After Disappointing Quarter, GNC Explores Potential Sale

The Pittsburgh-based company cautioned there is no guarantee its review will lead to any specific action.

Josh Long, Associate editorial director, Natural Products Insider

May 3, 2016

3 Min Read
After Disappointing Quarter, GNC Explores Potential Sale

In an effort “to increase shareholder value," GNC Holdings Inc. revealed Monday its board of directors has begun a review of “strategic and financial alternatives" that include a potential sale of the company.

“The review will include a thorough evaluation of the company's current operating plan, as well as potential value maximizing alternatives such as accelerated refranchising strategies, capital structure optimization, partnerships and other value-creating collaborations, or a potential sale of the company," GNC said in a news release.

To assist in the strategic review, the specialty retailer has retained Goldman, Sachs & Co. as its financial advisor and Wachtell, Lipton, Rosen & Katz as its legal advisor.

“After careful consideration, including discussions with a range of shareholders, we believe it is an appropriate time to undertake a comprehensive review of the company's strategic and financial alternatives," said Michael F. Hines, GNC's chairman, in a statement. "We are in the early stages of a broad review, and will take the time we need to thoroughly evaluate our opportunities to achieve the best result for our shareholders, business partners and associates. While the review is ongoing, GNC will continue to act with the necessary urgency to deliver improved financial performance by addressing our near-term challenges and continuing to execute our strategic initiatives."

The Pittsburgh-based company cautioned there is no guarantee that its review will lead to any specific action.

GNC announced its plan after reporting first-quarter results on April 28 that missed Wall Street’s expectations. Consolidated revenues fell 1.8 percent to $668.9 million from $681.3 million in the year-ago period, and same-store sales shrank 2.6 percent in domestic company-owned stores. Adjusted earnings per share (EPS) of 69 cents missed a consensus estimate by 8 percent, according to Zacks Equity Research.

Financial analysts were disappointed with the first-quarter results, with Zacks noting in an April 29 blog that GNC’s lowered EPS estimate for the year “dims hopes of a turnaround in the near term."

“Choppy sales and multiple downward earnings revisions over the past year underscore the inherent risks in turning around a business facing industry headwinds," Deutsche Bank Securities said in an April 28 research note.

Update on Oregon Lawsuit

Separate from its business challenges, GNC also faces a lawsuit by Oregon Attorney General Ellen Rosenblum. Rosenblum alleged GNC sold unlawful ingredients—namely picamilon and BMPEA—in its dietary supplements in violation of Oregon’s Unlawful Trade Practices Act (UTPA).

Last October, GNC removed the case to federal court, but on March 31, a federal magistrate recommended that a district court judge send the lawsuit back to the Multnomah County Circuit Court. In his findings and recommendations, U.S. Magistrate Judge Paul Papak rejected GNC’s contention that Oregon’s claims under the UTPA mark a proscribed effort to enforce the Federal Food, Drug & Cosmetic Act (FDCA).

In objecting to the magistrate’s recommendations and findings, GNC argued the case must be heard in federal court.

“The specific sections of the FDCA that the State alleges GNC violated are excluded from the FDCA’s list of provisions that may be enforced by the State Attorneys General," GNC said in an April 18 court filing through its counsel. “These specific sections may only be enforced by the FDA in federal court."

About the Author(s)

Josh Long

Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition

Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a focus on regulatory issues, including at the Food and Drug Administration.

He has moderated and/or presented at industry trade shows, including SupplySide East, SupplySide West, Natural Products Expo West, NBJ Summit and the annual Dietary Supplement Regulatory Summit.

Connect with Josh on LinkedIn and ping him with story ideas at [email protected]

Education and previous experience

Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.

Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide (in Wyoming), Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.

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