GNC Financial Statement Analysis  

GNC Financial Statement Analysis  



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GNC Financial Statement Analysis


GNC Holding Inc. (GNC: NYSE) is currently valued at $170 million. This value is expected to reduce further going by the diminishing revenues, reducing profitability and lowering share prices. The future of the company is bleak unless the strategic partnerships in foreign markets and the brand repositioning strategy yield positive results quickly. 

Summary financials

Price$ 2.01Cash$ 67.2 million
Shares outstanding Equity$ 98.8 million
Basic83.4 millionProfit margin2.29%
Diluted86.2 millionOperating margin7.27 %
  ROA4.5 %
52-week price range$1.32 – $4.47Dividends
Market capitalization$ 170 millionCurrent ratio1.88
Estimated institutional ownership51.0%Debt to equity8.18
Estimated insider ownership2.35 %P/E ratio2.83

Company highlights include

  • A fortune 500 company, ranked at no 840 in 2018 (Federof, 2018).
  • GNC entered into strategic partnerships with Harbin Pharmaceutical Group in China, Banco De Franquias in Brazil and Guardian Healthcare Services in India. This is expected to increase its foreign market presence and bolster sales.
  • GNC partnered with International Vitamin Corporation (IVC) to advance its product development and innovation agenda
  • Earnings per share increased by 138 %, turning a loss into a positive earning


GNC Holding Inc., otherwise known as General Nutrition Centers (GNC), is an American multinational specializing in retailing health and nutritional products such as supplements, herbs, vitamins, sports nutrition and minerals. In addition to manufacturing a proprietary brand line, it retails its own and recognized third-party brands through its domestic and global distribution network. GNC retails its products through its company-owned, franchised and online stores. It has 6200 outlets in over 50 countries. Although the company has an enormous presence in the American market, it also operates in foreign locations such as Canada, China, India and Brazil, among others. Since it was founded in 1935 by David Shakarian in 1935, GNC has grown into a multinational firm valued at 170 million US dollars going by its market capitalization in October 2019. 


The company has segmented its operations into the United States and Canada, international and manufacturing or wholesale. The United States and Canada segment earns income from selling its products to customers while the international segment generates revenues through franchise fees, royalties and product sales (General Nutrition Centers, Inc., 2018). It online store, The health Store and Chinese operations are included in this segment. The manufacturing or wholesale segment manufactures the proprietary-brand products and supplies its wholesale partners (The Wall Street Journal, 2019). 


The mission of GNC is to ‘motivate and support the desire to live well’. It focuses on innovation, personalization and convenience. As such, the strategy of the company is to develop innovative products and retail them alongside other recognized global brands through its diversified omnichannel model (GNC Holdings, Inc., 2018 b; SEC, 2018 b). Besides, it aims at delivering a differentiated retail customer experience supported by its loyalty programs and the One New GNC single-tier pricing model. The pricing model aims at enticing bulk purchases (Hökelekli, Lamey & Verboven, 2017). GNC’s competitive advantage is in its intellectual properties, a 15,500-strong workforce, strategic partnerships in lucrative markets, and its extensive global distribution network (SEC, 2018 b).

To revitalize the company, GNC is repositioning its brand to reflect the changing customer preferences and global market trends. Therefore, the company is focusing more on its brand and customers, and less on retail stores (Reuters, 2019). As such, the created new positions and expanded others at the senior management level. The director of brand management, chief global officer and chief brand officer are new positions while electronic commerce has been added into the executive management level to reflect the prevailing trends favoring electronic shopping. Also, GNC seeks to expand its global presence through strategic partnerships in significant markets. For instance, GNC has partnered with Harbin Pharmaceutical Group Co., Ltd, Banco De Franquias and Guardian Healthcare Services Pvt. Ltd. to expand its presence in the Chinese, Brazilian and Indian markets, respectively (Getz, 2019 b; GNC Holdings, Inc., 2018). In advancing its product development and innovation strategy, GNC entered into a strategic partnership with International Vitamin Corporation, renowned for its manufacturing efficiency (GNC Holdings, Inc., 2019 b; Reuters, 2019).


Being a public company, GNC is overseen by a board of ten directors while its operations are handled by a senior management team of eight, which is headed by the CEO and chairperson, Ken Martindale. The company expanded its board of directors by adding two members onto the previous eight to accommodate the strategic partnership with China’s Harbin Pharmaceutical Group, who bought a 40-per-cent stake in 2018 (Torrance, 2019). Hsing Chow, who served as the group’s vice president and Yong Kai Wong, a former managing director in an affiliate of the group, CITIC Capital Holdings Limited, joined the board in January of 2019 (Torrance, 2019).

Also, GNC enriched its senior management team by appointing and promoting three new executives. The new unit will spearhead the company’s focus on international operations and online retail presence (GNC Holdings, Inc., 2019 b). Notably, GNC appointed Ryan Ostrom as the chief brand officer. Ostrom served as the global chief digital officer at KFC, a renowned fast-food brand and as the chief marketing officer at Sears Holding Corporation before that. Carl Seletz became the chief global officer after being promoted from the senior vice president of the international segment. He will lead the distribution, wholesale and retail operations, e-commerce support and operations outside the United States. Rachel Jones was promoted to vice president of global brands from being the vice president of international merchandizing and marketing. These changes are aimed at supporting the ongoing repositioning of the company as a strategy for expanding the brand and product portfolio globally and driving future growth (Wilson, 2019).   


GNC is in the retail industry and serves the health and wellness food market, which was valued at about 747.27 billion US dollars in 2018, globally (Shahbandeh, 2019). The company cuts across various sectors in the retail industry. For instance, GNC operates in the sports nutrition industry, which was valued at 11.64 billion US dollars in 2017 and expected to reach $44 billion by 2021. Additionally, it can be categorized under the dietary supplement industry, which is valued at $40 billion. Besides, the firm has a global presence, although it is predominantly in the US and Canadian markets. The US and Canada segment generates about 85 % of the firm’s total consolidated revenue. Nonetheless, GNC is present in about 50 countries, with over 55 % of its international franchise stores being in Chile, Mexico, South Korea and South Africa. Strategic partnerships in China, Brazil and India are expected to grow the company’s global market share significantly (Getz, 2019 b).  

The four leading rivals of GNC are Herbalife, Mannatech, Vitamin Shoppe and Eliver. These companies are located in the United States except Elivar, which is headquartered in Dublin, Ireland.  Herbalife, Mannatech and Vitamin Shoppe earned $4.9 billion, $173.56 million, and $1.11 billion dollars in 2018, respectively (Yahoo Finance, 2019). 

Financial analysis and projections

Financial performance (2016-2018)

Consolidated revenues decreased by $ 89.0 million US dollars in the fiscal year ended December 31, 2017, and another $ 127.5 million in the year ended December 31, 2018, representing a drop of 3.5 % and 5.1 %, respectively. The reductions were attributed to lower sales in the US and Canada and manufacturing/Wholesale segments despite being offset by increased sales in the international segment. The sale of Lucky Vitamin, closure of 307 stores, termination of the Gold Card Member Pricing program and lower store sales caused the revenue drops. However, the loyalty program, namely PRO Access and myGNC Rewards, and online sales, offset some of the revenue reductions. However, the proportion of sales through increased in the same period, rising from 5.1 % to 7.9 % of the US and Canada segment. The cost of sales also reduced in the period, dropping by $26.9 million between 2016 and 2017 and by $74.7 million between 2017 and 2018, representing 1.6 % and 4.5 %, respectively. In turn, gross profit dropped by $62.2 and $52.7 million during 2016-2017 and 2017-2018, respectively (SEC, 2018).

However, operating income improved from losses in 2016 and 2017 to a profit in the year ending December 31, 2019. Likewise, the net losses experienced in 2016 and 2017 became profits in 2018. Similarly, while shares lost $4.11 and $2.18 between 2016 and 2017, they earned $0.83 in 2018, registering a 120.2 % increase in the period between 2016 and 2018. This change came amid a rise in outstanding shares in 2018 (SEC, 2018). These changes are attributed to the performance of the online outlet, which offset the poor performance of the brick-and-mortar stores.   

Recent results (last three months ending March 31, 2019) 

Decreases in consolidated revenues, cost of sales, gross profit continued in the first quarter of 2019 compared to the previous year’s first quarter. The consolidated net revenues decreased by 7.0 % from $607.5 million USS dollars to $568.4 million. However, revenues from the international segment increased by 0.6 million dollars (2.1 %) from $40.1 million in the previous year’s quarter to $40.0 million. Also, the cost of sales reduced $39 million between the two quarters. However, although the gross profit decreased by $3.8 million, it increased as a percentage of revenue, to 36% compared to 34.1% in the first quarter of 2018. Contrastingly, the international segment earned higher revenues, which increased by $0.81 million (2.1%) between both quarters (SEC, 2019).    

Projections for the next two years (2019-2020)

The company is expected to continue with its downward spiral in consolidated revenues in 2019 and 2020 due to reducing sales from stores. Revenues are projected to reduce to $2,226.5 million and $1,974 million in 2019 and 2020, respectively (Table 1). The store optimization program could see the closure of more stores leading to revenue reductions.  However, international franchises and online sales could improve the operating income and net income in the period. The strategic partnerships in Brazil, China and India, will continue supporting the international segment revenue.

Table 1. Consolidated income statement and projections (in millions, except per share data)

Item2016 A2017 A2018 A2019 E2020 E
Total revenue2,570.02,481.02,353.52,226.51,974.0
Cost of sales1683.41656.51581.81,472.81,437.1
Gross profit886.6824.4771.7754.0740.3
Operating income (loss)(171.3)(256.8)112.4190.0184.0
Income (loss) before tax(231.8)(310.0)57.546.454.9
Interest expense60.464.2127.1130.4133.3
Net income (loss)(285.2)(150.3)69.83.952.0
Earnings (loss) per share: basic(4.11)(2.18)0.83
Weighted average shares outstanding: basic69.4   68.883.4

Source: SEC (2018); Yahoo Finance (2019)

Table 2. Balance sheet (millions of dollars)

AssetsAmountLiabilities and equityAmount
Cash and cash equivalents67.2Accounts payable148.8
Inventory465.6Deferred revenue and other current liabilities120.2
Prepayments, forward contracts and other assets144,1Current portion of long-term debt158.8
Total current assets804.2Total current liabilities427.8
Property, plant and equipment155.1Long term debt933.6
Goodwill, brand name and other intangible assets534.2Deferred income taxes39.8
Deferred income taxes8.8Other long-term liabilities142.2
Other long-term assets25.6Mezzanine equity98.8
  Stockholders deficit(114.3)
Total assets1,527.9Total liabilities and equity1,527.9

Source: SEC (2018)

Capitalization and financial analysis

The market capitalization stands at 170 million US dollars, down from a high of 5.81 billion US dollars in November of 2013. The company has many stores that are performing dismally and giving a low return on assets (ROA). The company netted an income of $69.8 million against total assets worth $1,527.9 million in 2018, providing a ROA of 4.5 %. Besides, its current assets were worth $804.2 million against $427.8 million in liabilities, which translates to a current ratio of 1.88 (Figure 1) (SEC, 2018). Although the company has excellent financial strength in the short-term, it may be unable to engage in substantial capital investments in the long-term. This may explain why it has sold some of its stock to strategic partners to avail capital for its expansion program. Working capital fell from $475.9 million in 2017 to $376.5 million in 2018. Similarly, the net cash used in investments reduced from $23.8 million in 2017 to 16.5 million in 2018. At the same time, its cash and cash equivalent improved from $64 million to $67.2 million in the same period. Despite this improvement, the company did not pay out any dividends to its shareholders in 2018. Moreover, the earnings per share were below a dollar in 2018, although they had improved from the 2.18-dollar loss in 2017 (138 %) (SEC, 2018). Although this makes the company’s shares unattractive to investors who expect to make a decent return on their investments in the short-term and long term, the turnaround is encouraging.   

Risk factors

GNC operates in a highly competitive industry that is crowded by online merchants, drugstores, supermarkets, specialty retailer and pharmaceutical companies (SEC, 2018). New entrants into the industry are much smaller and able to create their niche in the market by understanding their customers better. While GNC stores are large with a sterile ambiance, those of smaller companies tend to be less intimidating to customers. As such, they could be taking some of GNC’s market share. Therefore, GNC’s store maximization initiative and brand positioning strategy have to mitigate the competitiveness of such entrants. Moreover, its new initiatives that include its pricing model, new GNC-branded products, customer loyalty program and strategic partnerships in foreign markets may take a while to yield results that are visible on the balance sheet in the near-term (SEC, 2018). For instance, the joint ventures with Harbin Pharmaceutical Group in China, Banco De Franquias in Brazil and Guardian Healthcare Services in India are likely to reduce the decision-making authority of GNC and change its strategy (Getz, 2019 a). As such, GNC has to create a good working relationship with its partners to develop cohesive strategies that can yield positive results in the future.

Partnering with small suppliers may limit the amount of stock on shelves and occasionally cause some products to be out-of-stock (SEC, 2018). This may create difficulties with vendors and customers. Disgruntled vendors and customers may switch companies, which would further reduce GNC’s revenues. Therefore, GNC has to support its vendors to deliver enough inventories to meet the demands of customers. Besides, the online retail platform is susceptible to cyberattacks the may lose the company, its vendors and customer money and valuable information (SEC, 2018). Failure to secure online transactions may expose the company to theft and fraud. This would damage the reputation of the company and expose it to expensive litigations and payouts, which would erode the company’s finances. 

Conclusion and summary

GNC Holding Inc. is performing poorly, going by its reducing revenues, profits, share prices and market capitalization. Although the company is well-positioned to revitalize its brand and respond to the changing market trends, it may take a while to return to its previous profit levels and performance. However, its international expansion strategy through strategic partnerships may yield positive results in the long-term. Altogether, the company is undervalued, going by its numerous properties and diverse product portfolio.


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