The terms of some of GNC’s debt requires the retailer to pay down notes below the $50 million mark before May 16 or face the prospect of a ‘springing maturity’ of the company’s considerable debt. This is something the company cannot do, said CFO Tricia Tolivar in an earnings call with analysts. A transcript of the call yesterday was posted on the site seekingalpha.com. Unlike other such earnings calls in recent years, company officials took no questions during the session.
“Failure to complete a refinancing or other out-of-court restructuring, obtain an extension of the springing maturity or to reach an agreement with required lender group's under the credit agreements prior to May 16, 2020 with respect to the springing maturity or to otherwise reach an agreement with the company's stakeholders on the terms of an out-of-court restructuring would have a material adverse effect on the company's liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement, which is expected to be renegotiated restructuring plan,” Tolivar said in the earnings call.
Company links current problems to pandemic
While in recent years GNC has found it difficult to adapt to a changing marketplace, CEO Ken Martindale said the company’s current acute crisis is tied mostly to COVID-19 disruptions. The pandemic has been something of a boon for certain sectors of the dietary supplement industry, but because of the nature of its store footprint and product selection, that has not been the case for GNC.
GNC has many stores in shopping malls, most of which have been closed for weeks. Even before to the pandemic crisis, the company had planned to close many of these locations in a phased manner. And in other cases, stores have been closed by governmental fiat, as had happened with the application of shelter in place orders in Colorado and Nevada, or were voluntarily closed by the company because of weak foot traffic.
“At the end of April, we had approximately 1,400 or 40% of our corporate and franchise stores closed in the US and Canada, and roughly 25% of our international locations were closed. Since that time, we have reopened approximately a hundred domestic, corporate and franchise stores with little change internationally. We currently have nearly 3,800 store associates on furlough. We have frozen all open positions in our Pittsburgh office and have over 200 members of our corporate staff on temporary furlough through at least the end of May,” Martindale said.
Martindale did point to some positive developments: Online sales rose 23% during the company’s first quarter of fiscal 2020 and were up 61% in March alone. But overall, same stores sales were down by more than 10% and overall revenue for the quarter was $473 million, compared to $565 million in the same period a year previously.