GNC Looks Like a Nice Prospect Now, but Vitamin Shoppe Is Better

After reporting lackluster earnings for its fourth quarter, shareholders are probably wondering if GNC is all it's cracked up to be. Right now, though, the company looks strong but not quite as strong as Vitamin Shoppe.

Feb 19, 2014 at 5:30PM

Feb. 14, 2014 was a terrible day to own shares of GNC Holdings (NYSE:GNC). After reporting earnings for the fourth quarter of its 2013 fiscal year, the $4.3 billion nutritional-supplement retailer plummeted by nearly 15%. However, in light of the earnings disappointment and the share price drop, is it possible that Mr. Market overreacted? Is GNC really such a terrible investment opportunity or is now an opportune time to buy GNC on the cheap?

GNC just couldn't please Mr. Market
For the quarter, GNC reported revenue of $613.7 million. This represented an 8.6% gain from the $565 million the company reported for the fourth quarter of 2012, but it fell short of the $633 million that analysts anticipated. In the release, management attributed the rise in revenue, in part, to the addition of 154 locations since the end of GNC's 2012 fiscal year. However, the company also benefited from a 5% rise in comparable-store sales.

Just as with revenue, GNC reported earnings per share that fell short of expectations. For the quarter, the company saw earnings come in at $0.50 after seeing $0.47 in the year-ago quarter. On an adjusted, or non-GAAP basis, the company's earnings per share came out to $0.63, which was 26% higher than the year-over-year figure of $0.50 but below the $0.65 per share that Mr. Market hoped to see.

How does GNC stack up to its peers?

Gnc Rev Growth

Source: MSN Money

As we can see in the graph above, which measures the revenue growth of GNC and each of its competitors using a base of $1,000, the company has been a growth power play over these past four years. Between 2009 and 2012, the company grew its revenue by 42% from $1.7 billion to $2.4 billion.

GNC wasn't the only company in this area that grew rapidly. Smaller rival Vitamin Shoppe (NYSE:VSI) reported that its revenue grew 41% over the same time-frame, from $674.5 million to $950.9 million. Both companies saw rises in revenue because their store counts increased and their comparable-store sales rose.

Although they do not offer perfect comparisons, both CVS Caremark (NYSE:CVS) and Walgreen (NASDAQ:WBA) should be pitted against GNC as well since they both operate businesses that sell similar products. Between 2009 and 2012, CVS grew sales by an impressive 25% from $98.2 billion to $123.1 billion, while Walgreen's sales rose by only 13% from $63.3 million to $71.6 million. Both companies benefited from favorable sales trends but they haven't been able to keep up with their smaller rivals as they have more limited growth prospects because of their size.

Gnc Ni Growth

Source: MSN Money

In terms of revenue growth, GNC has proven victorious over its peers. However, when it comes to profitability GNC plays second fiddle to its smaller rival Vitamin Shoppe. Over the past four years, Vitamin Shoppe has seen its net income rise by a whopping 379% from $12.7 million to $60.8 million. To put this into context, we need only look at GNC. Despite being second place in net income growth, GNC's four-year growth rate came in at 246% as its net income rose from $69.5 million to $240.2 million. While this is by no means bad, it's much lower than the growth rate of GNC's peer.

Just as with revenue growth, CVS and Walgreen posted lower results than their smaller rivals. Between 2009 and 2012, CVS's net income grew by less than 5% from $3.7 billion to $3.9 billion. This was only slightly worse than the 6% net income growth, from $2 billion to $2.1 billion, that Walgreen posted.

Foolish takeaway
Based on the data provided, it looks as though GNC's shareholders got a little ahead of themselves. Despite seeing an 8% rise in revenue for the year, shareholders clearly expected more. In the short term, this could create some pain for investors but, given the company's long-term performance, it could provide the Foolish investor with a great opportunity to buy. However, it should not be forgotten that Vitamin Shoppe has a stronger track record than its peer, and after falling by 6% in response to GNC's earnings release it might be a better prospect.

The Motley Fool's Top Stock for 2014
For the Foolish investor, both GNC and Vitamin Shoppe appear to be attractive prospects.  However, are either of these companies the "best" stock for 2014 or are they just "good"?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Daniel Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information