GNC

As you all know I got out of GNC at $21.50 on Oct. 21. The reason was the long sideways movement and no credible offers for the company. Earnings were right around the corner (a week away) and I had low confidence in their ability to beat their projections.

GNC Holdings misses by $0.12, misses on revs  (20.14)

10/27/2016, 6:55:48 AM ET

  • Reports Q3 (Sep) adj. earnings of $0.59 per share, $0.12 worse than the Capital IQ Consensus of $0.71; revenues fell 8.1% year/year to $628 mln vs the $651.32 mln Capital IQ Consensus.
  • Negative domestic retail same store sales of 8.5%, which includes GNC.com, resulted in a $35.2 million decrease in revenue year-over-year. Negative same store sales were primarily due to lower sales in the protein, vitamins and food/drink categories and a significant decrease in e-commerce sales due in part to better aligning web promotions to the Company’s stores. E-commerce sales were 6.8% of consolidated revenue during the current quarter compared with 7.3% of consolidated revenue in the prior year quarter. In addition, corporate stores decreased from 3,546 at September 30, 2015 to 3,512 at September 30, 2016 in connection with the Company’s refranchising strategy.
  • “Our results for the quarter fell short of our expectations, but we have been moving quickly to address the key issues that are critical to returning GNC to growth. We are focused on eliminating confusion regarding our product pricing, providing customers with an improved loyalty program, enhancing the customer experience in our stores and reinvigorating the GNC branded product innovation pipeline.
  • Peer: Vitamin Shoppe (VSI).

They actually did much worse than I expected. Along with a 12 cent miss on earnings their revenue declined by 8.1 percent.

GNC is definitely in need of a change in management which would occur with a buyout. Or the board of directors could bring it about any day now. This huge slump in earnings and revenue could bring it about. Even they should know by now that they need to act in one capacity or another. Even I as a lowly trader can come up with several scenarios that would turn this company around.

Future earnings have been reduced to $2.59 this year, $2.47 in 2017 and 2018 and $2.60 in 2019.

Based on earnings of $2.47 per annum in 2017 and 2018 GNC’s current forward P/E is 5.46. This is definitely in the buy range of 4 to 7 P/E’s. I am currently watching GNC for a turnaround in price based on price action. Be aware that a 4 P/E would value GNC at $9.88. That would be the worst case downside in mine opinion, so don’t go overboard on share size.

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This slow grind down is an indication that GNC will continue down, but

blog-gnc-15-m-11-2-2016

after setting a new low this morning GNC broke through the upper band of the channel you see on the 15 minute chart above.

If it does not set a new low and breaks above $13.65, the high set today, I will reenter here.

The reason is this now a much better buyout candidate,

it is now a serious value play at a forward P/E of 5.46,

it will have set a cup and handle reversal pattern

and fair value is $37.05 at a 15 P/E.

Target is $24.50

No stop price.

Dave C

 

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