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GNC, Inc.

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by

Brooke Pleva

on 2 December 2013

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Transcript of GNC, Inc.

GNC Holdings, Inc.
Recommendation:
Buy
Company Background
Global specialty retailer of health and wellness products
Established in 1935
Headquartered in Pittsburgh, Pennsylvania
Went through an IPO in April 2011
Retail, franchise, and manufacturing/wholesale (3rd party)
Competitors
Walgreens
CVS
Vitamin Shoppe
Amazon
Vitacost
Threat of New Entrants
Easy to enter and sell developed products
Harder to gain good reputation
High R&D Costs
Power of Consumers
Power to shop around
Competition keeps prices low
Power of Suppliers
Power to buy in bulk
Non-branded, unpatented commodities
Substitutes
Many Alternatives:
Eating healthy
Working out
Prescription medicine
Doing nothing at all
Porter's Five Forces
Many products offered by GNC are also available at other stores and also can be found online.
Strengths:
~Dominant market position, store base 11x larger than nearest specialty retail competitor
~Brand recognition, 82% brand awareness
~Attractive, loyal customer base
~Stable products, vitamins and sports nutrition are stable and continue to grow
~Unique product offering and robust innovation capabilities, in house product development
~Quality, 75% of consumers agree that GNC have highest quality. Products go through 150 quality checks
~Customer service
~Diversified business model
~Vertically integrated operations
Weaknesses:
~Large amounts of long-term debt
~Depend on services of key executives
~Non effective risk management procedures
~Product recalls reduce sales and profit margins
~Increase in price or shortage of raw materials
~Franchises fail to generate profit, big part of
marketing and advertising programs
~Fail to open new company stores on time
~Maintain and upgrade information systems

Opportunities:
~New health trends provide
opportunities to create new products
~International expansion, 75% of GNC’s output is in the United States
~New marketing techniques, social media, online presence (offering competitive pricing strategies)
~Improving current product line, offering unique ingredients that are patented
~make products more absorbent
Threats:
~Intense competition
~Carrying products that have an unfavorable public perception
~Perceptions may change with science findings and changing consumer preferences
~Missing health crazes
~Government regulations, FDA
~Problems in the distribution network
Overview
1. Company information: Background and SWOT
2. Industry Analysis: Porter's 5 Forces and Key Ratios
3. Forecasting: Information Sources and Revenue Growth
4. Company Value
5. Recommendation
Debt to Equity:
GNC has a higher debt to equity than their direct competitors.
GNC is relying much more heavily on debt to finance their assets.
The debt is currently at a variable rate.
Operating profit 4x their current interest expense and expected to increase as they pay off debt.
Profit Margin:
Forecasting Information Sources:
10-K
Investors' Reports
Earnings Calls
Vertical Analysis
Horizontal Analysis

Sell
Hold
Revenue Growth:
Company Value:
Ratios
Ratios
Yuan Cai
Michael Corcoran
Brooke Pleva
Thomas Rakowski
Bradley Winkler
GNC has been increasing profit margin consistently.
It have better control over their costs than their competitors.
It is vertically integrated.
Ratios
Return on Equity:
Focusing on same store sales growth
Opening new stores (115 company owned per year and new franchises)
Increased online sales (through luckyvitamin.com purchase)
International expansion (franchising)

Forecasted
According to Goldman Sachs as of November 18, 2013GNC stock is a buy if $70 and below
Previous target price was $68
GNC Gold Card transformation is driving powerful results
Valuation remains favorable and inherently overlooks GNC’s higher margin lower risk franchise and wholesale businesses
52 week low $30.92
52 week high 60.42

GNC investors are receiving a better return than competitors.
Although GNC's equity multiplier will decrease with decreased debt and increased equity, its increased profit margin will continue to improve ROE.
Full transcript