PITTSBURGH, Aug. 7 PA-GNC-Q2-earnings
PITTSBURGH, Aug. 7 /PRNewswire/ -- General Nutrition Centers, Inc. ("GNC"
the "Company" or "we"), the largest global specialty retailer of nutritional
supplements, today reported its financial results for the second quarter ended
June 30, 2008.
The Company is an indirect wholly owned subsidiary of GNC Parent LLC, which
was acquired by affiliates of Ares Management LLC ("Ares") and Ontario Teachers'
Pension Plan Board ("Teachers") through a merger (the "Merger") on March 16,
2007. As a result, the financial results presented in this press release
represent the aggregate of the financial results of the Company from January 1,
2007 through March 15, 2007, predecessor, and the results from March 16, 2007 to
June 30, 2007 and for the six months ended June 30, 2008, successor.
For the second quarter of 2008, the Company reported revenues of
$422.7 million, an 8.5% increase over the same quarter in 2007. This increase
was the result of increased revenues in each of the Company's business segments:
Retail by 6.3%; Franchise by 8.6%; and Manufacturing/Wholesale by 28.0%. Same
store sales improved 4.5% in domestic company-owned stores (including internet
sales), and 5.2% in Canadian stores. Domestic same store sales were positively
impacted by approximately 0.5% due to the shift of the Easter holiday to the
first quarter in 2008, compared to the second quarter in the prior year.
For the second quarter of 2008, the Company reported earnings before
interest, income taxes, depreciation and amortization (EBITDA) of $57.2 million
compared to $40.1 million for the same quarter in 2007. Included in the second
quarter of 2007 was $6.8 million of non-cash purchase accounting adjustments
resulting from the Merger. Included as part of compensation expense for the
second quarters of 2008 and 2007 was $0.8 million and $0.6 million,
respectively, of non-cash stock-based compensation expense. Excluding these non-
cash expenses, Adjusted EBITDA was $58.0 million for the second quarter of 2008,
a 22.1% increase over Adjusted EBITDA of $47.5 million for the second quarter of
2007, a result of significant improvements in all operating businesses.
Revenue for the first six months of 2008 was $850.8 million, an 8.9%
increase over the same period in 2007. For the first six months of 2008, the
Company reported EBITDA of $112.1 million compared to $35.9 million for the same
period in 2007. Compensation expense for the first six months of 2008 and 2007
included $1.5 million and $1.1 million, respectively, of non-cash stock-based
compensation expense. EBITDA for the first six months of 2007 reflected
$58.2 million of transaction costs related to the Merger. Excluding non-cash
compensation expense and Merger-related transaction costs, Adjusted EBITDA was
$113.6 million for the first six months of 2008 compared to $95.2 million in the
same period of 2007, a 19.3% increase.
The transaction costs and Merger-related expenses incurred in the first six
months of 2007 included: $34.6 million of transaction fees and expenses;
$15.3 million of compensation expenses (including $3.8 million of non-cash
stock-based compensation resulting from the cancellation of all outstanding
stock options); and $8.3 million of non-cash purchase accounting adjustments
recorded as part of cost of sales.
GNC, headquartered in Pittsburgh, Pa., is the largest global specialty
retailer of nutritional products including vitamin, mineral, herbal and other
specialty supplements and sports nutrition, diet and energy products. GNC has
more than 5,000 retail locations throughout the United States (including more
than 950 franchise and 1,550 Rite Aid store-within-a-store locations) and
franchise operations in 44 international markets. The company -- which is
dedicated to helping consumers Live Well -- also offers products and product
information online at http://www.gnc.com.
GNC has scheduled a conference call and webcast to report its second quarter
financial results on Thursday, August 7, 2008 at 11:00 am ET. To listen to this
call dial 1-800-446-2782 inside the U.S. and dial 1-847-413-3235 outside the
U.S. The conference identification number for all callers is 22273806. A webcast
of the call will also be available through the "About GNC" link on
http://www.gnc.com.
This release contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business that is not historical
information. Forward-looking statements can be identified by the use of
terminology such as "subject to," "believes," "anticipates," "plans," "expects,"
"intends," "estimates," "projects," "may," "will," "should," "can," the
negatives thereof, variations thereon and similar expressions, or by discussions
of strategy. GNC believes there is a reasonable basis for our expectations and
beliefs, but they are inherently uncertain, we may not realize our expectations
and our beliefs may not prove correct. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Actual results could differ materially
from those described or implied by such forward-looking statements. Factors that
may materially affect such forward-looking statements include, among others:
-- significant competition in our industry;
-- unfavorable publicity or consumer perception of our products;
-- the incurrence of material products liability and product recall costs;
-- costs of compliance and our failure to comply with governmental
regulations;
-- the failure of our franchisees to conduct their operations profitably and
limitations on our ability to terminate or replace under-performing franchisees;
-- economic, political and other risks associated with our international
operations;
-- our failure to keep pace with the demands of our customers for new
products and services;
-- the lack of long-term experience with human consumption of some of our
products with innovative ingredients;
-- disruptions in our manufacturing system or losses of manufacturing
certifications;
-- increases in the frequency and severity of insurance claims, particularly
for claims for which we are self-insured;
-- loss or retirement of key members of management;
-- increases in the cost of borrowings and unavailability of additional debt
or equity capital;
-- the impact of our substantial indebtedness on our operating income and
our ability to grow;
-- the failure to adequately protect or enforce our intellectual property
rights against competitors;
-- changes in applicable laws relating to our franchise operations; and
-- our inability to expand our franchise operations to attract new
franchisees.
Successor
Three Months Ended June 30,
2008 2007
Revenues:
Retail$314.574.4% $295.976.0%
Franchise 65.115.4% 60.015.4%
Manufacturing / Wholesale 43.110.2% 33.6 8.6%
Total net revenues 422.7 100.0%389.5 100.0%
Operating expenses:
Cost of sales, including
warehousing, distribution
and occupancy costs 274.364.9%260.566.9%
Compensation and related
benefits 62.914.9% 60.415.5%
Advertising and promotion 13.6 3.2% 14.3 3.7%
Other selling, general and
administrative expenses22.3 5.3% 20.6 5.3%
Amortization expense 2.6 0.6% 2.4 0.5%
Foreign currency loss (gain) - 0.0% (0.1)0.0%
Transaction related costs - 0.0%- 0.0%
Total operating expenses 375.788.9%358.191.9%
Operating income:
Retail 42.210.0% 33.5 8.6%
Franchise 18.7 4.4% 15.5 4.0%
Manufacturing / Wholesale 17.3 4.1% 11.1 2.9%
Unallocated corporate and other
costs:
Warehousing and distribution
costs (13.8) -3.3%(12.5) -3.2%
Corporate costs (17.4) -4.1%(16.2) -4.2%
Merger related costs - 0.0%- 0.0%
Subtotal unallocated corporate
and other costs, net(31.2) -7.4%(28.7) -7.4%
Total operating income (loss) 47.011.1% 31.4 8.1%
Interest expense, net 19.4 23.6
Income (loss) before income taxes 27.6 7.8
Income tax expense (benefit) 10.6 3.1
Net income (loss)$17.0 $4.7
Successor Combined
Six Months Ended Six Months Ended
June 30, June 30,
2008 2007
Revenues:
Retail$635.874.7% $600.676.9%
Franchise 130.015.3%118.715.2%
Manufacturing / Wholesale 85.010.0% 62.1 7.9%
Total net revenues 850.8 100.0%781.4 100.0%
Operating expenses:
Cost of sales, including
warehousing, distribution
and occupancy costs 553.265.0%515.566.0%
Compensation and related
benefits 124.514.6%134.817.3%
Advertising and promotion 31.7 3.7% 35.0 4.5%
Other selling, general and
administrative expenses44.1 5.2% 40.1 5.1%
Amortization expense 5.7 0.7% 3.6 0.5%
Foreign currency loss (gain) 0.1 0.0% (0.3)0.0%
Transaction related costs - 0.0% 34.6 4.4%
Total operating expenses759.389.2%763.397.8%
Operating income:
Retail 79.0 9.3% 67.1 8.5%
Franchise 38.5 4.5% 32.9 4.2%
Manufacturing / Wholesale 33.1 3.9% 23.4 3.0%
Unallocated corporate and
other costs:
Warehousing and distribution
costs (27.6) -3.2%(25.2) -3.2%
Corporate costs (31.5) -3.7%(45.5) -5.9%
Merger related costs - 0.0%(34.6) -4.4%
Subtotal unallocated corporate
and other costs, net (59.1) -6.8% (105.3) -13.5%
Total operating income (loss) 91.510.8% 18.1 2.2%
Interest expense, net 42.5 70.9
Income (loss) before income taxes 49.0 (52.8)
Income tax expense (benefit) 18.7 (7.1)
Net income (loss)$30.3$(45.7)
Note: The numbers in the above table have been rounded to millions. All
calculations related to the Results of Operations for the year-over-year
comparisons were derived from the table above and could occasionally differ
immaterially if you were to use the unrounded data for these calculations.
We define EBITDA as net income (loss) before interest expense (net), income
tax expense, depreciation, and amortization. Management uses EBITDA as a tool to
measure operating performance of the business. We use EBITDA as one criterion
for evaluating our performance relative to our competitors and also as a
measurement for the calculation of management incentive compensation. Although
we primarily view EBITDA as an operating performance measure, we also consider
it to be a useful analytical tool for measuring our liquidity, our leverage
capacity, and our ability to service our debt and generate cash for other
purposes.
We also use EBITDA as defined in our 2007 Senior Credit Facility, and the
indentures governing our Senior Toggle Notes and 10.75% Senior Subordinated
Notes to determine compliance with the terms of the facility and the Notes. The
reconciliation of EBITDA as presented below is different than that used for
purposes of the covenants under the indentures governing the Senior Toggle Notes
and 10.75% Senior Subordinated Notes, and it is also different than that used in
our 2007 Senior Credit Facility. Historically, we have highlighted our use of
EBITDA as a liquidity measure and for related purposes because of our focus on
the holders of our debt. At the same time, however, management has also
internally used EBITDA as a performance measure. EBITDA is not a measurement of
our financial performance under GAAP and should not be considered as an
alternative to net income, operating income, or any other performance measures
derived in accordance with GAAP, or as an alternative to GAAP cash flow from
operating activities, as a measure of our profitability or liquidity.
Adjusted EBITDA is presented as additional information, as management also
uses Adjusted EBITDA to evaluate the operating performance of the business and
as a measurement for the calculation of management incentive compensation.
Management believes that EBITDA and Adjusted EBITDA are commonly used by
security analysts, lenders and others; however, EBITDA and Adjusted EBITDA may
not be comparable to other similarly titled measures reported by other
companies, limiting their usefulness as comparative measures.
Some of the limitations of EBITDA and Adjusted EBITDA are as follows:
-- EBITDA and Adjusted EBITDA do not reflect cash expenditures, future
requirements for capital expenditures or contractual commitments;
-- EBITDA and Adjusted EBITDA do not reflect changes in, or cash
requirements for working capital needs;
-- EBITDA and Adjusted EBITDA do not reflect interest expense or the cash
requirement necessary to service interest or principal payments on our debt;
although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements; and
-- EBITDA and Adjusted EBITDA reflect the impact of earnings on income
resulting from matters we consider not to be indicative of our ongoing
operations, certain of which income we eliminated in our computation of EBITDA
and Adjusted EBITDA.
Because of these limitations, EBITDA and Adjusted EBITDA should not be
considered as measures of discretionary cash available to us to invest in our
business. We compensate for these limitations by relying primarily on our GAAP
results and using EBITDA only for supplemental purposes.
For the three months ended June 30, 2008 and June 30, 2007, the six months
ended June 30, 2008 and the combined predecessor and successor periods ended
June 30, 2007, the following table presents EBITDA reconciled to our net income
for such periods and Adjusted EBITDA reconciled to EBITDA for such periods.
NET INCOME (LOSS) RECONCILIATION TO EBITDA AND ADJUSTED EBITDA
(in millions)
(unaudited) Successor SuccessorCombined
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net income (loss) $17.0 $4.7 $30.3 $(45.7)
Interest expense, net 19.4 23.6 42.5 70.9
Income tax expense (benefit) 10.6 3.1 18.7 (7.1)
Depreciation and amortization 10.2 8.7 20.6 17.8
EBITDA$57.2 $40.1 $112.1$35.9
Transaction costs - - - 34.6
Compensation expense
related to transaction - - - 15.3
Non-cash stock based
compensation expense 0.8 0.61.5 1.1
Purchase accounting
adjustments- 6.8-8.3
Adjusted EBITDA $58.0 $47.5 $113.6$95.2
For the three months ended June 30, 2008 and June 30, 2007, the six months
ended June 30, 2008 and the combined predecessor and successor periods ended
June 30, 2007, the following table presents EBITDA reconciled to our cash from
operations for such periods and Adjusted EBITDA reconciled to EBITDA for such
periods.
CASH FROM OPERATIONS RECONCILIATION TO EBITDA AND ADJUSTED EBITDA
(in millions)
(unaudited)
SuccessorSuccessorCombined
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net cash provided by (used
in) operating activities $44.9 $39.0 $52.0$(5.6)
Cash paid for interest
(excluding deferred
financing fees) 10.1 2.5 43.5 41.3
Cash paid for taxes 5.0 0.56.4 1.8
Increase (decrease) in
accounts receivable (0.8) 5.7 (1.3) 7.6
Increase (decrease) in
inventory(13.0) (8.3) 8.5(12.9)
Decrease (increase) in
accounts payable 23.5 2.9 (2.0)(1.5)
Increase (decrease) in other
assets(1.5) (3.1) (2.1)(2.7)
Decrease (increase) in other
liabilities (11.0) 0.97.1 7.9
EBITDA$57.2 $40.1 $112.1$35.9
Transaction costs - - - 34.6
Compensation expense related
to transaction - - - 15.3
Non-cash stock based
compensation expense 0.8 0.61.5 1.1
Purchase accounting
adjustments- 6.8-8.3
Adjusted EBITDA $58.0 $47.5 $113.6$95.2
SOURCE General Nutrition Centers, Inc.
