GNC (GNC), the global manufacturer, distributor, and retailer of nutritional products, has watched its stock fall sharply so far this year and weak earnings have played a key role in the decline. One strong report could get its shares back on track and the company has announced that it will release its first-quarter results on May 6. Let's take a look at GNC's most recent earnings release as well as the expectations for the upcoming report and take a quick look at one of its largest competitors, Vitamin Shoppe (VSI), to determine if we should be buying in right now or if we should watch this report from the safety of the sidelines.

Source: GNC's Facebook

The last time around
On Feb. 13, GNC released its fourth-quarter report to finish off fiscal 2013 and the results widely missed analysts' expectations; here's a breakdown:

Earnings Per Share $0.50 $0.64
Revenue $613.75 million $631.51 million

Source: Benzinga

Earnings per share increased 6.4% and revenue increased 8.6% year-over-year, as comparable-store sales rose 5% at company-owned locations in the United States. Sales rose in all three of GNC's segments, but a "challenging" retail environment caused weaker growth than the company had anticipated.

Source: GNC

To make things worse, management noted that the struggles had continued in the first few weeks of the first quarter, which led it to release dismal full-year guidance; the company said it expects earnings per share in the range of $3.18-$3.24 and revenue growth in the high single digits, while analysts were expecting it to earn $3.46 per share and achieve revenue growth of 9%-10%. 

In summary, it was an all-around horrible fourth quarter for GNC; its stock reacted by plummeting more than 15% on the day of the release and it has continued lower in the months since then.

Expectations & what to watch for
GNC has scheduled its first-quarter report for release after the market closes on May 6 and the current estimates call for very little growth; here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.76 $0.73
Revenue $701.69 million $664.69 million

Source: Estimize

These expectations call for GNC's earnings per share to increase 4.1% and revenue to increase 5.5% year-over-year, which seem well within reach. Other than the key metrics, there will be three important statistics and updates you will want to watch for:

Source: GNC

  1. It will be crucial for GNC to provide guidance for the second quarter that is within analysts' expectations; currently, the consensus estimates call for earnings per share of $0.85 and revenue of $739.14 million, which represent year-over-year increases of 16.4% and 9.3%, respectively.
  2. While providing satisfactory second-quarter guidance, it will also be important for GNC to maintain its full-year outlook, which we discussed in the fourth-quarter breakdown. Investors and analysts would prefer to see GNC raise its guidance, but we will settle with a simple reiteration.
  3. In the fourth-quarter, GNC announced that it had reached a master franchise agreement with a company named Rusvit to begin GNC's entry into Russia. With the ongoing conflict between Russia and Ukraine, investors will want to watch for any updates on this agreement because there is a strong possibility that it will be terminated or at least put on hold.
If GNC can meet analysts' earnings expectations and satisfy the three elements listed above, its stock could easily begin a run back toward its previous highs; however, with the overwhelming struggles the company faced in the fourth quarter, I would be cautious about making a new investment today. Foolish investors should watch this report from the sidelines and then use the information provided to make an educated decision on whether or not to invest. 

Source: Vitamin Shoppe

Is slowed growth an industrywide issue?
Analysts also expect Vitamin Shoppe, one of GNC's largest competitors, to experience struggles during the first three months of 2014 after its very strong fourth-quarter performance; here's an overview of the expectations for its report due out on May 7:

MetricExpectedYear Ago
Earnings Per Share $0.68 $0.72
Revenue $302.65 million $279.09 million

Source: Estimize

Source: Vitamin Shoppe

These estimates project that earnings per share will decrease 5.6% and revenue will increase 8.4% year-over-year, which would be bleak in comparison with the very strong fourth-quarter results it reported a few months back; at that time, Vitamin Shoppe exceeded expectations, with earnings per share increasing 15.6% and revenue increasing 17.2%, and it also provided a satisfactory outlook on fiscal 2014. The shares reacted to these great results by rallying over 8% on the day of the release and they have continued higher in the months since then.

I think the momentum will carry over from Vitamin Shoppe's fourth quarter and this will propel it to another earnings beat. I also believe that analysts are simply bearish on the industry as a whole and this led the earnings estimates to be so low in the first place; regardless, this is a perfect setup for Vitamin Shoppe to report a blowout quarter which will send its shares soaring once again.

With all of this information in hand, I would be a buyer of Vitamin Shoppe hand over fist right now; I believe it is the best investment opportunity in the industry and its long-term potential is much greater than that of GNC.

The Foolish bottom line
GNC noted a "challenging" retail environment in January and this is a bad sign going into its first-quarter earnings report. The stock has taken a beating so far this year, falling over 20%, and this is a situation where the saying "do not try to catch a falling knife" comes to mind. Foolish investors should steer clear of GNC for the time being and instead take a look at one of its largest competitors, Vitamin Shoppe.