GNC Investor Presentation - ICR Conference January 13, 2016
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Ala BasterGNC Investor Presentation - ICR Conference January 13, 2016
Uploaded by
Ala BasterGNC Holdings, Inc.
(NYSE: GNC)
MIKE ARCHBOLD, CEO
TRICIA TOLIVAR, EXECUTIVE VICE PRESIDENT AND CFO
January 13, 2016
Forward looking statement
THIS CONFERENCE CALL AND PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INCLUDE INFORMATION CONCERNING OUR
FUTURE RESULTS, TRENDS, AND OTHER INFORMATION THAT IS NOT HISTORICAL INFORMATION. ALL FORWARD-LOOKING STATEMENTS
INCLUDED ON THIS CALL AND IN THIS PRESENTATION ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE OF THIS CALL, CURRENT
EXPECTATIONS, AND VARIOUS ASSUMPTIONS. WE BELIEVE THERE IS A REASONABLE BASIS FOR OUR EXPECTATIONS AND ASSUMPTIONS, BUT
THEY ARE INHERENTLY UNCERTAIN, AND MAY NOT PROVE CORRECT. WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE, OR REVISE, ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, ATTRIBUTABLE TO US, OR PERSONS ACTING ON OUR BEHALF, ARE EXPRESSLY
QUALIFIED, IN THEIR ENTIRETY, BY THE CAUTIONARY STATEMENTS CONTAINED THROUGHOUT THIS CALL. FOR A LIST OF IMPORTANT FACTORS
THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS ON THIS CALL AND IN THIS
PRESENTATION, PLEASE REFER TO OUR PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND OUR EARNINGS RELEASE THIS
MORNING.
MANAGEMENT HAS INCLUDED NON-GAAP FINANCIAL MEASURES IN THIS PRESS RELEASE BECAUSE IT BELIEVES THEY REPRESENT AN EFFECTIVE
SUPPLEMENTAL MEANS BY WHICH TO MEASURE THE COMPANYS OPERATING PERFORMANCE. MANAGEMENT BELIEVES THAT NET INCOME
AND EARNINGS PER SHARE, EXCLUDING ASSET IMPAIRMENT CHARGES AS REFLECTED IN THIS RELEASE, AND FREE CASH FLOW ARE USEFUL TO
INVESTORS AS THEY ENABLE THE COMPANY AND ITS INVESTORS TO EVALUATE AND COMPARE THE COMPANYS RESULTS FROM OPERATIONS
IN A MORE MEANINGFUL AND CONSISTENT MANNER BY EXCLUDING SPECIFIC ITEMS WHICH ARE NOT REFLECTIVE OF ONGOING OPERATING
RESULTS. HOWEVER, THESE MEASURES ARE NOT MEASUREMENTS OF THE COMPANYS PERFORMANCE UNDER GAAP AND SHOULD NOT BE
CONSIDERED AS ALTERNATIVES TO EARNINGS PER SHARE, NET INCOME OR ANY OTHER PERFORMANCE MEASURES DERIVED IN ACCORDANCE
WITH GAAP, OR AS AN ALTERNATIVE TO GAAP CASH FLOW FROM OPERATING ACTIVITIES, OR AS A MEASURE OF THE COMPANYS
PROFITABILITY OR LIQUIDITY. FOR MORE INFORMATION, SEE THE ATTACHED RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES.
Todays Agenda
I.
Investment Rationale
II. The Industry
III. GNCs Strategic Evolution
IV. GNCs Commitment to Quality
V. Company-Owned vs. Franchise Store Strategy
VI. Capital Discipline
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I. Compelling Investment Rationale
Recognized leader in large and growing health, wellness and performance
industry
Highly-trusted and recognized brand
Clear strategy to drive profitable growth
Drive improved connection with a broader range of customers
Leverage customer research to drive enhanced decision-making
Strong cash flow and disciplined capital allocation strategy
Balanced approach to reinvesting in business and returning cash to
shareholders through dividends and share repurchases
4
The Industry
II. The Industry
Historical Growth
The industry has grown meaningfully over time
Source: NBJ; $ in Bil
II. The Industry
Projected Growth
and is expected to continue
Source: NBJ; $ in Bil
Source: NBJ; $ in Bil
2020e
2014
2013
2012
2011
2010
2019e
$0
2020e
$0
2018e
$2
2019e
$2
2017e
$4
2018e
$4
2017e
$6
2016e
$6
2016e
$8
2015e
$8
Meal Replacements
2015e
$10
2014
$10
2013
$12
2012
$12
2011
$14
2010
Sports
$16
2009
$0
2008
$14
2009
$0
2007
$16
2008
$2
2006
$2
2007
$4
2005
$4
2006
$6
2004
$6
2005
$8
2004
$8
2003
$10
2002
$10
2003
$12
2001
$12
2002
2000
2020e
2019e
2018e
2017e
2016e
2015e
2014
2013
2012
2011
2010
2009
2008
Vitamins
2001
2000
2020e
2019e
2018e
2017e
2016e
2015e
2014
2013
2012
2011
$14
2010
$16
2009
2007
$14
2008
2006
2005
2004
2003
2002
2001
2000
$16
2007
2006
2005
2004
2003
2002
2001
2000
II. The Industry
Category Growth
Herbs
Each major category has, and is expected to, contribute to growth
GNCs Strategic Evolution
III. GNCs Strategic Evolution
Transformation
Cultural Evolution
Focus on profitable growth
Decisions informed by qualitative and quantitative customer research
Evolutionary, not revolutionary brand positioning
Focused on performance and wellness customers
Target one-to-one customer engagement
Guided by brand pillars
Transformation takes timebut we are beginning to see progress as we connect our
customers to their best
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III. GNCs Strategic Evolution
Brand Evolution
Health, wellness &
performance industry
~$37 BN
Sports nutrition &
performance
~$5 BN
New brand positioning is grounded in data and evolutionary, not revolutionary
Seek to both expand share of wallet and broaden reach
Source: NBJ
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III. GNCs Strategic Evolution
Progress
Decreased reliance on excessive promotions
Increase in sales from Wellness, Natural Living, Grab-n-Go customer
Increase in mix of female customers
Positive ROI on natural and plant-based proteins, functional foods
Positive ROI on expanded assortment
Significant reduction in store service complaints
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III. GNCs Strategic Evolution
Focus Areas
Continued refinement of marketing and promotions
Test Gold Card program with loyalty component enhancement
Develop improved pricing and promotional strategy
Clearly define role and intent by category
Improve customers perception of quality
Improved operational consistency
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GNCs Commitment to Quality
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IV. GNC Commitment to Quality
80 year history of health, wellness and performance
Own a 300,000 square foot state of the art manufacturing facility
Fully FDA and TGA cGMP compliant, qualified to manufacture
supplements for sale in over 50 countries
Dedicated laboratories for raw material and finished product
inspection and testing
Proprietary manufactured product subjected to 150+ quality checks
Employ over 150 scientists, nutritionists, formulators, chemists,
engineers and quality control experts
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IV. GNC Commitment to Quality
Brand Awareness
Walmart
GNC
82%
Walgreens
CVS
Amazon
Target
Rite Aid
Vitamin Shoppe
Costco
Sam's
Whole Foods
Vitamin World
0%
20%
40%
60%
80%
Source: Decision Analyst 2015 GNC Brand Equity Study
Brand Awareness includes aided and unaided awareness
100%
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Highly Valued, Trusted Brand
IV. GNCs Commitment to Quality
Formed Coalition
More than 40 industry-leading companies participating in the coalition
Includes
retailers
manufacturers,
(including
multi-level
e-commerce),
marketing
raw
companies,
material
suppliers,
practitioners,
and
pharmaceutical companies
Goals are to:
Establish industry Good Manufacturing Practices for the raw material supply
chain, including traceability standards and testing requirements
Establish minimum standards across the industry for annual facility inspections
and certifications, and the issuance of raw material and finished goods product
quality seals
Evaluate and promote an industry sponsored product database and product
numbering system
Change the narrative about the industry
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IV. GNCs Commitment to Quality
Coalition Working Groups
Establish Four Action Oriented Working Groups
Media Strategy
Group
Improve Customer
Confidence
Answer Govt.
Regulators
Answer Media
Quality Seals &
Facilities Certification
Group
Establish Standards
Threshold
Facilities Certification
RM & Finished
Products Quality
Seals
Raw Materials GMP
Group
Establish RM cGMPs
Traceability
Standards
Testing Requirements
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Industry Product
Notification Database
& Numbering Codes
Review and
recommend on
advisability of
industry database
Mechanics of
industry notification
and numbering
system
Company-Owned vs. Franchise Store Strategy
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V. Company-Owned vs. Franchise Store Strategy
Strategies to increase the portion of domestic stores that are franchise
locations:
1) Beginning in Q4 2015, expect majority of new stores to be franchise
locations
2) Execute re-franchising strategy in select markets
Negotiations are underway
Letters of intent have been obtained for 33 locations*
* as discussed on Q3 2015 earnings call
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Capital Discipline
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VI. Capital Discipline
Returns-based approach to business decisions, spanning
Capital expenditures
Marketing
Promotions
Returning capital to shareholders
Announced $200 mil share buyback on November 3,
2015
Current Dividend Yield >2%
Free cash flow per share increased 42% to $2.83 on a YTD basis through Q3 2015, due
to improved working capital and lower capital expenditures
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VI. Capital Discipline
Total Shareholder Return since IPO
144%
105%
71%
GNC
S&P 500
GNC
S&P 500
Source: Bloomberg Capital IQ, IBES. Market data as of December 31, 2015
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S&P RETAIL
S&P Retail
Compelling Investment Rationale
Recognized leader in large and growing health, wellness and performance
industry
Highly-trusted and recognized brand
Clear strategy to drive profitable growth
Drive improved connection with a broader range of customers
Leverage customer research to drive enhanced decision-making
Strong cash flow and disciplined capital allocation strategy
Balanced approach to reinvesting in business and returning cash to
shareholders through dividends and share repurchases
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