GNC Holdings, Inc. (NYSE: GNC) (the “Company”) reported
consolidated revenue of $499.1 million in the third quarter of
2019, compared with consolidated revenue of $580.2 million in the
third quarter of 2018. The decrease in revenue was primarily
a result of the transfer of the Nutra manufacturing and China
businesses to the newly formed joint ventures, the closure of
company-owned stores under our store portfolio optimization
strategy, U.S. and Canada negative same store sales of 2.8% and
lower International franchise revenue.
Key Updates
- U.S. and Canada segment drove 190 bps of incremental operating
income margin compared with the third quarter of 2018, excluding
the long-lived asset impairment charges in the prior year quarter
and immaterial gains on refranchising in the current quarter and
prior year quarter
- E-Commerce revenues grew 12% compared with the third quarter of
2018 driven by increased conversion rates due to an improved site
experience
- In early October, formally launched GNC4U, our personalized,
high quality supplement program that delivers customized vitamin
packs monthly to a customer’s home
- Company continues to evaluate debt refinancing alternatives and
expects to complete the process in the fourth quarter of 2019
- Cash provided by operating activities is $98 million;
Year-to-date free cash flow(1) is $87 million and Adjusted
EBITDA(2) is $166 million
- Ended third quarter with $190 million in liquidity
For the third quarter of 2019, the Company
reported net loss of $2.4 million compared with net loss of $8.6
million in the prior year quarter. Diluted loss per share was $0.09
in the current quarter compared with diluted loss per share of
$0.10 in the prior year quarter. Excluding the expenses outlined in
the table below, adjusted net income(3) was $3.1 million in the
current quarter, compared with adjusted net income(3) of $2.1
million in the prior year quarter. Adjusted diluted loss per
share(3) was $0.02 in the current quarter compared with adjusted
diluted earnings per share(3) ("EPS") of $0.02 in the prior year
quarter.
Adjusted EBITDA(2), as defined and reconciled to
net income in the table below, was $37.1 million, or 7.4% of
revenue, in the current quarter compared with $50.1 million, or
8.6% of revenue, in the prior year quarter.
“In the third quarter, GNC continued to make
strides stabilizing the US retail business driven by continued
success with our store optimization and cost saving
initiatives. Additionally, as outlined on last quarter’s
call, we made progress in addressing e-commerce opportunities and
drove solid growth in the quarter,” said Ken Martindale, GNC’s
Chairman and CEO. “While we did face headwinds in our
international business, we remain excited about the long-term
growth opportunities abroad.”
_____________________(1) This Non-GAAP
financial measure is reconciled to GAAP below, under the caption
"Reconciliation of Net Cash Provided by Operating Activities to
Free Cash Flow"(2) This Non-GAAP financial measure is reconciled to
GAAP below under the caption "Reconciliation of Net Income to
Adjusted EBITDA"(3) This Non-GAAP financial measure is reconciled
to GAAP below under the caption "Reconciliation of Net Income and
Diluted EPS to Adjusted Net Income and Adjusted EPS"
Segment Operating
Performance
U.S. & Canada
Revenues in the U.S. and Canada segment
decreased $31.8 million, or 6.7%, to $444.7 million for the three
months ended September 30, 2019 compared with $476.5 million in the
prior year quarter. E-commerce sales comprised 8.6% of U.S. and
Canada revenue for the three months ended September 30, 2019
compared with 7.2% in the prior year quarter.
The decrease in revenue compared with the prior
year quarter was largely due to the closure of company-owned stores
under our store portfolio optimization strategy, which contributed
a $14.8 million decrease in revenue, and negative same store sales
of 2.8%, which resulted in a revenue decrease of $9.7 million. In
domestic franchise locations, same store sales for the third
quarter of 2019 decreased 0.8% over the prior year quarter.
Operating income increased $21.2 million to
$32.7 million, or 7.4% of segment revenue, for the three months
ended September 30, 2019 compared with $11.5 million, or 2.4% of
segment revenue, for the same period in 2018. In the prior year
quarter, we recorded long-lived asset impairment and other store
closing charges totaling $14.6 million. Excluding the long-lived
asset impairment charges in the prior year quarter and immaterial
gains on refranchising in the current quarter and prior year
quarter, operating income was $32.7 million, or 7.3% of segment
revenue, in the current quarter, compared with $26.0 million, or
5.4% of segment revenue. The increase in operating income
percentage was driven by lower occupancy expense, salaries and
benefits.
International
Revenues in the International segment decreased
$14.5 million, or 28.1%, to $36.9 million for the three months
ended September 30, 2019 compared with $51.4 million in the prior
year quarter. Revenue from our international franchisees decreased
$9.1 million in the current quarter compared with the prior year
quarter primarily due to lower sales in Hong Kong and other
temporary challenges in Saudi Arabia and South Korea. Revenue
from China decreased by $5.1 million in the current quarter
compared with the prior year quarter due to the transfer of the
China business to the newly formed joint venture, effective
February 13, 2019.
Operating income decreased $3.8 million to $12.7
million, or 34.3% of segment revenue, for the three months ended
September 30, 2019 compared with $16.5 million, or 32.0% of segment
revenue, for the same period in 2018. The prior year quarter
included China joint venture start-up costs of $1.0 million, of
which $0.6 million related to costs incurred in the first six
months of 2018 within corporate costs that was reclassified to
International in the third quarter of 2018. Excluding the China
joint venture start-up costs, operating income was $17.4 million,
or 33.9% of segment revenue, for the three months ended September
30, 2018. The increase in operating income percentage compared to
the prior year quarter was primarily a result of the transfer of
the China business to the newly formed joint venture.
Manufacturing / Wholesale
Revenues in the Manufacturing / Wholesale
segment, excluding intersegment sales, decreased $34.9 million, or
66.7%, to $17.4 million for the three months ended September 30,
2019 compared with $52.3 million in the prior year quarter
primarily due to the transfer of the Nutra manufacturing business
to the newly formed manufacturing joint venture with International
Vitamin Corporation, effective March 1, 2019.
Operating income decreased $11.8 million to $5.1
million, or 29.0% of segment revenue, for the three months ended
September 30, 2019 compared with $16.9 million, or 14.5% of segment
revenue, in the prior year quarter. Revenue decreased as a
result of the transfer of the Nutra manufacturing business to the
newly formed joined venture, however, operating income margins were
positively impacted as the Manufacturing / Wholesale segment
recognized profit margin that resulted from maintaining consistent
pricing to what was charged to our other operating segments prior
to the inception of the manufacturing joint venture, and recorded
profit on intersegment sales associated with inventory produced
prior to the transfer of the Nutra manufacturing business to the
joint venture.
Year-to-Date Performance
For the first nine months of 2019, the Company
reported consolidated revenue of $1,597.8 million, a decrease of
$207.9 million compared with consolidated revenue of $1,805.7
million for the first nine months of 2018. The decrease in revenue
during the first nine months of 2019 compared to the prior year
period was largely due to the transfer of the Nutra manufacturing
and China e-commerce businesses to the newly formed joint ventures,
which resulted in a decrease in revenue of approximately $97
million, the closure of company-owned stores under our store
portfolio optimization strategy, which resulted in a decrease in
revenue of approximately $44 million, and negative same store sales
of 3.0%, which resulted a decrease in revenue of approximately $33
million.
For the first nine months of 2019, the Company
reported net loss of $1.6 million and diluted loss per share of
$0.18 compared with net income of $10.9 million and diluted EPS of
$0.13 for the first nine months of 2018. Excluding the expenses
outlined in the reconciliation table below, adjusted EPS(3) was
$0.30 and $0.47 in the first nine months of 2019 and 2018,
respectively.
Cash Flow and Liquidity
Metrics
For the nine months ended September 30, 2019,
the Company generated net cash from operating activities of $97.6
million compared with $55.7 million for the nine months ended
September 30, 2018. The increase was driven primarily by an
increase in accounts payable as a result of the Company's cash
management efforts as well as the establishment of payables
associated with the manufacturing joint venture.
For the nine months ended September 30, 2019,
the Company generated $86.7 million in free cash flow(1) compared
with $42.3 million (1) for the nine months ended September 30,
2018. The Company defines free cash flow as cash provided by
operating activities less capital expenditures. At September 30,
2019, the Company’s cash and cash equivalents were $121.9 million
and debt was $858.6 million. No borrowings were outstanding on the
Company's Revolving Credit Facility at the end of the third quarter
of 2019.
The Company is reviewing a range of refinancing
options, including discussions with financing sources in the United
States and Asia, to further optimize the Company's capital
structure and enhance its financial flexibility. The Board
has created a committee of independent directors to conduct this
review process. While there can be no assurances, the Company
is pleased with its progress in reviewing refinancing options and
expects to complete the process in the fourth quarter.
Conference Call
GNC has scheduled a live webcast to report its
third quarter 2019 financial results on October 24, 2019 at 8:30
a.m. ET. To participate on the live call, listeners in North
America may dial 1-888-254-3590 and international listeners may
dial 1-323-994-2093. 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 7, 2019.
About Us
GNC Holdings, Inc. (NYSE: GNC) is a leading
global health and wellness brand that provides high quality
science-based products and solutions consumers need to live mighty,
live fit, live long and live well.
The brand touches consumers
worldwide by providing its products and services
through company-owned retail locations, domestic and
international franchise locations, digital commerce and strong
wholesale and retail partnerships across the globe. GNC’s
diversified, multi-channel business model has worldwide reach and a
well-recognized, trusted brand. By combining exceptional
innovation, product development capabilities and an extensive
global distribution network, GNC manages a best in class product
portfolio. As of September 30, 2019, GNC had approximately 7,800
locations, of which approximately 5,700 retail locations are in the
United States (including approximately 1,900 Rite Aid licensed
store-within-a-store locations) and the remainder are locations 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 competition; our ability execute on, or realize
the expected benefit from the implementation of, our strategic
initiatives; resources devoted to product innovation may not yield
new products that achieve commercial success; difficulties with our
vendors; failure to maintain and/or upgrade our information
technology systems, including electronic payments systems; risks
and costs associated with security breaches, data loss, credit card
fraud and identity theft; risks associated with our international
operations; impact of our current debt profile and obligations
under our debt instruments; deployment of real estate strategy and
significant lease obligation; successful development and
maintenance of a relevant omni-channel experience for our
customers; disruptions in our manufacturing system; unfavorable
publicity or consumer perception of our products; any significant
disruption to our distribution network, inventory management
system, or to the timely receipt of inventory; issues with
franchisees; material product liability claims, or product recalls;
any increase in the price and shortage of supply of key raw
materials; general economic conditions, including a prolonged
weakness in the economy; compliance with new and existing laws and
governmental regulations; failure to comply with FTC regulations;
failure to protect our brand name and intellectual property;
potential impact of issuance of Series A Convertible Preferred
Stock including dividend and repurchase obligations; the terms and
features of our current Notes may have a negative impact on our
liquidity, dilution or reported financial results; issues related
to joint ventures; failure to attract or retain key employees; not
being insured for a significant portion of our claims exposure; our
use of derivative instruments for hedging purposes; impact of
potential future impairment charges; our holding company structure;
historic volatility of our common stock price; and the impact of
natural disasters (whether or not caused by climate change),
unusually adverse weather conditions, pandemic outbreaks, terrorist
acts and global politics.
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, 2018.
Non-GAAP Measures
Management has included non-GAAP financial
measures in this press release, including adjusted net income,
adjusted EPS, adjusted EBITDA, adjusted as reflected in this
release, and free cash flow, because it believes they represent an
effective supplemental means by which to measure the Company’s
operating performance.
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, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(unaudited) |
Revenue |
$ |
499,076 |
|
|
$ |
580,185 |
|
|
$ |
1,597,837 |
|
|
$ |
1,805,662 |
|
Cost of sales, including warehousing, distribution and
occupancy |
336,448 |
|
|
395,483 |
|
|
1,038,374 |
|
|
1,206,351 |
|
Gross
profit |
162,628 |
|
|
184,702 |
|
|
559,463 |
|
|
599,311 |
|
Selling, general, and administrative |
135,795 |
|
|
149,903 |
|
|
427,938 |
|
|
469,164 |
|
Long-lived asset impairments |
— |
|
|
14,556 |
|
|
— |
|
|
14,556 |
|
Loss on net asset exchange for the formation of the joint
ventures |
— |
|
|
— |
|
|
21,293 |
|
|
— |
|
Other loss (income), net |
179 |
|
|
282 |
|
|
(622 |
) |
|
357 |
|
Operating
income |
26,654 |
|
|
19,961 |
|
|
110,854 |
|
|
115,234 |
|
Interest expense, net |
24,456 |
|
|
35,732 |
|
|
82,376 |
|
|
90,448 |
|
Gain on convertible debt repurchase |
— |
|
|
— |
|
|
(3,214 |
) |
|
— |
|
Loss on forward contracts for the issuance of convertible preferred
stock |
— |
|
|
— |
|
|
16,787 |
|
|
— |
|
Loss on debt refinancing |
— |
|
|
— |
|
|
— |
|
|
16,740 |
|
Income (loss) before
income taxes |
2,198 |
|
|
(15,771 |
) |
|
14,905 |
|
|
8,046 |
|
Income tax expense (benefit) |
5,733 |
|
|
(7,181 |
) |
|
20,719 |
|
|
(2,895 |
) |
(Loss) income before
income from equity method investments |
(3,535 |
) |
|
(8,590 |
) |
|
(5,814 |
) |
|
10,941 |
|
Income from equity method investments |
1,117 |
|
|
— |
|
|
4,192 |
|
|
— |
|
Net (loss)
income |
$ |
(2,418 |
) |
|
$ |
(8,590 |
) |
|
$ |
(1,622 |
) |
|
$ |
10,941 |
|
(Loss) earnings per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.09 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.18 |
) |
|
$ |
0.13 |
|
Diluted |
$ |
(0.09 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.18 |
) |
|
$ |
0.13 |
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
Basic |
83,823 |
|
|
83,412 |
|
|
83,667 |
|
|
83,326 |
|
Diluted |
83,823 |
|
|
83,412 |
|
|
83,667 |
|
|
83,431 |
|
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, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net (Loss) Income |
|
Diluted EPS (1) |
|
Net (Loss) Income |
|
Diluted EPS |
|
Net (Loss) Income |
|
Diluted EPS (2) |
|
Net Income |
|
Diluted EPS |
|
(unaudited) |
Reported |
$ |
(2,418 |
) |
|
$ |
(0.09 |
) |
|
$ |
(8,590 |
) |
|
$ |
(0.10 |
) |
|
$ |
(1,622 |
) |
|
$ |
(0.18 |
) |
|
$ |
10,941 |
|
|
$ |
0.13 |
|
Loss on net asset exchange for the formation of the joint
ventures |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21,293 |
|
|
0.16 |
|
|
— |
|
|
— |
|
Gain on convertible notes repurchase |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,214 |
) |
|
(0.02 |
) |
|
— |
|
|
— |
|
Amortization of discount in connection with early debt payment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,119 |
|
|
0.02 |
|
|
— |
|
|
— |
|
Loss on forward contracts related to the issuance of convertible
preferred stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16,787 |
|
|
0.12 |
|
|
— |
|
|
— |
|
Loss on debt refinancing |
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16,740 |
|
|
0.20 |
|
Long-lived asset impairments |
— |
|
|
|
|
14,556 |
|
|
0.17 |
|
|
— |
|
|
|
|
14,556 |
|
|
0.17 |
|
Other (3) |
825 |
|
|
0.01 |
|
|
3,689 |
|
|
0.05 |
|
|
2,002 |
|
|
0.01 |
|
|
7,152 |
|
|
0.08 |
|
Tax effect (4) |
4,675 |
|
|
0.06 |
|
|
(4,010 |
) |
|
(0.06 |
) |
|
2,058 |
|
|
0.02 |
|
|
(6,721 |
) |
|
(0.07 |
) |
Discrete tax benefit (5) |
— |
|
|
— |
|
|
(3,583 |
) |
|
(0.04 |
) |
|
— |
|
|
— |
|
|
(3,583 |
) |
|
(0.04 |
) |
Adjusted |
$ |
3,082 |
|
|
$ |
(0.02 |
) |
|
$ |
2,062 |
|
|
$ |
0.02 |
|
|
$ |
40,423 |
|
|
$ |
0.30 |
|
|
$ |
39,085 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding |
83,823 |
|
|
|
|
83,515 |
|
|
|
|
136,589 |
|
|
|
83,431 |
|
|
Reconciliation of Net (Loss) Income to
Adjusted EBITDA(in thousands)
|
Three months ended September 30, |
|
Nine months endedSeptember 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(unaudited) |
Net (loss)
income |
$ |
(2,418 |
) |
|
$ |
(8,590 |
) |
|
$ |
(1,622 |
) |
|
$ |
10,941 |
|
Income tax expense |
5,733 |
|
|
(7,181 |
) |
|
20,719 |
|
|
(2,895 |
) |
Interest expense, net |
24,456 |
|
|
35,732 |
|
|
82,376 |
|
|
90,448 |
|
Loss on debt refinancing |
— |
|
|
— |
|
|
— |
|
|
16,740 |
|
Depreciation and amortization |
8,466 |
|
|
11,896 |
|
|
27,170 |
|
|
36,002 |
|
Loss on net asset exchange for equity method investments |
— |
|
|
— |
|
|
21,293 |
|
|
— |
|
Gain on convertible notes repurchase |
— |
|
|
— |
|
|
(3,214 |
) |
|
— |
|
Loss on forward contracts related to the issuance of convertible
preferred stock |
— |
|
|
— |
|
|
16,787 |
|
|
— |
|
Long-lived asset impairments |
— |
|
|
14,556 |
|
|
— |
|
|
14,556 |
|
Other (3) |
825 |
|
|
3,689 |
|
|
2,002 |
|
|
7,152 |
|
Adjusted
EBITDA |
$ |
37,062 |
|
|
$ |
50,102 |
|
|
$ |
165,511 |
|
|
$ |
172,944 |
|
(1) The Company applies the if-converted method
to calculate dilution impact of the convertible senior notes and
the convertible preferred stock. For reported and adjusted diluted
EPS for the three months ended September 30, 2019, the underlying
shares of the convertible preferred stock and the convertible
senior notes are anti-dilutive. Therefore, the diluted EPS included
a reduction to net (loss) income for the cumulative undeclared
dividends of $5.0 million.
(2) For reported diluted EPS for the nine months
ended September 30, 2019, the underlying shares of the convertible
preferred stock and the convertible senior notes are anti-dilutive.
Therefore, the reported diluted EPS included a reduction to net
loss for the cumulative undeclared dividends of $13.7 million. For
the adjusted EPS for the nine months ended September 30, 2019, the
underlying shares of the convertible preferred stock is dilutive
and the convertible senior notes are anti-dilutive. As a result of
the difference in the calculation for reported diluted EPS and
adjusted diluted EPS, amounts do not sum.
(3) The three months ended September 30, 2019
includes retention of $0.5 million, severance expense of $0.4
million, and immaterial refranchising gains. The three months ended
September 30, 2018 included retention of $2.1 million, a
legal-related charge of $1.3 million, long-lived asset impairments
of $14.6 million, China joint venture start-up costs of $0.3
million and immaterial refranchising gains. The nine months ended
September 30, 2019 included retention of $1.9 million, severance
expense of $0.4 million and immaterial refranchising gains. The
nine months ended September 30, 2018 included retention of $5.2
million, a legal related charge of $1.3 million, long-lived asset
impairments of $14.6 million, China joint venture start-up costs of
$1.0 million and immaterial refranchising gains. The retention
expense recognized in 2019 and 2018 relates to an incentive program
to retain senior executives and certain other key personnel who are
critical to the execution and success of the Company's
strategy. The total amount awarded was approximately $10
million, of which approximately $1 million has been forfeited as of
September 30, 2019, and which vests in four installments of 25%
each on November 2018, February 2019, August 2019 and February
2020.
(4) The Company generally utilizes a
blended federal rate plus a net state rate that excludes the impact
of certain state net operating losses, state credits and valuation
allowance to calculate the impact of adjusted items. In
connection with the transfer of the Nutra manufacturing net assets
to the newly formed manufacturing joint venture in the first
quarter of 2019, the Company recorded a gain for tax purposes which
was treated as ordinary and impacts the Company’s annual effective
tax rate. Therefore, for adjusted diluted EPS, the tax effect
for the impact of the loss on net asset exchange for equity method
investments related to the manufacturing joint venture transaction
was adjusted consistent with the annual treatment for tax
purposes. For the three and nine months ended September 30,
2018, the Company utilized an annual effective tax rate,
adjusted to exclude discrete items and the tax impact of loss on
debt financing.
(5) Relates to discrete tax benefits
associated with finalization of the Company's 2017 federal income
tax return.
GNC HOLDINGS, INC. AND
SUBSIDIARIESU.S. Company-Owned Same Store Sales
(including GNC.com)
|
2019 |
|
2018 |
|
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 |
(1.9 |
)% |
|
(3.9 |
)% |
|
(4.4 |
)% |
|
(1.2 |
)% |
|
(4.2 |
)% |
|
(3.4 |
)% |
GNC.com contribution to same store sales |
0.3 |
% |
|
(0.7 |
)% |
|
1.6 |
% |
|
1.7 |
% |
|
3.8 |
% |
|
1.3 |
% |
Total same store
sales |
(1.6 |
)% |
|
(4.6 |
)% |
|
(2.8 |
)% |
|
0.5 |
% |
|
(0.4 |
)% |
|
(2.1 |
)% |
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Balance
Sheets(in thousands)
|
September 30, |
|
December 31, |
|
2019 |
|
2018 |
|
(unaudited) |
Current
assets: |
|
|
|
Cash and cash equivalents |
$ |
121,857 |
|
|
$ |
67,224 |
|
Receivables, net |
111,053 |
|
|
127,317 |
|
Inventory |
394,763 |
|
|
465,572 |
|
Forward contracts for the issuance of convertible preferred
stock |
— |
|
|
88,942 |
|
Prepaid and other current assets |
17,378 |
|
|
55,109 |
|
Total current assets |
645,051 |
|
|
804,164 |
|
Long-term
assets: |
|
|
|
Goodwill |
79,041 |
|
|
140,764 |
|
Brand name |
300,720 |
|
|
300,720 |
|
Other intangible assets, net |
72,710 |
|
|
92,727 |
|
Property, plant and equipment, net |
89,104 |
|
|
155,095 |
|
Right-of-use assets |
362,774 |
|
|
— |
|
Equity method investments |
99,729 |
|
|
— |
|
Other long-term assets |
34,752 |
|
|
34,380 |
|
Total long-term assets |
1,038,830 |
|
|
723,686 |
|
Total assets |
$ |
1,683,881 |
|
|
$ |
1,527,850 |
|
Current
liabilities: |
|
|
|
Accounts payable |
$ |
166,527 |
|
|
$ |
148,782 |
|
Current portion of long-term debt |
152,919 |
|
|
158,756 |
|
Current portion of lease liabilities |
115,473 |
|
|
— |
|
Deferred revenue and other current liabilities |
97,169 |
|
|
120,169 |
|
Total current liabilities |
532,088 |
|
|
427,707 |
|
Long-term
liabilities: |
|
|
|
Long-term debt |
705,667 |
|
|
993,566 |
|
Deferred income taxes |
15,223 |
|
|
39,834 |
|
Lease liabilities |
347,658 |
|
|
— |
|
Other long-term liabilities |
47,518 |
|
|
82,249 |
|
Total long-term liabilities |
1,116,066 |
|
|
1,115,649 |
|
Total liabilities |
1,648,154 |
|
|
1,543,356 |
|
|
|
|
|
Mezzanine
equity: |
|
|
|
Convertible preferred stock |
211,395 |
|
|
98,804 |
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
Common stock |
130 |
|
|
130 |
|
Additional paid-in capital |
1,011,857 |
|
|
1,007,827 |
|
Retained earnings |
552,095 |
|
|
613,637 |
|
Treasury stock, at cost |
(1,725,349 |
) |
|
(1,725,349 |
) |
Accumulated other comprehensive loss |
(14,401 |
) |
|
(10,555 |
) |
Total stockholders’ deficit |
(175,668 |
) |
|
(114,310 |
) |
Total liabilities, mezzanine equity and stockholders’
deficit |
$ |
1,683,881 |
|
|
$ |
1,527,850 |
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows(in thousands)
|
Nine months ended September 30, |
|
2019 |
|
2018 |
Cash flows from
operating activities: |
(unaudited) |
Net (loss)
income |
$ |
(1,622 |
) |
|
$ |
10,941 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization expense |
27,170 |
|
|
36,002 |
|
Income from equity method investments |
(4,192 |
) |
|
— |
|
Amortization of debt costs |
16,491 |
|
|
14,583 |
|
Stock-based compensation |
4,343 |
|
|
5,102 |
|
Long-lived asset impairments |
— |
|
|
14,556 |
|
Loss on forward contracts related to the issuance of convertible
preferred stock |
16,787 |
|
|
— |
|
Loss on net asset exchange for the formation of the joint
ventures1 |
21,293 |
|
|
— |
|
Gain on convertible notes repurchase |
(3,214 |
) |
|
|
Gains on refranchising |
(440 |
) |
|
(276 |
) |
Loss on debt refinancing |
— |
|
|
16,740 |
|
Third-party fees associated with refinancing |
— |
|
|
(16,322 |
) |
Distributions received from equity method investments |
791 |
|
|
— |
|
Changes in assets and liabilities(1): |
|
|
|
Increase in receivables |
(4,933 |
) |
|
(6,080 |
) |
Decrease (increase) in inventory |
9,718 |
|
|
(5,794 |
) |
Increase in prepaid and other current assets |
(843 |
) |
|
(6,552 |
) |
Increase in accounts payable |
48,795 |
|
|
6,860 |
|
Decrease in deferred revenue and accrued liabilities |
(9,456 |
) |
|
(10,565 |
) |
Decrease in net lease liabilities |
(25,382 |
) |
|
— |
|
Other operating activities |
2,332 |
|
|
(3,506 |
) |
Net cash provided by operating activities |
97,638 |
|
|
55,689 |
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
Capital expenditures |
(10,933 |
) |
|
(13,355 |
) |
Refranchising proceeds, net of store acquisition costs |
2,062 |
|
|
1,916 |
|
Proceeds from net asset exchange |
99,221 |
|
|
— |
|
Capital contribution to the newly formed joint ventures |
(13,079 |
) |
|
— |
|
Net cash provided by (used in) investing
activities |
77,271 |
|
|
(11,439 |
) |
|
|
|
|
Cash flows from
financing activities: |
|
|
|
Borrowings under revolving credit facility |
22,000 |
|
|
261,500 |
|
Payments on revolving credit facility |
(22,000 |
) |
|
(261,500 |
) |
Proceeds from the issuance of convertible preferred stock |
199,950 |
|
|
— |
|
Payments on Tranche B-1 Term Loan |
(147,312 |
) |
|
(3,413 |
) |
Payments on Tranche B-2 Term Loan |
(123,774 |
) |
|
(32,100 |
) |
Convertible notes repurchase |
(24,708 |
) |
|
— |
|
Original Issuance Discount and revolving credit facility fees |
(10,365 |
) |
|
(35,235 |
) |
Fees associated with the issuance of convertible preferred
stock |
(12,814 |
) |
|
(3,443 |
) |
Minimum tax withholding requirements |
(233 |
) |
|
(296 |
) |
Net cash used in financing activities |
(119,256 |
) |
|
(74,487 |
) |
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
(1,020 |
) |
|
(416 |
) |
Net increase (decrease) in
cash and cash equivalents |
54,633 |
|
|
(30,653 |
) |
Beginning balance, cash and
cash equivalents |
67,224 |
|
|
64,001 |
|
Ending balance, cash and cash
equivalents |
$ |
121,857 |
|
|
$ |
33,348 |
|
(1) Change in working capital amounts related to
the transfer of net assets to the newly formed joint ventures are
included in the caption "Loss on net asset exchange for the
formation of joint ventures".
GNC HOLDINGS, INC. AND
SUBSIDIARIESReconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow(in
thousands)
|
Nine months ended September 30, |
|
2019 |
|
2018 |
|
(unaudited) |
|
|
|
|
Net cash provided by
operating activities |
$ |
97,638 |
|
|
$ |
55,689 |
|
Capital expenditures |
(10,933 |
) |
|
(13,355 |
) |
Free cash flow |
$ |
86,705 |
|
|
$ |
42,334 |
|
|
|
|
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESSegment Financial
Data (in thousands)
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
(unaudited) |
Revenue: |
|
|
|
|
|
|
|
U.S. and Canada |
$ |
444,734 |
|
|
$ |
476,519 |
|
|
$ |
1,409,951 |
|
|
$ |
1,506,250 |
|
International |
36,940 |
|
|
51,407 |
|
|
117,311 |
|
|
140,107 |
|
Manufacturing / Wholesale: |
|
|
|
|
|
|
|
Intersegment revenues |
— |
|
|
63,695 |
|
|
35,505 |
|
|
193,596 |
|
Third-party |
17,402 |
|
|
52,259 |
|
|
70,575 |
|
|
159,305 |
|
Subtotal Manufacturing / Wholesale |
17,402 |
|
|
115,954 |
|
|
106,080 |
|
|
352,901 |
|
Total reportable segment revenues |
499,076 |
|
|
643,880 |
|
|
1,633,342 |
|
|
1,999,258 |
|
Elimination of intersegment revenues |
— |
|
|
(63,695 |
) |
|
(35,505 |
) |
|
(193,596 |
) |
Total
revenue |
$ |
499,076 |
|
|
$ |
580,185 |
|
|
$ |
1,597,837 |
|
|
$ |
1,805,662 |
|
Operating
income: |
|
|
|
|
|
|
|
U.S. and Canada |
$ |
32,715 |
|
|
$ |
11,466 |
|
|
$ |
134,017 |
|
|
$ |
100,559 |
|
International |
12,653 |
|
|
16,468 |
|
|
40,972 |
|
|
46,624 |
|
Manufacturing / Wholesale |
5,052 |
|
|
16,869 |
|
|
32,514 |
|
|
47,722 |
|
Total reportable segment operating income |
50,420 |
|
|
44,803 |
|
|
207,503 |
|
|
194,905 |
|
Corporate costs |
(23,766 |
) |
|
(24,732 |
) |
|
(75,106 |
) |
|
(79,511 |
) |
Loss on net asset exchange for the formation of the joint
ventures |
— |
|
|
— |
|
|
(21,293 |
) |
|
— |
|
Other |
— |
|
|
(110 |
) |
|
(250 |
) |
|
(160 |
) |
Unallocated corporate costs, loss on net asset exchange and
other |
(23,766 |
) |
|
(24,842 |
) |
|
(96,649 |
) |
|
(79,671 |
) |
Total operating
income |
$ |
26,654 |
|
|
$ |
19,961 |
|
|
$ |
110,854 |
|
|
$ |
115,234 |
|
GNC HOLDINGS, INC. AND
SUBSIDIARIESConsolidated Store Count
Activity
|
Nine months ended September 30, |
|
2019 |
|
2018 |
U.S. &
Canada |
|
|
|
Company-owned(1): |
|
|
|
Beginning of period balance |
3,206 |
|
|
3,423 |
|
Openings |
21 |
|
|
18 |
|
Acquired franchise locations(2) |
21 |
|
|
20 |
|
Franchise conversions(3) |
(5 |
) |
|
(4 |
) |
Closings |
(244 |
) |
|
(174 |
) |
End of period balance |
2,999 |
|
|
3,283 |
|
Domestic Franchise: |
|
|
|
Beginning of period balance |
1,037 |
|
|
1,099 |
|
Openings |
6 |
|
|
10 |
|
Acquired franchise locations(2) |
(21 |
) |
|
(20 |
) |
Franchise conversions(3) |
5 |
|
|
4 |
|
Closings |
(40 |
) |
|
(45 |
) |
End of period balance |
987 |
|
|
1,048 |
|
International(4): |
|
|
|
Beginning of period balance |
1,957 |
|
|
2,015 |
|
Openings |
63 |
|
|
42 |
|
Closings |
(94 |
) |
|
(89 |
) |
China locations contributed to the China joint venture |
(5 |
) |
|
— |
|
End of period balance |
1,921 |
|
|
1,968 |
|
Store-within-a-store
(Rite Aid): |
|
|
|
Beginning of period balance |
2,183 |
|
|
2,418 |
|
Openings |
31 |
|
|
42 |
|
Closings |
(342 |
) |
|
(218 |
) |
End of period balance |
1,872 |
|
|
2,242 |
|
Total
Locations |
7,779 |
|
|
8,541 |
|
_______________________________________________________________________________
(1) Includes Canada.
(2) Stores that were acquired from franchisees
and subsequently converted into company-owned store locations.
(3) Company-owned store locations sold to
franchisees.
(4) Includes franchise locations in
approximately 50 countries (including distribution centers where
sales are made) and company-owned locations in Ireland. Prior year
also includes company-owned locations in China.
Contacts:Investors: Matt Milanovich,
VP- Investor Relations & Treasury, (412) 402-7260;
or
John Mills, Partner - ICR, (646) 277-1254
SOURCE: GNC Holdings, Inc.
Web site: http://www.gnc.com
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