“Reality is, it's been 15 months the military has been investigating DMAA. They found nothing that came back. We went to them three times, obviously concerned that if there was any safety issue, we wanted the product off the table. They have nothing,” said CEO Joe Fortunato during a conference call with analysts to discuss the company’s first quarter 2013 earnings.
DMAA was in the news recently as the result of a high-profile TV report on NBC on April 12. On April 11, FDA issued a formal public warning about the ingredient and said it was using “all available means” to get DMAA-containing products off the market. But to date the agency has not taken the step of seizing products.
Face-saving warning
“I think they issued a quick warning on those products the night before the story (on NBC). And I'm sure they did that so that they would not be pegged as saying the FDA didn't do anything about this,” Fortunato said. “But this product is safe and I think the FDA has pretty much said that just from the fact that they haven't pulled (DMAA-containing products) from the shelves.”
Fortunato noted that all but one of its vendors—USP Labs, maker of the preworkout product Jack3d that was the subject of the NBC report—has already removed DMAA from their products, and USP was in the process of doing so. So soon, DMAA will become a dead issue, regardless of whether GNC agrees that there is a potential problem with the ingredient.
“It'll all be positioned out of the stores probably in the next five to six months as we sell through,” Fortunato said.
With the thousands of products that GNC sells, it’s not uncommon for some individual consumers react to their use in unpleasant ways, Fortunato said.
“If anybody has any life impact (from using GNC products) that is something that nobody is ever happy about, but it happens occasionally, far more often in pharmaceutical industries,” he said.
As far as the company’s earnings are concerned, Fortunato said a new brand marketing initiative, called Respect Yourself, was showing positive results. And the company was seeing good results with its updated Gold Card program, which is being rolled out nationwide. Under the new program, card holders can get discounts on products every day of the month, as opposed to the first week only under the previous program. While declining to offer dollar number specifics, Fornutao said that the new program more than made up in extra sales what it gave back in discounts.
New product introductions
And, as is common in GNC earnings calls, Fortunato stressed the company’s rapid product development cycle. The company has sought to accelerate this during recent quarters, seeing new products as a way to drive new sales.
“We are excited about new proprietary products like the enhanced AMP Wheybolic 60, our Intelligent Release Series, Beyond RAW, Revo and Reloaded,” Fortunato said. “We continue to extend and enhance our Vitapaks, Total Lean and Pro Performance franchise brands.”
As for the company’s performance, first quarter consolidated revenue increased 6.5% to $664.7 million. Retail segment revenue increased 5%, franchise segment revenue increased 6.3%, and manufacturing/wholesale segment revenue increased 19.6%. Net income was $72.6 million, a 12.5% increase from the prior year's adjusted net income. Diluted earnings per share were $0.73, a 21.7% increase over Q1 2012 adjusted EPS.