GNC: Unhealthy Fourth-Quarter Results Sent Shares Tumbling

GNC just reported fourth-quarter results that widely missed analysts' expectations. The stock is falling, so let's take a look at GNC and see if we should buy or avoid this global giant.

Feb 18, 2014 at 9:52AM
Images

Source: GNC.

GNC (NYSE:GNC), the global retailer of nutritional products, released its quarterly report last week, and the results missed analysts' expectations. The report got worse as it went on and GNC's shares have reacted by declining sharply. Let's take a thorough look at the results and determine if this is our opportunity to buy GNC or if we should steer clear of the stock for now.

The report
GNC released its fourth-quarter report after the market closed on Feb. 13. Here's an overview:

MetricReportedExpected
Earnings per share $0.50 $0.64
Revenue $613.70 million $631.51 million

GNC's earnings per share increased 6.4% and revenue rose 8.6%, as same-store sales grew 5% at domestic company-owned stores. Revenue grew in all three of the company's segments, but sales were much weaker than originally anticipated; here's a detailed look:

Segment2013 Revenue2012 RevenueGrowth
Retail $443.54 million $411.54 million 7.8%
Franchise $103.15 million $94.30 million 9.4%
Manufacturing/Wholesale $67.06 million $59.18 million 13.3%

GNC CEO Joe Fortunato stated that the company faced a "challenging retail environment," and this is clearly seen in the results. He then noted that more than $350 million was returned to shareholders during the quarter, but little could deter investors' attention from the earnings miss. 

Fueling the negativity
Following the fourth-quarter miss, GNC provided a dismal outlook for fiscal 2014. The company described the retail environment in January and February as "very challenging" and it does not think the next 10 months can make up for the bad start to the year. Here is what the company now expects 2014 will hold:

  • Earnings per share of $3.18-$3.24, an increase of 11.6%-13.7% compared to 2013's adjusted earnings per share of $2.85
  • High single-digit revenue growth
  • Domestic company-owned same-store sales growth in the mid single digits 
The consensus analyst estimate had called for earnings per share of $3.46 on revenue growth of 9%-10%, so GNC missed this mark by a mile. The market reacted to the earnings and guidance misses by sending GNC's shares plummeting more than 15% after-hours. Although I believe this sell-off is a bit overdone, I still would not consider GNC for an investment. With the company noting challenges in January and February, the first-quarter report will likely be very weak, which could cause continued weakness in the stock. Investors should follow this very well-known piece of advice: Don't try to catch a falling knife.

Td

Source: Weight Watchers.

Not alone in the struggle
Weight Watchers International (NYSE:WTW), the weight-management service provider, did not find success in the most recent quarter, either. This company helps people lead healthier lives with its meetings, magazine, and virtual services on its website or mobile app. It also provides nutritional products and cookbooks that make following its diet plans easier.

Weight Watchers' fourth-quarter report was released within seconds of GNC's report, and the results were mixed compared to expectations; here's a breakdown:

MetricReportedExpected
Earnings per share $0.54 $0.61
Revenue $366.10 million $357.98 million

Weight Watchers' earnings per share decreased 47.2% and revenue declined 11%, as all of the company's segments were very weak; revenues from meetings declined 15% in North America and 11.4% internationally, and revenue from its website declined 5.3%. The common factor in each segment's slowdown was that user counts dropped, which is arguably the worst possible scenario for a service provider in this industry. Weight Watchers' shares fell more than 15% after the earnings release and they have fallen more than 60% in the last two years. I believe Weight Watchers could continue moving lower, so I would caution investors to avoid it.

The Foolish bottom line
The only thing more disappointing than GNC's earnings and revenue in the fourth quarter was its outlook on fiscal 2014. The stock has taken a beating following the release, and GNC's shares may remain weak for the rest of the year. I would wait until GNC's next quarterly report before considering it for an investment, to see if the company is able to turn things around. After a miss like the one we just saw, you can never be too careful, especially when it comes to your hard-earned money.

A healthy investment opportunity
GNC does not appear to be a great investment opportunity, but opportunities do exist in the market right now, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of Weight Watchers International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers