COMPANY DESCRIPTION

GNC Holdings is a holding company. Co. provides a range of nutritional supplements sold under its GNC brand names, including Mega Men®, Ultra Mega®, Total Lean™, Pro Performance® and Pro Performance® AMP, Beyond Raw® and under third-party brand names. Co. has three segments: Retail, which sells products to customers at its Co.-owned stores in the U.S., Canada and Puerto Rico and through its websites; Franchise, which is comprised of its domestic and international franchise operations; and Manufacturing/Wholesale, which is comprised of its manufacturing operations in South Carolina and its wholesale sales business. As of Dec 31 2013, there were 8,593 GNC store locations globally.

 

ECONOMIC MOAT

GNC has no economic moat.  GNC relies on superior execution to drive success metrics.  GNC operates in a very competitive marketplace for vitamins, minerals, and herbal supplements.

 

OUTLOOK

The retailer of health and wellness-related products is coming off a couple of uninspiring quarters, hampered by weaker margins and softening demand trends in several key categories. GNC is working to simplify the company's approach to promotion and marketing, which we anticipate will help lead to greater efficiency down the road. The dividend has been raised for the third-consecutive year. In the first quarter, the board of directors authorized a 13% hike in its quarterly payout from $0.16 a share to $0.18. Management is putting a substantial amount of cash into share buybacks, something we expect will continue in 2015 and 2016.  Trends show industry growth in the mid-single-digits out to 2020, we believe GNC is in a prime position to further grow its top and bottom lines during this time. Key drivers include an aging U.S. population and increased health awareness among consumers. Our current projections suggest that the equity has wide capital gains potential over the next 3 to 5 years.