Deutsche Bank Remains Cautious On GNC

GNC Holdings Inc GNC reported its fourth-quarter results significantly below already low expectations. There is limited visibility into when and by how much comps and margins would improve, Deutsche Bank’s Shane Higgins said in a report. He maintains a Hold rating on the company, while reducing the price target from $10 to $9.

GNC’s EBITDA declined 59 percent year-over-year in Q4, versus expectations of a 30-percent decline.

Cautious Stance Needed

The nationwide launch of the One New GNC strategy resulted in steep declines in comps and margins in the core U.S. and Canada segment. While the transition to a single-tiered pricing strategy and new loyalty program was expected to exert significant pressure on GNC’s EBITDA in 2017, the near-term impact of these moves had been underestimated, analyst Higgins commented.

Related Link: GNC Is Having A Rough Morning

The Q4 results may represent a bottom, with large charges related to the nationwide launch and to reserves taken against stale inventories, “which may not hit the P&L again in 2017,” Higgins mentioned. He added that GNC had witnessed an improvement in transactions at the pilot stores that had initiated the new program.

The analyst stated it would not be possible to estimate the effectiveness of the new strategy “until later this summer or fall.” The EPS estimate for FY 2017 has been reduced from $1.82 to $1.70.

At last check, shares of GNC were up 2.72 percent at $7.93.