The review will include a thorough evaluation of the current operating plan, as well as potential value maximizing alternatives such as accelerated re-franchising strategies, capital structure optimization, partnerships and other value-creating collaborations, or a potential sale of the company.
GNC’s Board is working with Goldman, Sachs & Co. as financial advisor and Wachtell, Lipton, Rosen & Katz as legal advisor to assist in the process.
“The Board is committed to increasing shareholder value. After careful consideration, including discussions with a range of shareholders, we believe it is an appropriate time to undertake a comprehensive review of the Company's strategic and financial alternatives,” said Michael Hines, GNC's Chairman.
“We are in the early stages of a broad review and will take the time we need to thoroughly evaluate our opportunities to achieve the best result for our shareholders, business partners, and associates. While the review is ongoing, GNC will continue to act with the necessary urgency to deliver improved financial performance by addressing our near-term challenges and continuing to execute our strategic initiatives.”
Financials
The company recently report disappointing results for its first quarter, which CEO Michael Archbold chalked up mostly to inventory problems.
Q1 results posted last week showed that GNC recorded revenue of $669 million, a decline of 1.8% year-over-year. Same store sales in company owned stores were down 2.6% and were down 5.6% at franchise locations, which is the direction the company is increasingly going. The company also downgraded its financial performance expectations for the remainder of its fiscal year.
The core of the current problem is an inventory issue, said Archbold. The company produced too many of its Vitapak condition specific multivitamin products and many of these products were nearing the end of their shelf lives and had to be heavily discounted. Archbold said GNC discovered this looming inventory bulge late in the game because of what he characterized as inadequate internal controls.
Archbold also said that the Vitapak line has in general been under-performing, and that corporate marketing initiatives are not delivering well enough. He also said that the issue with franchise sales results revolves around franchisees being reluctant to quickly adopt certain corporate initiatives that would require additional investments in new inventory.
Archbold said fixing the inventory issue has been an opportunity for GNC to revisit its entire product assortment.
Strategic review
The company stated that the new strategic review is not guaranteed to result in any specific action, or any assurance as to its outcome or timing.
“The Company does not intend to discuss or disclose further developments related to its review unless and until the Board has approved a specific action or otherwise determined that further disclosure is appropriate,” said the company in a release.