GNC, or the General Nutrition Center, operates as a worldwide specialty retailer of health and wellness products. Their products include vitamins, nutritional products, and dietary supplements for all ages and body types. GNC Holdings Inc (NYSE:GNC) is one of the most popular companies in America, with an estimated 82% brand recognition.
2012 Financial Highlights
The full year of 2012 was a strong one for GNC. The following are some of the highlights from the annual report:
Revenues increased 17.3% to $2.43 billion from $2.072 billion in 2011
Revenues rose 17.6% in retail, 21.9% in franchising, and 8.2% in manufacturing and wholesale
Domestic same store sales increased 11.5% in company-owned stores and 15% in franchised locations
Net income rose to $240.2 million compared to $132.3 million in 2011
During 2012, GNC Holdings Inc (NYSE:GNC) opened 142 company owned stores in the U.S., 240 international franchise locations, 56 new Rite Aid Corporation (NYSE:RAD) store-within-a-store locations, 25 new franchises in the U.S., and 3 company-owned stores in Canada.
The Gold Card
The Gold Card is a membership card sold by GNC. This card unlocks incredible discounts in their stores and costs just $15 for a year. GNC currently has over 6 million Gold Card members including 1.1 million who were added in 2012.
Franchising
GNC has become one of the most popular companies to franchise with. There are 2,779 franchised locations worldwide and the number is growing each year.
The fee structure is as follows:
Initial franchise fee of $40,000
End cost is between $175,000 to $220,000
Royalty fee of 6% of gross sales each year
In 2012, franchise-related revenues rose 15.9% to $240 million, up from $207 million in 2011. This makes up 33.4% of GNC’s total revenue.
Store-Within-A-Store
Rite Aid Corporation (NYSE:RAD) operates 2,181 store-within-a-store GNC Holdings Inc (NYSE:GNC) locations. This strategic partnership allows Rite Aid to sell GNC’s products in select locations. Rite Aid currently operates over 4,700 stores in 31 states and is one of the largest drugstore chains on the East coast.
With 2,181 stores selling GNC products, this means there are still over 2,500 more that could potentially bring the products in. Rite Aid Corporation (NYSE:RAD) has publicly stated “because of the popularity of GNC products, the stores-within-a-store have consistently outperformed the overall vitamin category.” I believe GNC products will be in every Rite Aid store within 10 years.
Competitor in the Market
Vitamin Shoppe Inc (NYSE:VSI) is a rival retailer of vitamins, nutrition and health related products. They dropped over 20% after reporting quarterly results on Feb. 26. The company missed big on revenues, reporting $218.9 million versus analyst estimates of $223.6 million. Earnings per share were in line, but this did not deter Wall Street from turning negative on the stock.
On top of the bad results and the selloff, Vitamin Shoppe has been hit with several analyst downgrades including moves by Credit Suisse and Bank of America. While GNC Holdings Inc (NYSE:GNC) continues to impress, Vitamin Shoppe Inc (NYSE:VSI) will have to take the back seat in this growth industry.
Here is a great photo I took on a recent trip to New York City, it basically sums of the competition between GNC and Vitamin Shoppe:
Current Share Price
Before the market open on March 11, GNC is trading at $40.43. With earnings per share of $2.33, this means they are trading at a multiple of 17.35. This is low compared to the industry average of 22.
GNC Holdings Inc (NYSE:GNC) pays out an annual dividend of $0.60, representing a yield of 1.48%. The dividend was raised from $0.44, a 36% increase, earlier this year. The stock has been performing very well, gaining over 22% year-to-date.
2013: Continued Growth
In 2013, GNC plans to open 150 new domestic locations, 30 new domestic franchise locations, 175 to 200 new international franchise locations, and 30 new Rite Aid Corporation (NYSE:RAD) store-within-a-store locations. They project earnings per share to be between $2.75 and $2.80, an increase of 18-20% from 2012. If GNC were to trade at the same multiple as they currently are, this would propel the stock to over $48 by the end of 2013.
The Foolish Bottom Line
The health industry is growing rapidly because people want to live longer, healthier lives. GNC’s products are essential to achieving a balanced lifestyle as well as seeing results in the gym. I am a believer in this company as I have been a loyal customer since 2005. On any pullback or weakness in the market, I am looking to begin a position. GNC is an incredible long term investment opportunity.
The article The Best of Breed Nutritional Company originally appeared on Fool.com and is written by Joseph Solitro.
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