General Nutrition Centers, Inc. Reports Fourth Quarter and Fiscal Year 2010 Results

PITTSBURGH, Feb. 25, 2011 /PRNewswire/ -- General Nutrition Centers, Inc. ("GNC" or the "Company"), a leading global specialty retailer of nutritional products, today reported its financial results for the year and quarter ended December 31, 2010.

For the fourth quarter of 2010, the Company reported net income of $19.8 million, a $7.1 million, or 56.3%, increase over net income of $12.7 million for the fourth quarter of 2009.  Net income as a percentage of revenue was 4.6% in the fourth quarter of 2010, as compared to 3.1% in the fourth quarter of 2009.  

For the fourth quarter of 2010, the Company reported consolidated revenue of $435.7 million, an increase of 7.9% over the consolidated revenue of $403.9 million for the fourth quarter of 2009.  Revenue increased in each of the Company's segments: retail by 6.4%, franchise by 12.8%, and manufacturing/wholesale by 10.7%.  Same store sales improved 5.8% in domestic company-owned stores (including e-commerce sales), representing the 22nd consecutive quarter of positive same store sales.

Earnings before interest, income taxes, depreciation, amortization, non-cash stock-based compensation, and strategic alternative costs, ("Adjusted EBITDA") for the fourth quarter of 2010 was $58.4 million, a $7.8 million, or 15.3%, increase over the Adjusted EBITDA of $50.6 million for the fourth quarter of 2009.  Adjusted EBITDA was 13.4% as a percentage of revenue in the fourth quarter of 2010, compared to 12.5% in the fourth quarter of 2009.  

The Company recognized $4.9 million of income tax expense during the fourth quarter of 2010.  This represented 19.8% of pre-tax income and was affected by non-recurring income tax benefits related principally to an adjustment to the Company's valuation allowance.

For the fourth quarter of 2010, the Company generated net cash from operations of $44.2 million, incurred capital expenditures of approximately $11.6 million, and paid approximately $0.4 million in principal on outstanding debt.  At December 31, 2010, the Company's cash balance was $150.6 million.  

In the fourth quarter of 2010, the Company opened 46 net new domestic company-owned stores, six net new domestic franchise locations, 36 net new international franchise locations and 20 net new franchise store-within-a-store Rite Aid locations.

Joe Fortunato, Chief Executive Officer, said, "Our fourth quarter concluded another strong year for GNC.  Our leadership in health and wellness, particularly in our core vitamin and sports categories, continues to position us to drive retail segment revenue and profit growth, provides opportunities for unique partnerships like Pepsi and PetSmart, and establishes a platform for long term expansion, both domestically and internationally."

For the year ended December 31, 2010, the Company reported net income of $98.2 million, a $28.6 million, or 41.0%, increase over net income of $69.6 million for the year ended December 31, 2009.  Net income as a percentage of revenue was 5.4% for the year ended December 31, 2010, compared to 4.1% for the year ended December 31, 2009.

For the year ended December 31, 2010, the Company reported consolidated revenue of $1,822.4 million, an increase of $115.4 million, or 6.8%, over the consolidated revenue of $1,707.0 million for the year ended December 31, 2009.  Revenue increased in the Company's retail and franchise segments by 7.0% and 11.2%, respectively, and declined in the manufacturing/wholesale segment by 1.2%.  For the year ended December 31, 2010, same store sales improved 5.6% in domestic company-owned stores (including e-commerce sales).

Adjusted EBITDA was $268.2 million for the year ended December 31, 2010, a $37.5 million, or 16.3%, increase over the Adjusted EBITDA of $230.7 million for the year ended December 31, 2009.  Adjusted EBITDA improved to 14.7% as a percentage of revenue for the year ended December 31, 2010, compared to 13.5% for the year ended December 31, 2009.

For the year ended December 31, 2010, the Company generated net cash from operations of $141.7 million, incurred capital expenditures of $32.5 million and paid approximately $1.7 million in principal on outstanding debt.  

For the year ended December 31, 2010, the Company opened 83 net new domestic Company-owned stores, two net new Company-owned stores in Canada, 130 net new international franchise locations and 134 net new franchise store-within-a-store Rite Aid locations, and closed six net domestic franchise locations.

General Nutrition Centers, Inc., headquartered in Pittsburgh, Pa., is a leading global specialty retailer of health and wellness products, including vitamins, minerals, and herbal supplements products, sports nutrition products and diet products. General Nutrition Centers, Inc. is an indirect wholly owned subsidiary of GNC Parent LLC, which was acquired by affiliates of Ares Management LLC and Ontario Teachers' Pension Plan Board through a merger on March 16, 2007.

As of December 31, 2010, GNC has more than 7,200 locations, of which more than 5,600 retail locations are in the United States (including 903 franchise and 2,003 Rite Aid franchise store-within-a-store locations) and franchise operations in 46 countries (including distribution centers where retail sales are made).  The Company -- which is dedicated to helping consumers Live Well -- also offers products and product information online at GNC.com.  GNC has scheduled a conference call and webcast to report its fourth quarter 2010 financial results on Friday, February 25, 2011 at 11:00 am EST.  To listen to this call, dial 1-866-468-1032 inside the U.S. and 1-706-679-4448 outside the U.S.  The conference identification number for all participants is 45800271.  A webcast of the call will also be available through the "About GNC" link on www.gnc.com through March 25, 2011.

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain, and the Company may not realize its expectations and its beliefs may not prove correct.  GNC undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. For a listing of factors that may materially affect such forward-looking statements, please refer to our quarterly and annual filings with the Securities and Exchange Commission.

Adjusted EBITDA is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission's Regulation G. Management has included this information because it believes it represents a more effective means by which to measure the Company's operating performance. This press release contains a reconciliation of the non-GAAP measure to the financial measure calculated and presented in accordance with GAAP which is most directly comparable to the applicable non-GAAP financial measure.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)


Three months ended


Year ended






(audited)


December 31,


December 31,


December 31,


December 31,


2010


2009


2010


2009







Revenue

$        435,727


$        403,896


$     1,822,396


$     1,707,007









Cost of sales, including costs of warehousing,








distribution and occupancy

285,998


267,196


1,180,033


1,116,437

Gross profit

149,729


136,700


642,363


590,570









Compensation and related benefits

69,013


66,725


273,579


263,046

Advertising and promotion

11,173


9,857


51,392


50,034

Other selling, general and administrative

25,250


22,448


99,623


96,454

Strategic alternative costs

3,480


-


3,480


-

Foreign currency (gain) loss

(147)


(128)


(296)


(155)

Operating income

40,960


37,798


214,585


181,191









Interest expense, net

16,243


16,937


65,529


69,953









Income before income taxes

24,717


20,861


149,056


111,238









Income tax expense

4,889


8,179


50,883


41,619









Net income

$          19,828


$          12,682


$          98,173


$          69,619


















Three months ended


Year ended






(audited)


December 31,


December 31,


December 31,


December 31,


2010


2009


2010


2009















Net income

$          19,828


$          12,682


$          98,173


$          69,619

Interest expense, net

16,243


16,937


65,529


69,953

Income tax expense

4,889


8,179


50,883


41,619

Depreciation and amortization

13,140


12,031


46,993


46,665

Non-cash stock-based compensation expense

793


793


3,169


2,855

Strategic alternative costs

3,480


-


3,480


-

Adjusted EBITDA

$          58,373


$          50,622


$        268,227


$        230,711



We define Adjusted EBITDA as net income before interest expense (net), income tax expense, depreciation, amortization, non-cash stock-based compensation expense, and strategic alternative costs. Management uses Adjusted EBITDA as a tool to measure operating performance of the business. We use Adjusted EBITDA as one criterion for evaluating our performance relative to our competitors and also as a measurement for the calculation of management incentive compensation. Although we primarily view Adjusted EBITDA as an operating performance measure, we also consider it to be a useful analytical tool for measuring our liquidity, our leverage capacity, and our ability to service our debt and generate cash for other purposes. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income, or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, as a measure of our profitability or liquidity.

GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)










December 31,


December 31,


2010


2009


(audited)

Current assets:




Cash and cash equivalents

$        150,641


$          75,089

Receivables, net

104,633


94,355

Inventories, net

381,787


370,492

Prepaids and other current assets

39,625


42,219

Total current assets

676,686


582,155





Long-term assets:




Goodwill, brands and other intangibles, net

1,492,465


1,499,123

Property, plant and equipment, net

193,428


199,581

Other long-term assets

19,896


22,743

Total long-term assets

1,705,789


1,721,447





Total assets

$     2,382,475


$     2,303,602





Current liabilities:




Accounts payable

$          98,295


$          95,904

Other current liabilities

135,393


103,683

Total current liabilities

233,688


199,587





Long-term liabilities:




Long-term debt

1,030,429


1,058,085

Other long-term liabilities

321,965


328,414

Total long-term liabilities

1,352,394


1,386,499





Total liabilities

1,586,082


1,586,086





Total stockholder's equity

796,393


717,516





Total liabilities and stockholder's equity

$     2,382,475


$     2,303,602



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)




Year ended


December 31,


December 31,


2010


2009


(audited)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$          98,173


$          69,619





Adjustments to reconcile net income to net cash provided




by operating activities:




Depreciation and amortization expense

46,993


46,665

Amortization of deferred financing costs

4,694


4,478

Non-cash stock-based compensation

3,169


2,855

Other

7,307


30,042

Changes in:




Receivables

(10,145)


(3,488)

Inventory

(26,161)


(15,661)

Accounts payable

2,338


(28,119)

Other working capital

15,347


7,566

      Net cash provided by operating activities

141,715


113,957





Capital expenditures

(32,522)


(28,682)

Merger of the Company

(3,096)


(11,268)

Other

(455)


(2,224)

     Net cash used in investing activities

(36,073)


(42,174)





CASH FLOWS FROM FINANCING ACTIVITIES:




Dividend payment

(28,384)


(13,600)

Payments on long-term debt

(1,721)


(25,327)

Other

-


(323)

     Net cash used in financing activities

(30,105)


(39,250)





Effect of exchange rate on cash

15


249

Net increase in cash

75,552


32,782

Beginning balance, cash

75,089


42,307

Ending balance, cash

$        150,641


$          75,089



Segment Financial Data and Store Counts

Retail Segment – Company-owned stores in the U.S. and Canada as well as e-commerce




Three months ended


Year ended




December 31,


December 31,


$ in thousands


2010

2009


2010

2009







(audited)


Revenue


$ 312,459

$ 293,728


$ 1,344,358

$ 1,256,314


Comp Store Sales - Domestic


5.8%

1.2%


5.6%

2.8%


Operating income


$   34,625

$   29,865


$    181,873

$    153,142











Franchise Segment Franchise-operated domestic and international locations












Three months ended


Year ended




December 31,


December 31,


$ in thousands


2010

2009


2010

2009







(audited)


Revenue


$   71,152

$   63,104


$    293,777

$    264,168


Operating income


$   23,658

$   19,557


$      95,318

$      80,800











Wholesale/Manufacturing Segment- Third-party contract manufacturing; wholesale and consignment sales with Rite Aid, PetSmart and www.drugstore.com












Three months ended


Year ended




December 31,


December 31,


$ in thousands


2010

2009


2010

2009







(audited)


Revenue


$   52,116

$   47,064


$    184,261

$    186,525


Operating income


$   18,281

$   19,378


$      69,421

$      73,450











Consolidated unallocated costs (a)












Three months ended


Year ended




December 31,


December 31,


$ in thousands


2010

2009


2010

2009







(audited)


Warehousing and distribution costs


$ (13,533)

$ (13,099)


$    (54,983)

$    (53,557)


Corporate costs


$ (22,071)

$ (17,903)


$    (77,044)

$    (72,644)









(a)

Part of consolidated operating income.



Consolidated Store Count Activity


Year ended December 31, 2010


Company-


Franchised stores




owned (2)


Domestic


International


Rite Aid


Total

Beginning of period balance

2,832


909


1,307


1,869


6,917

Store openings (1)

125


42


232


150


549

Store closings

(40)


(48)


(102)


(16)


(206)

End of period balance

2,917


903


1,437


2,003


7,260












Year ended December 31, 2009


Company-


Franchised stores




owned (2)


Domestic


International


Rite Aid


Total

Beginning of period balance

2,774


954


1,190


1,712


6,630

Store openings (1)

98


31


187


177


493

Store closings

(40)


(76)


(70)


(20)


(206)

End of period balance

2,832


909


1,307


1,869


6,917

(1) openings include new stores and corporate/franchise conversion activity

(2) including Canada



SOURCE General Nutrition Centers, Inc.



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