Shares of GNC Holdings Inc. (GNC) fell 18.4% in November, according to data from S&P Global Market Intelligence, after the specialty retailer of health and nutrition supplements proposed a senior notes debt offering, a new senior secured term loan, and a new revolving credit facility. GNC stated at the time that it would use the funds primarily to repay its existing credit facility, as well as for general corporate purposes.
Incidentally, on Monday (Dec. 4, 2017), GNC followed up by withdrawing its proposed offering, opting instead to retain Goldman Sachs to help review strategic alternatives to both optimize its capital structure and create shareholder value.
For perspective, when GNC first proposed its (now-rescinded) offering last month, it had been less than two weeks since its disappointing third-quarter report -- which was punctuated by declining revenue and Amazon's recent entrance into the nutritional supplements market -- caused the stock to fall nearly 23% in October.
As fellow Fool Joe Tenebruso pointed out at the time, the company ended the quarter with almost $1.4 billion in long-term debt and just $40 million in cash. Let it suffice to say, then, that it was no surprise that GNC would want to give itself some breathing room by shuffling around its debt.
GNC CEO Ken Martindale elaborated on his company's change of heart this week, saying:
Following a thorough process, we determined that the terms offered to GNC under the potential refinancing were not in the Company's best interests at this time. Our focus remains on continuing to build momentum behind our One New GNC strategy and ensuring we have the appropriate capital structure to support those efforts. As we work with our advisors to review and optimize our capital structure, we are confident that our cash flow and liquidity will enable us to continue to invest behind our key initiatives to provide customers innovative, highly differentiated products and experiences, drive sales growth and improved performance, and deliver shareholder value.
GNC pointed out on Monday that in addition to its $40 million in cash, it has roughly $246 million undrawn under its existing revolving credit facility. The company also reiterated its target for generating full-year free cash flow of $190 million to $210 million, as well as plans to repay the remainder of its revolver loan in the fourth quarter.
But that doesn't solve GNC's fundamental issues of stiff competition and a difficult retail environment. So while GNC may have wisely avoided refinancing on unfavorable terms, I can't get on board with the stock until its actual business demonstrates more tangible progress.