Why Shares of GNC Holdings Sank Today
What happened
Shares of health and wellness retailer GNC Holdings (NYSE: GNC) tumbled on Thursday following the release of the company's disastrous fourth-quarter report and the suspension of its dividend. GNC missed analyst estimates on all fronts, with revenue slumping by nearly 10% year over year. The stock was down as much as 16.5% soon after the market opened, but settled to an 8% loss by 11:15 a.m. EST.
So what
GNC reported fourth-quarter revenue of $569.9 million, down 9.4% year over year and about $1 million short of the average analyst estimate. Same-store sales dropped 12% at domestic company-owned locations, with a smaller decline of 6% at domestic franchise locations.
Image source: GNC.
Non-GAAP EPS came in at just $0.07, down from $0.59 during the prior-year period and $0.29 below analyst expectations. GAAP EPS was a loss of $6.35 per share, driven by a $473.5 million asset impairment charge related to goodwill. Gross margin slumped to 29.9%, down about 6.4 percentage points compared to the fourth quarter of 2015.
In an effort to preserve cash and pay down its debt, GNC announced that it was suspending its dividend. GNC also does not expect to use the remaining $197.8 million previously authorized for share repurchases in 2017.
Now what
GNC launched its One New GNC initiative in December in an effort to reverse the company's poor performance. Changes include a single-tiered pricing model to cut down on confusion, a new free loyalty program in addition to a new paid program, and the alignment of online and in-store prices.
As interim CEO Bob Moran pointed out, it will take time for these changes to be reflected in the company's results:
With same-store sales falling off a cliff and the bottom line quickly disappearing, One New GNC will need to show progress sooner rather than later. The stock is now down about 87.5% from its multiyear peak in late 2013, and further declines are likely if the company fails to stop the bleeding.
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