GNC Finishing Worst Year Since IPO With Little to Show for 2017

(Bloomberg) -- GNC Holdings Inc. is limping to the finish of its worst year since it went public in 2011, and the vitamin retailer is leaving shareholders with little to get excited about in the next 12 months.

The company’s shares have plunged by more than 64 percent in 2016 as foot traffic fell at its more than 4,400 U.S. stores and customers cut down on buying vitamins and nutritional supplements. Once a Wall Street darling, GNC’s market value has dropped by about $5 billion since its peak in 2013 as it battled slumping sales and aggressive competition from online sellers and Wal-Mart Stores Inc. Even after the decline, only one of the 10 analysts who follow the stock recommend buying it.

Interim Chief Executive Officer Bob Moran, a board member who took the helm in July, is trying to turn around the operation. He’s unifying GNC’s pricing system to make it less confusing, rolling out promotions and boosting loyalty programs in an attempt to relaunch the brand. The chain will also run its first-ever commercial during the National Football League’s Super Bowl in February, a bold but costly gambit.

“I’m very skeptical about what they are trying to do right now,” said Seema Shah, an analyst at Bloomberg Intelligence. “There’re no new innovative products, and there’s more competitive pricing across the board. None of what they are doing changes that.”

In October, Moran said the company’s third-quarter financial results “continued to be unacceptable” and that it has a “badly broken business model in need of a change.” GNC revenue has dropped for three straight quarters.

The retailer has also held discussions with several Chinese suitors about a possible sale, but those talks have stalled following disagreements over the structure of a deal, people with knowledge of the matter said this month.

Tough Climate

GNC’s troubles come as other retailers are also suffering from declining mall traffic and heavy discounting. Macy’s Inc. is closing 100 stores, and J.C. Penney Co. cut its sales forecast. Weak tourism traffic prompted fashion houses Michael Kors Holdings Ltd. and Kate Spade & Co. to lower their full-year earnings forecasts and reduce inventory at department stores to rein in promotions.

GNC has been battered by Wal-Mart and Costco Wholesale Corp., which lured away customers by offering cheaper prices and devoting more space to vitamins and supplements, said Ivan Feinseth, an analyst at Tigress Financial Partners.

“There’s stiff competition out there, and lower prices are always better if you’re spending a lot on vitamins, especially because some of the niche supplements can be pricey,” Feinseth said.

GNC was a much different company when it went public in 2011, and shares more than doubled in the first year of trading. Several innovative products brought in new consumers, including diet pill Garcinia Cambogia, which was developed by Mehmet Oz, the television personality known as Dr. Oz. GNC hasn’t introduced products that have caught fire with shoppers in the past few years, said Shah.

Improving Experience

With annual sales of about $2.6 billion and 9,000 locations across the globe, Pittsburgh-based GNC is the largest specialty retailer of health, wellness and performance products. Yet its size doesn’t translate into market dominance: GNC controls less than 8 percent of the $35 billion supplement business, said Shah.

“They have to figure out a way to get people interested in going to them,” she said. “If you sell a commodity product, you would have to be the lowest price or you have to have some amazing experience.”

To that end, GNC is spending $8 million to $10 million on employee training and other marketing strategies to help in-store customers shop with tablets. It’s also introduced a new loyalty program to entice shoppers with incentives and a new mobile app to draw online consumers. Earlier this week, the company closed its U.S. stores for a day to overhaul its pricing.

“The New GNC leaves the old, broken model behind,” Moran said in a statement this month. “We’re confident it will have a positive impact on the business, but it will take time for the changes to take hold and translate to improved financial results.”

Super Bowl

GNC’s next major campaign will be the Super Bowl commercial, which it hopes will raise awareness and drive interest in the brand, Moran said. CBS Corp. last year charged a reported $5 million for a 30-second spot. That would represent 8 percent of GNC’s ad budget last year, said Sean Naughton, an analyst at Piper Jaffray Cos. He called the buy a “risky marketing decision.”

Feinseth of Tigress was also skeptical about the big game.

“The Super Bowl is probably one event that people eat the most unhealthy food possible,” he said. “I don’t think advertising for GNC during the Super Bowl would be for the right people. They are not going to be in the right frame of mind. I don’t know why a vitamin retailer would do that.”

To contact the reporter on this story: Stephanie Wong in New York at swong139@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Mark Schoifet