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Bulking Up Rewards at GNC Holdings Inc (GNC)

Amazon’s commissions and fees generally come out to 20% to 30% of the sales price, so the impact of lost third party sales is even smaller. Couple that with the huge $61 billion in revenue the company sold on its own last year, and the percentage of revenue loss from a relatively small supply of GNC sellers is negligible.

Improved revenue

With the boost from improved traffic while mitigating the franchisee’s cannibalization efforts, GNC Holdings Inc (NYSE:GNC) saw improved revenue numbers at each store they tested the new program.

Additionally, the Gold Card and Member Pricing program gives GNC plenty of data to improve revenue. Accelerated signups from a more attractive rewards program and an initial free-to-join period, ought to give the company a boost in targeting its customers.

GNC can use member data to improve its cross-selling efforts. For example, a member might find an email indicating that since they bought product X, they might consider product Y, and detail the benefits of taking both products in conjunction with one another. The company is a strong direct seller, and the Member Price discounts will give customers another reason to shop at their stores.

Improved margin

Not only is revenue getting a boost from the new program, margins are improving as well. After an initial margin hit from the daily discounts, stores cross the margin dollar neutral line in three to four months. Afterwards, margins accelerate quickly as traffic and transactions increase.

With discounts ranging from 5% to 50%, GNC Holdings Inc (NYSE:GNC) has more flexibility to control its gross margin. A product that’s selling well may only get a 5% discount under the new program, whereas the company was stuck with providing a 20% discount under the old one.

Improved bottom line

For the year, GNC expects the program rollout to be “EPS neutral.” This quarter, the company ought to lose $0.05 or $0.06 per share due to the programs initiation, but those costs will be made up in the latter half of the year.

In 2014, investors ought to see a greater contribution from the Member Price program. This is just one of several factors that can contribute to an acceleration of earnings growth for GNC Holdings Inc (NYSE:GNC). Unlike most, this rewards program has some serious rewards for investors.

The article Bulking Up Rewards at GNC originally appeared on Fool.com.

Adam is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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