares outstanding |
83,515 |
|
|
|
|
68,569 |
|
|
|
|
83,431 |
|
|
|
|
68,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net (Loss) Income to
Adjusted EBITDA(in thousands)
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Net (loss)
income |
$ |
(8,590 |
) |
|
$ |
21,056 |
|
|
$ |
10,941 |
|
|
$ |
62,444 |
|
Income
tax (benefit) expense |
(7,181 |
) |
|
2,406 |
|
|
(2,895 |
) |
|
25,398 |
|
Interest
expense, net |
35,732 |
|
|
16,339 |
|
|
90,448 |
|
|
48,300 |
|
Loss on
debt refinancing |
— |
|
|
— |
|
|
16,740 |
|
|
— |
|
Depreciation and amortization (7) |
11,896 |
|
|
12,834 |
|
|
36,002 |
|
|
43,688 |
|
Retention
(1) |
2,116 |
|
|
— |
|
|
5,155 |
|
|
— |
|
Joint
venture start-up costs (2) |
341 |
|
|
— |
|
|
973 |
|
|
— |
|
SG&A
(3) |
1,300 |
|
|
4,062 |
|
|
1,300 |
|
|
6,159 |
|
Long-lived asset impairments (4) |
14,556 |
|
|
3,861 |
|
|
14,556 |
|
|
23,217 |
|
Loss on
sale of Lucky Vitamin |
— |
|
|
1,696 |
|
|
— |
|
|
1,696 |
|
Gains on
refranchising |
(68 |
) |
|
(190 |
) |
|
(276 |
) |
|
(314 |
) |
Adjusted
EBITDA |
$ |
50,102 |
|
|
$ |
62,064 |
|
|
$ |
172,944 |
|
|
$ |
210,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Relates to an incentive program to retain
senior executives and certain other key personnel below the
executive level who are critical to the execution and success of
the Company's strategy. The total amount awarded was
approximately $10 million, which vests in four installments of 25%
each over the next two years. Vesting dates are on the
earlier of February 2019 or the closing of the Harbin transaction,
February 2019, August 2019 and February 2020.
(2) Relates to legal and other start-up costs
incurred in connection with the formation of a commercial joint
venture in China with Harbin Pharmaceutical Group.
(3) The current quarter includes a legal-related
charge. The prior year quarter includes $2.8 million of executive
placement costs primarily related to make-whole stock-based
compensation awards including the impact of accelerated vesting
associated with a Section 83(b) tax election and $1.3 million in
legal-related charges. Prior year-to-date also includes a $2.1
million legal charge related to the outcome of litigation the
Company pursued for a potential breach under its UK license
agreement.
(4) The current quarter includes pre-tax
impairment of long-lived assets associated with underperforming
stores and other store closing costs identified in connection with
the Company's detailed review of its store portfolio. The prior
year quarter includes pre-tax impairment of long-lived asset
impairments associated with underperforming stores. Prior
year-to-date also includes pre-tax non-cash impairment of goodwill
and other long-lived assets associated with its Lucky Vitamin
e-commerce business.
(5) Relates to a reduction to a valuation
allowance based on a change in circumstances, which caused a change
in judgment about the realizability of a deferred tax asset related
to net operating losses.
(6) Relates to discrete tax benefits associated
with finalization of the Company’s 2017 federal income tax
return.
(7) The decrease in the current year compared
with the prior year was primarily due to the prior year accelerated
depreciation associated with the re-platforming of the GNC.com
website from a third-party to a cloud-based solution, as well as
long-lived asset impairments recorded within the U.S. and Canada
segment for certain of our underperforming stores in the third and
fourth quarter of 2017.
GNC HOLDINGS, INC. AND
SUBSIDIARIESU.S. Company-Owned Same Store Sales
(including GNC.com)
|
2018 |
|
2017 |
|
Q1 3/31 |
|
Q2 6/30 |
|
Q3 9/30 |
|
Q1 3/31 |
|
Q2 6/30 |
|
Q3 9/30 |
Contribution to
same store sales: |
|
|
|
|
|
|
|
|
|
|
|
Domestic retail same
store sales |
(1.2 |
)% |
|
(4.2 |
)% |
|
(3.4 |
)% |
|
(3.6 |
)% |
|
(0.5 |
)% |
|
(1.2 |
)% |
GNC.com
contribution to same store sales |
1.7 |
% |
|
3.8 |
% |
|
1.3 |
% |
|
(0.3 |
)% |
|
(0.4 |
)% |
|
2.5 |
% |
Total same
store sales |
0.5 |
% |
|
(0.4 |
)% |
|
(2.1 |
)% |
|
(3.9 |
)% |
|
(0.9 |
)% |
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Balance
Sheets(in thousands)
|
September 30, |
|
December 31, |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Current
assets: |
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
33,348 |
|
|
$ |
64,001 |
|
Receivables, net |
131,951 |
|
|
126,650 |
|
Inventory |
489,639 |
|
|
485,732 |
|
Prepaid
and other current assets |
76,536 |
|
|
66,648 |
|
Total current assets |
731,474 |
|
|
743,031 |
|
Long-term
assets: |
|
|
|
Goodwill |
140,844 |
|
|
141,029 |
|
Brand
name |
324,400 |
|
|
324,400 |
|
Other
intangible assets, net |
94,461 |
|
|
99,715 |
|
Property,
plant and equipment, net |
159,136 |
|
|
186,562 |
|
Other
long-term assets |
29,272 |
|
|
25,026 |
|
Total long-term assets |
748,113 |
|
|
776,732 |
|
Total assets |
$ |
1,479,587 |
|
|
$ |
1,519,763 |
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
159,100 |
|
|
$ |
153,018 |
|
Current
debt |
204,480 |
|
|
— |
|
Deferred
revenue and other current liabilities |
121,475 |
|
|
114,081 |
|
Total current liabilities |
485,055 |
|
|
267,099 |
|
Long-term
liabilities: |
|
|
|
Long-term
debt |
1,040,646 |
|
|
1,297,023 |
|
Deferred
income taxes |
43,090 |
|
|
56,060 |
|
Other
long-term liabilities |
81,479 |
|
|
85,502 |
|
Total long-term liabilities |
1,165,215 |
|
|
1,438,585 |
|
Total liabilities |
1,650,270 |
|
|
1,705,684 |
|
Stockholders’
deficit: |
|
|
|
Common
stock |
130 |
|
|
130 |
|
Additional paid-in capital |
1,006,121 |
|
|
1,001,315 |
|
Retained
earnings |
554,797 |
|
|
543,814 |
|
Treasury
stock, at cost |
(1,725,349 |
) |
|
(1,725,349 |
) |
Accumulated other comprehensive loss |
(6,382 |
) |
|
(5,831 |
) |
Total stockholders’ deficit |
(170,683 |
) |
|
(185,921 |
) |
Total liabilities and stockholders’ deficit |
$ |
1,479,587 |
|
|
$ |
1,519,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows(in thousands)
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Net
income |
$ |
10,941 |
|
|
$ |
62,444 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
Depreciation and
amortization expense |
36,002 |
|
|
43,688 |
|
Amortization of debt costs |
14,583 |
|
|
9,893 |
|
Stock-based compensation |
5,102 |
|
|
6,025 |
|
Long-lived asset impairments |
14,556 |
|
|
23,217 |
|
Gains on
refranchising |
(276 |
) |
|
(314 |
) |
Loss on
debt refinancing |
16,740 |
|
|
— |
|
Third-party fees associated with refinancing |
(16,322 |
) |
|
— |
|
Changes
in assets and liabilities: |
|
|
|
(Increase) decrease in receivables |
(6,080 |
) |
|
1,204 |
|
(Increase) decrease in inventory |
(5,794 |
) |
|
45,753 |
|
Increase
in prepaid and other current assets |
(6,552 |
) |
|
(5,205 |
) |
Increase
(decrease) in accounts payable |
6,860 |
|
|
(19,732 |
) |
Decrease
in deferred revenue and accrued liabilities |
(10,565 |
) |
|
(19,891 |
) |
Other
operating activities |
(3,506 |
) |
|
2,486 |
|
Net cash provided by operating activities |
55,689 |
|
|
149,568 |
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
Capital
expenditures |
(13,355 |
) |
|
(26,210 |
) |
Refranchising proceeds |
2,136 |
|
|
3,410 |
|
Store
acquisition costs |
(220 |
) |
|
(1,930 |
) |
Net cash used in investing activities |
(11,439 |
) |
|
(24,730 |
) |
|
|
|
|
Cash flows from
financing activities: |
|
|
|
Borrowings under revolving credit facility |
261,500 |
|
|
177,500 |
|
Payments
on revolving credit facility |
(261,500 |
) |
|
(256,500 |
) |
Payments
on Tranche B-1 Term Loan |
(3,413 |
) |
|
(40,853 |
) |
Payments
on Tranche B-2 Term Loan |
(32,100 |
) |
|
— |
|
Original
Issuance Discount and revolving credit facility fees |
(35,235 |
) |
|
— |
|
Deferred
fees associated with pending equity transaction |
(3,443 |
) |
|
— |
|
Minimum
tax withholding requirements |
(296 |
) |
|
(252 |
) |
Net cash used in financing activities |
(74,487 |
) |
|
(120,105 |
) |
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
(416 |
) |
|
921 |
|
Net (decrease) increase
in cash and cash equivalents |
(30,653 |
) |
|
5,654 |
|
Beginning balance, cash
and cash equivalents |
64,001 |
|
|
34,464 |
|
Ending balance, cash
and cash equivalents |
$ |
33,348 |
|
|
$ |
40,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow(in
thousands)
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
55,689 |
|
|
$ |
149,568 |
|
Capital
expenditures |
(13,355 |
) |
|
(26,210 |
) |
Refranchising proceeds |
2,136 |
|
|
3,410 |
|
Store
acquisition costs |
(220 |
) |
|
(1,930 |
) |
Third-party fees associated with refinancing |
16,322 |
|
|
— |
|
Free cash flow |
$ |
60,572 |
|
|
$ |
124,838 |
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESSegment Financial
Data (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and
Canada |
$ |
476,519 |
|
|
$ |
492,383 |
|
|
$ |
1,506,250 |
|
|
$ |
1,556,818 |
|
International |
51,407 |
|
|
48,458 |
|
|
140,107 |
|
|
132,022 |
|
Manufacturing / Wholesale: |
|
|
|
|
|
|
|
Intersegment revenues |
63,695 |
|
|
58,037 |
|
|
193,596 |
|
|
175,335 |
|
Third-party |
52,259 |
|
|
51,286 |
|
|
159,305 |
|
|
163,117 |
|
Subtotal
Manufacturing / Wholesale |
115,954 |
|
|
109,323 |
|
|
352,901 |
|
|
338,452 |
|
Total
reportable segment revenues |
643,880 |
|
|
650,164 |
|
|
1,999,258 |
|
|
2,027,292 |
|
Other |
— |
|
|
20,826 |
|
|
— |
|
|
66,182 |
|
Elimination of intersegment revenues |
(63,695 |
) |
|
(58,037 |
) |
|
(193,596 |
) |
|
(175,335 |
) |
Total
revenue |
$ |
580,185 |
|
|
$ |
612,953 |
|
|
$ |
1,805,662 |
|
|
$ |
1,918,139 |
|
Operating
income: |
|
|
|
|
|
|
|
U.S. and
Canada |
$ |
11,466 |
|
|
$ |
31,864 |
|
|
$ |
100,559 |
|
|
$ |
134,844 |
|
International |
16,468 |
|
|
16,169 |
|
|
46,624 |
|
|
46,825 |
|
Manufacturing / Wholesale |
16,869 |
|
|
19,168 |
|
|
47,722 |
|
|
55,072 |
|
Total
reportable segment operating income |
44,803 |
|
|
67,201 |
|
|
194,905 |
|
|
236,741 |
|
Corporate
costs |
(24,732 |
) |
|
(25,558 |
) |
|
(79,511 |
) |
|
(79,839 |
) |
Other |
(110 |
) |
|
(1,842 |
) |
|
(160 |
) |
|
(20,760 |
) |
Unallocated corporate costs and other |
(24,842 |
) |
|
(27,400 |
) |
|
(79,671 |
) |
|
(100,599 |
) |
Total operating
income |
$ |
19,961 |
|
|
$ |
39,801 |
|
|
$ |
115,234 |
|
|
$ |
136,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Store Count
Activity
|
Nine months ended September 30, |
|
2018 |
|
2017 |
U.S. &
Canada |
|
|
|
Company-owned(a): |
|
|
|
Beginning of period
balance |
3,423 |
|
|
3,513 |
|
Store
openings |
18 |
|
|
47 |
|
Acquired
franchise stores(b) |
20 |
|
|
46 |
|
Franchise
conversions(c) |
(4 |
) |
|
(2 |
) |
Store
closings |
(174 |
) |
|
(136 |
) |
End of
period balance |
3,283 |
|
|
3,468 |
|
Domestic Franchise: |
|
|
|
Beginning
of period balance |
1,099 |
|
|
1,178 |
|
Store
openings |
10 |
|
|
22 |
|
Acquired
franchise stores(b) |
(20 |
) |
|
(46 |
) |
Franchise
conversions(c) |
4 |
|
|
2 |
|
Store
closings |
(45 |
) |
|
(30 |
) |
End of
period balance |
1,048 |
|
|
1,126 |
|
International(d): |
|
|
|
Beginning
of period balance |
2,015 |
|
|
1,973 |
|
Store
openings |
42 |
|
|
207 |
|
Store
closings |
(89 |
) |
|
(105 |
) |
End of
period balance |
1,968 |
|
|
2,075 |
|
Store-within-a-store (Rite Aid): |
|
|
|
Beginning
of period balance |
2,418 |
|
|
2,358 |
|
Store
openings |
42 |
|
|
62 |
|
Store
closings (e) |
(218 |
) |
|
(6 |
) |
End of
period balance |
2,242 |
|
|
2,414 |
|
Total
Stores |
8,541 |
|
|
9,083 |
|
_______________________________________________________________________________
(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 and China.
(e) In 2018, store closings primarily related to Walgreens
acquisition of certain Rite Aid locations.
Contacts:Investors: Matt Milanovich,
Senior Director - Investor Relations, Analysis & Strategy,
(412) 402-7260; orJohn Mills, Partner - ICR, (646) 277-1254
SOURCE: GNC Holdings, Inc.
Web site: http://www.gnc.com
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