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GNC deserves credit for managing its income statement very well.
. Operating income % of sales increased 20%, to 12% from 10% in the last three years, |
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. Net after tax profit to 61%, to 5.3% from 3.3% |
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Because the income statement has been so well managed, it appears that GNC is going to have to rely on top line revenue growth to increase earnings. |
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However, GNC made a misleading statement in their S-1 filed on March 21, 2011 |
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GNC said, "Based on the information we compiled from the public securities filings of our primary competitors, our network of domestic retail locations is approximately twelve times larger than the next largest U.S. specialty retailer of nutritional supplements." |
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Yes, in terms of store count GNC has 7,200 locations worldwide compared to Vitamin Shoppe’s (VSI) almost 500 ‘real’ stores in the U.S. But 2000 of GNC’s 7200 stores are ‘stores within a store’ at Rite Aid which isn’t doing well compared to CVS & Walgreens. ‘Stores within a store’ hardly count as a retail location, if you go look for yourself. |
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In 2010 VSI generated
. 40% of GNC’s sales,
. 30% of GNC’s net income and
. VSI’s market cap is 57% of GNC’s (at the mid-point of the price range). |
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We are surprised the SEC didn’t comment out GNC’s bold & misleading ‘we’re 12 times bigger, etc" statement |
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LEVERAGED BUYOUT |
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March 2007 headed by Ares and OTPP |
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BUSINESS |
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GNC operates a worldwide network of more than 7,200 locations and a GNC.com website |
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Vitamins, minerals and herbs generated 40% of company-owned retail sales for 2010. |
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Sports nutrition products generated 43% of company-owned retail sales for 2010. |
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2010 SEGMENT SALES |
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Retail: 74% |
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Franchising 16% |
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Manufacturing/wholesale: 10% |
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MARKET GROWTH |
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Nutritional supplements expected to grow 5.3% per year through 2015 |
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Sports nutrition segment expected to grow 7.2% per year through 2015 |
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And the fourth quarter of 2010 marked the 22nd consecutive quarter of positive domestic company-owned same store sales growth |
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GROWTH PLAN |
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GNC believes the U.S. market can support a significant number of additional GNC stores, with at least 4,500 total potential domestic company-owned and franchise stores (excluding Rite Aid store-within-a-store locations) |
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BRAND BUILDING & STRATEGIC PARTNERING |
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Increased focus on proprietary product development and innovation to drive growth in retail sales. Increased revenue contribution from new product lines through a series of successful GNC-branded product launches (Vitapak®, Pro Performance® AMP and GNC WELLbeING®), as well as recent launches of preferred third-party product offerings. |
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Launched partnership programs designed to leverage GNC's brand strength. In 2010, partnered with PepsiCo to support its launch of Gatorade G Series Pro and to develop a new brand of fortified coconut water called Phenom, which GNC expects to be available to consumers in 2011, and with PetSmart to launch an exclusive line of GNC-branded pet supplements. |
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SEASONALITY |
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GNC has experienced, and expects to continue to experience, a variation in net sales and operating results from quarter to quarter, with the first half of the year being stronger than the second half of the year. |
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COMPETITION |
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Vitamin Shoppe (VSI): For each of the past five years, VSI believes it has been the second largest in retail sales and the fastest growing national VMS specialty retailer (vitamins, minerals, herbs, supplements, sports nutrition and other health and wellness products) |
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GNC competes with other specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, mail-order companies, other internet sites and a variety of other smaller participants. |
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International competitors also include large international pharmacy chains and major international supermarket chains as well as other large U.S.-based companies with international operations. |
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GNC’s wholesale and manufacturing operations also compete with other wholesalers and manufacturers of third-party nutritional supplements. |
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USE OF PROCEEDS |
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6.5mm shares to be offered from selling stockholders, $104mm |
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16mm shares to be offered by GNC, which is expected to receive $238 million |
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Source of funds: $238 from IPO; $1.2 billion from refinancing March 4, 2011; $26mm cash on hand. |
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Sponsors receive $609 million. |
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. $104 from sale of IPO share |
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. $270mm to the sponsors via a $185mm dividend & $85mm debt repayment |
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. Redeem preferred stock for $222.5mm |
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. $11.1 million to satisfy management services agreements
. $2.45 million in accrued and unpaid dividends on preferred stock. |
