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Why Shares of GNC Holdings Crashed Today

By Timothy Green - Oct 27, 2016 at 12:30PM

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An abysmal third quarter for the specialty retailer sent shares plunging.

Image source: GNC Holdings.

What happened

Shares of specialty retailer GNC Holdings (GNC) tumbled on Thursday following the release of its third-quarter earnings report, which badly missed analyst expectations. Revenue was driven down by a steep decline in comparable-store sales, as well as weakness in the company's international segment. At 11:15 a.m. EDT, the stock was down about 19%.

So what

GNC reported third-quarter revenue of $628 million, down 8.1% year over year and $23 million below the average analyst estimate. Comparable-store sales, which include online sales, crashed 8.5% at domestic company-owned stores. Business was no better at franchise locations, which suffered an 8.9% decline. International sales dropped 18.7% year over year to $41.1 million, while manufacturing and wholesale revenue declined by 0.5% to $61.3 million.

Non-GAAP EPS came in at $0.59, down from $0.75 during the prior-year period and $0.12 lower than analysts were expecting. Lower revenue, as well as an increase in selling, general, and administrative expenses, drove GNC's profits lower. Heavy spending on share buybacks over the past year reduced the diluted share count by more than 18%, boosting per-share numbers. Non-GAAP net income declined by 36% year over year.

GNC Interim CEO Robert Moran admitted that the third quarter was disappointing, but highlighted various initiatives that he hopes will return the company to growth: "Our results for the quarter fell short of our expectations, but we have been moving quickly to address the key issues that are critical to returning GNC to growth. We are focused on eliminating confusion regarding our product pricing, providing customers with an improved loyalty program, enhancing the customer experience in our stores and reinvigorating the GNC branded product innovation pipeline."

Now what

Shares of GNC are now down 55% over the past year. Notably, the company has spent more on share buybacks since the start of 2013, about $1.3 billion, than the current market capitalization of roughly $1.1 billion. GNC stock trades for just six times the average analyst estimate for full-year non-GAAP earnings, but a terrible third quarter is doing a good job of scaring investors away.

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