Please ensure Javascript is enabled for purposes of website accessibility

Why GNC Holdings Inc. Shares Tanked Today

By Jeremy Bowman - Apr 28, 2016 at 4:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The nutritional supplement retailer got slammed after a weak earnings report.

What: Shares of GNC Holdings Inc. (GNC) were throwing in the towel today, tumbling after a terrible earnings report. As of 2:56 p.m. ET, the stock was down 28.5%.

So what: Weak earnings results and a guidance cut combined to sink the retailer. The company reported same-store sales slipped 2.6% at company-owned stores and 5.6% at franchised stores, and earnings per share dropped from $0.75 a year ago to $0.69, missing analyst estimates at $0.76.

CEO Mike Archbold said, "Although we experienced positive sales trends across parts of our business, these trends were more than offset by challenges in the vitamin business, driven by the decline in Vitapak sales." He also acknowledged that the turnaround begun in 2014 is taking longer than expected.

As part of its previously announced refranchising, GNC said it would sell 84 company-owned stores to Sun Holdings, one of the largest franchisees in the country. GNC hopes to refranchise 1,000 company-owned stores over the next three to four years.

Now what: For the full year, management reduced its guidance sharply, from an EPS of $3.15-$3.35 to $2.80-$2.90, though Archbold stressed that the company was "taking actions to offset the headwinds in the business." It's easy to see how a stock would lose nearly 30% after management cut its earnings guidance by more than 10%. 

Still, the vitamin and supplement business that GNC competes in seems particularly vulnerable to competition from the e-commerce channel, and with over 9,000 stores worldwide, the company has a large retail footprint. The refranchising strategy has become popular in the restaurant industry, but with same-store sales falling by 5% in that category, it may be tough to sell off more than 1,000 stores. Shoring up losses in comparable sales needs be the company's first step in its turnaround mission.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GNC Holdings Stock Quote
GNC Holdings

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.