Best stock watch: GNC Holdings Inc (GNC), founded in 1935, is the number one U.S specialty retailer of nutritional supplement brands. GNC’s full name is General Nutrition Center, and the company is selling vitamins, minerals, and herbal supplement products, as well as sports nutrition and diet products exclusively with nutrition concept as a starting point in the United States. Excluding nutritional supplement, GNC stores also include a variety of foods, natural skin care products. In addition, these stores also sell health-related books, sports equipment, clothing accessories and so on. GNC is like a super store for healthy living.
GNC owns and operates over more than 5,000 stores worldwide and 5 million gold members; it has stores in the Asian region including Singapore, Taiwan, Philippines, Japan, Malaysia, Indonesia, Thailand and Hong Kong. The company expects to open new chain stores in Shanghai and Beijing.
GNC carried out its IPO (initial public offering) on April 6, 2011 and sold 25.875 million shares at an issue price of $16 per share and offered 23 million shares at a price of $24.75 in the fourth quarter of 2011. Calculated by the latest GNC stock closing price of $37.31, the Company’s current market capitalisation is $3.97 billion.
GNC mainly derived its revenues through three sectors: Retail, Franchise Manufacturing/Wholesale. By the end of 2011, Retail accounted for 73% of the total revenue; Franchise accounted for 16% of the total revenue and Manufacturing/Wholesale contributed the remainder.
Retail
The company sells products through its own stores and website.
By the end of 2011, the company owns 3,046 stores with a store area between 1000-2000 square feet and location in shopping center or shopping mall.
GNC.com has become an important component of the retail business, which can enhance the sales of GNC in the weak entity channel areas. Some products cannot be sold in retail stores can be sold through the website, expanding the products provided to customers. Meanwhile, the web site sales are also more convenient to analyze the new customers and returning customers.
In 2009, 2010 and 2011, the company’s own brand sales in its own stores accounted for approximately 56% of the total revenues.
Franchise
Franchise revenues are derived from national and international business.
As of the end of 2011, there had been 2,514 franchisees: 924 in United States; 1590 in other countries and regions.
The areas of the U.S franchise stores are generally between 1000 and 2000 square feet; and about 90% of the U.S franchise stores are opened in malls and shopping centers.
The franchise stores in other countries are relatively smaller and generally located in malls, shopping centers or street. These stores have a consistent decorative-Style with the U.S. domestic stores The franchisees also sell GNC products through Internet.
By the end of 2011, the U.S domestic franchise business accounted for 62% of the total franchise revenue and the international franchise business accounted for 38%.
Franchisees’ stickiness to GNC s very high. During the period 2006 to 2011, the re-sign rate of the U.S. domestic franchisees reached 92%.
Franchise business effectively enhances the GNC brand awareness and market share, and makes GNC stores be able to expand stores worldwide with limited capital investment.
Manufacturing/wholesale business
GNC provides products to own stores, franchise stores and third-party channels including the GNC own brand products and the third-party brand products.
Manufacturing
GNC not only manufactures its own brand productions but also the third-party products. Products will be supplied to chain drugstores such as Rite Aid. GNC is able to control the product quality, cost of production and distribution efficiency well, meanwhile maintain a suitable inventory level by its superior product manufacturing and warehousing facilities.
Wholesale
GNC has signed strategic cooperation agreements with chain drugstores. Openning a GNC area in chain stores can improve the GNC brand awareness and help the customers with low frequency to nutrition stores recognize the GNC products effectively.
GNC reached a strategic cooperation agreement with chain drugstores Rite Aid at the end of 1998, pursuant to which, CNC is allowed to open GNC area in the latter’s stores. As of the end of 2011, GNC had opened 2,125 stores in the Rite Aid stores.
At the same time, GNC sells its products at wholesale prices to Rite Aid and manufactures products for the latter. In 2007 GNC extended the strategic alliances of Rite Aid till 2014. During 2011, GNC opened 975 stores in the Rite Aid stores and Rite Aid also committed to allow GNC to open additional 1125 units of store-in-store until the end of 2014.
Financials
GNC maintained high growth in revenues and net profit in recent years. The company recognized $1.66 billion, $1.71 billion, $1.82 billion and $2.07 billion in revenues for the years 2008, 2009, 2010 and 2011, respectively; net profits for such years were $54.60 million, $69.5 million, $9.60 million and $132.3 million, respectively.
As shown in the following figure, GNC grew net profit much more faster than revenues:
Since the 2008 financial crisis, GNC sees net profit margin rising year by year. The company has experienced a better and better phase.
GNC’s past annual financial data show that its businesses are growing at accelerating speeds since 2008.
The franchise business maintained a more than 10% growth rate in 2010 and 2011, which has guaranteed GNC to obtain a larger market share with less capital investment.
GNC stock price has gained 28.88% year to date and currently trades 21.57 times over the earnings trailing past twelve months and 15.61 times forward earnings for the full fiscal year 2013. Over the past 52 weeks, GNC stock price traded as high as $41.95 and the latest closing price of $37.31 is 11.06% off the peak. The company currently command a market cap of $3.97 billion and has a PEG ratio of 0.92. According to the data provided by Thomson/First Call, the consensus mean GNC stock price target is $45.67 and recommendation on the shares is “buy.”