Paul J. Gough | April 28, 2016
GNC Holdings Inc. said Thursday it would be selling 84 company-owned stores to one of the country's biggest franchisers in a deal that will eventually lead to the Pittsburgh-based nutrition retailer selling off about 1,000 of its stores.
GNC (NYSE: GNC) disclosed in its first-quarter earnings report released Thursday that it would receive about $17 million from the sale to Sun Holdings, which does not yet own any GNC (NYSE: GNC) locations. It's a small slice of its 9,000 GNC stores worldwide, including 2,340 that are part of a store-within-a-store at drug store Rite Aid. But it's part of a larger effort for GNC to sell off 200 company-owned stores this year and 1,000 total.
The deal with Sun Holdings "is part of our strategic plan to transition approximately 200 company-owned store locations to an asset light franchise model this year and 1,000 company-owned store locations over the next three to four years," said CEO Mike Archbold in a statement Thursday.
A GNC spokeswoman didn't immediately have any more details about the transaction or the locations of the stores that were to be sold when the deal closes in the second quarter. GNC in the first three months of the year closed 69 locations, both franchise and company owned, and opened 30 new stores.
Sun Holdings is based in Dallas and is a franchisee that includes 600 restaurants including Burger King, Krispy Kreme and Golden Corral. It was founded in 1997 by Guillermo Perales and has grown revenue 50 percent a year since then,according to Perales' website. Entrepreneur magazine in 2012 called Perales one of the biggest restaurant franchisees in the U.S.
Meanwhile, GNC struggled with weakness in part of its business that led to what Archbold called disappointing quarterly results. GNC earned $50.8 million, or 69 cents a share, in the first quarter, compared with $63.3 million, or 72 cents a share, in the same quarter a year ago. Revenue declined to $668.9 million from $681.3 million a year ago. One of the issues was GNC's vitamin business, along with a 2.6 percent drop in same-store sales.
"We are not pleased with the reported results for the quarter and find them unacceptable. While we are making progress on our strategic evolution, which we started in 2014, the turnaround is taking longer than expected and the progress is insufficient," Archold said. "Our number one priority is our vitamin business and the steps we need to take to grow same-store sales in this category through new promotions and a renewed marketing focus. In addition, we are reducing the significance of aged inventory, optimizing our assortment and training store associates to emphasize the vitamin solution to our customers."
GNC also cut its outlook for 2016, and now expects to earn between $2.80 and $2.90 per share, down from $3.15 to $3.35 it previously expected.
"We are taking actions to offset the headwinds in our business by driving improvements in our vitamin category and our franchise business," Archbold said. "We also remain focused on driving improved business performance by successfully executing on our refranchising initiative, driving product innovation, and evaluating pricing opportunities that drive incremental gross margin dollars."
Article from The Business Journals.