GNC HERBAL PRODUCT SALES MORE THAN DOUBLE FROM 1990 TO 1992

GNC HERBAL PRODUCT SALES MORE THAN DOUBLE FROM 1990 TO 1992 to approximately $ 23 mil., the dietary supplement manufacturer and retailer reported in a registration statement filed with the Securities and Exchange Commission on June 4 covering a secondary stock offering. Herbal product sales contributed about 7% of the chain's total retail sales in 1992 versus 3%, or about $ 10 mil., in 1990. Sales of herbal products continue to grow in the current year and are annualizing near $ 30 mil. For the 12 weeks ended May 1, Pittsburgh-based General Nutrition Companies indicated that herbal product sales were about $ 7 mil., or 7% of total sales, as compared to $ 3.7 mil. in retail sales during the comparable period in 1992. "Herbal products have experienced significant growth recently as consumers are increasingly looking for natural remedies for their overall health and well being," the company said in the prospectus. GNC, which sells herbal supplements in capsule, soft gel, liquid extracts and tea form, recently launched a private label herbal products line, Herbal Plus. Most of GNC's revenues come from retail sales of vitamin and mineral supplements, sports nutritionals, herbs, foods, cosmetics, diet products and sports accessories through the company's 1,269 stores. Retail sales, which do not include sales to franchise stores, grew 10% in 1992 to $ 385.5 mil. In the first quarter of 1993, retail sales increased 9% to $ 102 mil. Vitamin and mineral supplement products represent the lion's share of GNC's retail business and since 1990 have typically generated about 40% of retail sales. GNC reported that it sells "approximately 1,000 different types of vitamin and mineral supplements, of which approximately 70% are sold under the company's own brand names and the remainder sold under the brand names of others." GNC's 1992 sales of vitamins and supplements approached $ 160 mil. Next to herbal products, GNC's fastest growing category is sports nutrition products, which the company describes as "food supplements designed to be taken in conjunction with a fitness program." In the first quarter of 1992, sport nutritionals represented nearly one-third of GNC's retail business, up from about one-quarter in 1990. GNC's 1992 sales from this category were about $ 112 mil., up nearly 40% from 1990. The company attributed growth in the category to the 1991 launch of a "major television advertising campaign focused on specific sports nutrition products to support and broaden demand for this category." Food products, which accounted for 14% of retail sales in 1990, have been de-emphasized by GNC in order to provide shelf space "to higher margin specialty products." During the first quarter of 1993, food products were responsible for about 6% of retail sales. To support its retail and franchise operations, GNC reported that it spent $ 16.9 mil. on "advertising and other marketing efforts" in 1992, up from about $ 12 mil. in 1991. GNC indicated that it is continuing to increase its ad budget, spending $ 5 mil. in the first quarter of the current fiscal year. Franchise owners are required to spend up to 3% of sales on local advertising and to "contribute further amounts to a national advertising fund," the prospectus points out. GNC is in the midst of revising its merchandising approach from "discount to specialty retailing with an emphasis on high margin, value-added products," the company reported. In addition, GNC said it is "developing new concepts, including SuperStores and franchising," the prospectus states. GNC noted that its "SuperStore" format was developed in 1986 and has "evolved through various prototypes, resulting in stores with an updated appearance." The new format is of comparable size to the former store size and "has a store operating cost structure similar to [GNC's] . . . traditional stores," the prospectus explains. The company is actively pursuing a store renovation program using the SuperStore format and all new stores are now designed using the updated arrangement. GNC reported that sales for stores converted to the SuperStore format increased an average of approximately 31% in the 12 months after the conversion. Furthermore, the converted stores experienced 12% sales growth in the second year after the redesign, the company added. Average weighted store sales have exhibited steady growth since 1986, the company reported. Per store annual revenues have grown from $ 268,500 in 1986 to just under $ 400,000 in 1992. The company also has plans to further expand its franchise business. During the three months ended May 1, GNC opened 53 new stores, 32 of which were franchise operations. As of May 1, the prospectus reports that a total of 321 franchises were operating and an additional 95 had been awarded. "Comparable store sales for all franchise stores increased an average of approximately 22.8% in 1992 following an increase of approximately 32.1% in 1991," GNC reported. The company's third-party sales from its manufacturing operations have also steadily grown "as a result of technological improvements and increased capacity in the soft gelatin production area," GNC said. The company reported that third party revenue represented approximately 36% of total manufacturing revenue [in 1992], up from approximately 33% in 1991. Third-party sales rose nearly 50% in 1992 to $ 28 mil. GNC estimated that its manufacturing plant in Greenville, S.C. currently is running at 70% of its maximum capacity while its soft gel capsule production is operating at full capacity even after capacity in this area was increased by 50% in 1992. Further expansion plans in the softgel area are anticipated for 1993, the company said. GNC said its Greenville plant "has the ability to manufacture products in accordance with FDA standards for the manufacture of OTC drugs." The company added that it "believes that it could upgrade its standards without significant expenditure to enable it to manufacture certain ethical drugs." GNC was acquired by the current management team with the help of investment firm Thomas H. Lee in a leveraged buyout in 1989. Consequently, the company is heavily leveraged and spent over $ 33 mil. in interest expense in 1992. As a result, GNC did not report a profit last year. The company went public in January of this year at $ 16 a share and used some of the proceeds to pare down debt. However, since the offering, GNC has seen its stock more than double in less than six months. The company is going back to the well with a 1.35 mil. share offering for $ 35 a share with the aim of using the proceeds to further buy back debt. GNC expects to raise $ 38.5 mil. in net proceeds from the offering of which $ 35 mil. will be put toward reducing the principal owed on senior subordinated notes." The remaining proceeds will be used to "retire outstanding bank term indebtedness or to repurchase additional senior subordinated notes, if such notes can be obtained at favorable prices." Upon completion of the offering, the company will have approximately $ 218.9 mil. in outstanding debt. GNC opened its first store in Pittsburgh in 1935 and until 1985, operated primarily as a discount vitamin retailer. Jerry Horn is the company's chairman and director and William Watts is GNC's president and CEO. The company's offering is being underwritten by Morgan Stanley, PaineWebber and Donaldson, Lufkin & Jenrette Securities.