GNC First Quarter Sales, Excluding Ephedra, Hold Steady
This article was originally published in The Tan Sheet
Executive Summary
GNC's first quarter sales were stable, excluding ephedra and ephedra-replacement products, parent Royal Numico announced in a May 2 1press release
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GNC's first quarter sales were stable, excluding ephedra and ephedra-replacement products, parent Royal Numico announced in a May 2 1 press release. The Dutch conglomerate said early signs of a recovery are "visible" and pointed out that GNC's non-ephedra sales in March were up 3.7%, while in-store transactions edged up 1.8% during the month. Numico attributed the "positive sales indicators" to its price reductions and store remodeling effort. Completed in November, the remodeling initiative involved new floor plans to make stores easier to navigate and the addition of smoothie bars to attract consumers (2 (Also see "Rexall Names Sales VP; GNC Remodeling Stores With Ephedra-Free Sections" - Pink Sheet, 3 Jun, 2002.), p. 3) Despite signs of improvement late in the quarter, overall GNC sales, including ephedra and ephedra substitutes, were down 6.8% to $351.2 mil. (€1=$1.12) for the three-month period. Ephedra-related sales plummeted 59% during the quarter, accelerated by reports linking the botanical to the death of Baltimore Orioles pitcher Steve Bechler, Numico reported. The advent of ephedra-replacement products, including GNC's Total Lean , reduced the decline to 32%, according to the firm. The ephedra-free diet aid has collected a 21% market share of ephedra replacement products within GNC since its launch in January. Total Lean contains extracts of guarana seed, grape skin, black tea leaves, grape leaves, ginger root and dill weed (3 (Also see "GNC Ephedra-Free Total Lean Promoted As Part Of 3-Pronged Diet Program" - Pink Sheet, 20 Jan, 2003.), p. 8). Numico President & CEO Jan Bennink noted during a same-day conference call the company was working on an extension to the Total Lean brand to launch at the end of 2003. Clinical testing on Total Lean Plus shows "the product...performing in line with the ephedra-containing product, which I think is a major breakthrough," Bennink said. The introduction likely will aim to replace gaps on GNC shelves caused by the decision to discontinue sales of all ephedra products throughout the chain by the end of June. In a May 2 statement, GNC President & CEO Michael Meyers explained "we believe that ephedra-based products are safe when used as directed. Nonetheless, the current business climate dictates that we move in a different direction." "Consumer demand for these products has become less significant to our overall business and we have witnessed a strong pick-up in ephedra substitutes," he continued. First quarter ephedra sales were roughly $32.6 mil. for GNC, and between $5.6 mil. and $6.7 mil. for fellow Numico subsidiary Rexall Sundown, Bennink said. A $4.9 mil. "one-off" provision reflecting the decision to halt ephedra sales impacted GNC results in the first quarter, Numico added. The provision contributed to a 67.5% decline to $14.6 mil. in the retailer's reported earnings before interest, taxes and amortization. The decrease in EBITA also reflected the firm's overall decline in net sales and a slight increase in operating expenses. Advertising and promotional spending for GNC in the first quarter was level with the fourth quarter of 2002, Bennink noted. He explained the company plans to allocate spending in a more "pragmatic" manner in Q2. "Rather than spending on TV, which we have done behind Total Lean and behind the price decrease in the first quarter," the firm will focus on point-of-purchase promotions and a "more direct way of advertising," he stated. As it works to improve GNC's financial situation, Numico remains interested in offers for the business, Bennink said. "We are very open [and] are working as hard on a potential sale as on a turnaround," he commented. Bennink previously announced GNC would be divested by the spring of 2004 if it could not show substantial improvement (4 (Also see "GNC On The Line: Retailer Faces “Probation” Period To Shape Up Financials" - Pink Sheet, 11 Nov, 2002.), p. 3). Separately, Numico said the "sale process of Rexall Sundown is progressing satisfactorily," and the firm still expects to divest the business by the end of June. Sales for Rexall and the Unicity direct-sales business were reported as discontinued operations, in addition to Numico's VMS Europe and dairy operations in Brazil and India. The combined group recorded a revenue fall of 23.4% to $170 mil. in the quarter. |