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GNC Holdings Grapples With Margin Weakness, Stiff Competition


On Nov 28, we issued an updated research report on GNC Holdings, Inc. GNC. The company currently carries a Zacks Rank #4 (Sell).

This leading global specialty retailer of products for health and wellness, including vitamins, minerals, herbal supplement, sports nutrition and diets, has been underperforming the broader industry over the last year. The company has lost 60% compared with the 13.2% decline of the broader industry.

Moreover, this Pittsburgh, PA-based company exited the third quarter of 2017 on a disappointing note with revenues and earnings missing the Zacks Consensus Estimate. The underperformance can be attributed to softness at the company’s U.S. & Canada and manufacturing/wholesale segments.

Also, revenues declined largely due to a drop in sales of protein, vitamins, weight management as well as food and drink categories. The company’s same-store sales also failed to impress. The product categories that were the most affected are proteins, vitamins along with food and drink. Although the company is working on its ‘New GNC’ plans entailing new products and pricing at the stores, it has not resulted in any immediate improvement.

We are concerned about the weak margins due to a substantial decline in revenues on a year-over-year basis and rise in operating expenses.

Additionally, in the United States GNC Holdings competes with heavily advertised national brands of large pharmaceutical and food companies as well as other retailers. This leads to increased price competition for the company as more participants are entering the market. Also, the company’s international competitors include large international pharmacy chains, major international supermarket chains and other large U.S.-based companies with international operations.Thus, a tough competitive landscape, changing consumer preferences and Federal Trade Commission (FTC) regulations continue to pose challenges.

On a positive note, the company has been witnessing positive response for its New GNC Plan and new consumer enrollment under the myGNC Rewards Program. Moreover, the company has been seeing improvement in transactions and e-commerce business.

Key Picks

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Myriad Genetics, Inc. MYGN and Luminex Corporation LMNX. While PetMed and Myriad sport a Zacks Rank #1 (Strong Buy), Luminex carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 79.1% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has gained 8.5% over the last three months.

Luminex has a long-term expected earnings growth rate of 15.2%. The stock has rallied 14.9% over the last three months.

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