The Best of Breed Nutritional Company: GNC Holdings Inc (GNC), Rite Aid Corporation (RAD), Vitamin Shoppe Inc (VSI)

GNC Holdings Inc (NYSE:GNC) had a very strong 2012 and are positioned to continue taking share in their market. Competitors have been unable to keep up, citing issues with the economy and natural disasters. GNC Holdings Inc (NYSE:GNC) has a growth strategy unmatched in the industry and will dominate this space for years to come.

GNC, or the General Nutrition Center, operates as a worldwide specialty retailer of health and wellness products. Their products include vitamins, nutritional products, and dietary supplements for all ages and body types. GNC Holdings Inc (NYSE:GNC) is one of the most popular companies in America, with an estimated 82% brand recognition.

2012 Financial Highlights

The full year of 2012 was a strong one for GNC. The following are some of the highlights from the annual report:

Revenues increased 17.3% to $2.43 billion from $2.072 billion in 2011

Revenues rose 17.6% in retail, 21.9% in franchising, and 8.2% in manufacturing and wholesale

Domestic same store sales increased 11.5% in company-owned stores and 15% in franchised locations

Net income rose to $240.2 million compared to $132.3 million in 2011

During 2012, GNC Holdings Inc (NYSE:GNC) opened 142 company owned stores in the U.S., 240 international franchise locations, 56 new Rite Aid Corporation (NYSE:RAD) store-within-a-store locations, 25 new franchises in the U.S., and 3 company-owned stores in Canada.

The Gold Card

The Gold Card is a membership card sold by GNC. This card unlocks incredible discounts in their stores and costs just $15 for a year. GNC currently has over 6 million Gold Card members including 1.1 million who were added in 2012.

Franchising

GNC has become one of the most popular companies to franchise with. There are 2,779 franchised locations worldwide and the number is growing each year.

The fee structure is as follows:

Initial franchise fee of $40,000
End cost is between $175,000 to $220,000
Royalty fee of 6% of gross sales each year

In 2012, franchise-related revenues rose 15.9% to $240 million, up from $207 million in 2011. This makes up 33.4% of GNC’s total revenue.

Store-Within-A-Store

Rite Aid Corporation (NYSE:RAD) operates 2,181 store-within-a-store GNC Holdings Inc (NYSE:GNC) locations. This strategic partnership allows Rite Aid to sell GNC’s products in select locations. Rite Aid currently operates over 4,700 stores in 31 states and is one of the largest drugstore chains on the East coast.

With 2,181 stores selling GNC products, this means there are still over 2,500 more that could potentially bring the products in. Rite Aid Corporation (NYSE:RAD) has publicly stated “because of the popularity of GNC products, the stores-within-a-store have consistently outperformed the overall vitamin category.” I believe GNC products will be in every Rite Aid store within 10 years.