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GNC Holdings Inc (GNC): A Healthy Stock for Your Portfolio

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In the short time since its IPO in late March 2011, GNC Holdings Inc (NYSE:GNC) has rewarded its shareholders with hefty gains. The company’s stock almost tripled in two years, and the company has experienced strong revenue and earnings growth. GNC is expected to keep introducing new health products, and these products will bring healthy revenue and profit growth.

Recent developments

GNC Holdings Inc (NYSE:GNC) reported earnings of $0.73 for the first quarter of 2013, up 21.7% over the same quarter last year and beating analyst estimates by $0.01. Revenue rose 6.5% to $664.7 million. The company estimates that the combined effect of the leap year last year and the Easter holiday shift negatively impacted revenue growth by approximately 200 basis points. Same-store sales increased 1.9% in domestic company-owned stores, representing the 31st consecutive quarter of positive same-store sales growth. Same-store sales increased 2.9% when adjusted for the negative impact of leap year and the Easter holiday shift.

The company reaffirmed its full-year guidance for 9% to 10% revenue growth, and earnings-per-share in $2.75-$2.80 range. The earnings would rise 18% at mid-point of the guidance. Analysts expect an EPS of $2.80 with a 9.7% rise in revenue.

New marketing initiatives, products and loyalty program

GNC Holdings Inc (NYSE:GNC) is boosting its sales efforts with marketing initiatives, a new loyalty program and the continued development of new products.

The company recently launched a “Respect Yourself” marketing campaign which is integrated and fully engaged in the company’s stores, on social networks, in both digital and print media and outdoor advertising. GNC is also working to increase brand awareness with a national TV campaign.

GNC Holdings Inc(NYSE:GNC)The company also rolled out its new loyalty program. under the new “Member Price” program, customers save 5% to 50% on every item at any GNC Holdings Inc (NYSE:GNC) store or on GNC.com. It is a simplified version of the company’s Gold Card program which has more than 7 million members. As a result of the new initiative, the company will collect purchasing data from its Gold Card customer transactions, allowing it to make more targeted offers. The company introduced various new products in 2013, and had a strong start of the year that was consistent with expectations.

The new member price program is expected to have a $0.05 to $0.06 negative impact on the second quarter’s EPS, though the management expects the negative effect to be offset in the third and fourth quarters. As a result, analysts expect the company to report its lowest quarterly earnings growth since it went public in late March 2011. Earnings are expected to rise 13% in the second quarter, followed by a 21% increase in the third quarter. Revenue is expected to increase 8.8% in the second quarter and 11.3% in the third quarter.

Share buybacks and dividend

The company repurchased $61.3 million worth of common stock in the first quarter, with a total repurchase authorization of $250 million. A dividend due in the second quarter is expected to be $0.15, representing a 1.3% forward dividend yield.

Peer comparison

GNC Holdings Inc (NYSE:GNC)’s valuation is not the best among its peers, but its growth prospects, product development plans and marketing initiatives look very promising. GNC’s trailing and forward price-to-earnings and price/earnings-to-growth ratios are better than Vitamin Shoppe Inc (NYSE:VSI), and worse than Herbalife Ltd. (NYSE:HLF).

Given Herbalife’s high volatility and questionable business practices that were highlighted in the past few months, however, I would not spend much time thinking about that and would avoid Herbalife Ltd. (NYSE:HLF) altogether. Whether or not Bill Ackman was right in calling Herbalife a pyramid scheme is not the issue, I just do not like the controversy surrounding the company. The safety of one’s portfolio comes first, ahead of profit opportunity.

With Herbalife Ltd. (NYSE:HLF) out of the way, we are left with GNC Holdings Inc (NYSE:GNC) and Vitamin Shoppe Inc (NYSE:VSI). GNC is a better choice simply because of its lower earnings multiples. Vitamin Shoppe’s share price has been going down in recent months, and its earnings estimates are trending down in the last ninety days. The company reported earnings in early May that beat analyst estimates, but its management warned about weaker sales.

Ticker Trailing PE Forward PE PEG ratio
GNC 18.89 13.62 0.85
VSI 20.98 16.20 1.27
HLF 11.82 9.26 0.62

Bottom line

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