gnc investor presentation - icr conference january 13, 2016
TRANSCRIPT
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GNC Holdings, Inc. (NYSE: GNC)
MIKE ARCHBOLD, CEOTRICIA TOLIVAR, EXECUTIVE VICE PRESIDENT AND CFO
January 13, 2016
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Forward looking statementTHIS 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 THISMORNING.
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 COMPANY’S 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 COMPANY’S 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 COMPANY’S 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 COMPANY’S
PROFITABILITY OR LIQUIDITY. FOR MORE INFORMATION, SEE THE ATTACHED RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES.
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Today’s Agenda
I. Investment Rationale
II. The Industry
III. GNC’s Strategic Evolution
IV. GNC’s 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
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The Industry
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The industry has grown meaningfully over time…
II. The Industry Historical Growth
Source: NBJ; $ in Bil
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…and is expected to continue
II. The Industry Projected Growth
Source: NBJ; $ in Bil
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II. The Industry Category Growth
Source: NBJ; $ in Bil
Each major category has, and is expected to, contribute to growth
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Herbs
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Vitamins
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Sports
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Meal Replacements
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GNC’s Strategic Evolution
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III. GNC’s Strategic Evolution
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 time…but we are beginning to see progress as we connect our
customers to their best
Transformation
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New brand positioning is grounded in data and evolutionary, not revolutionary
Seek to both expand share of wallet and broaden reach
Health, wellness &performance industry
~$37 BN
Sports nutrition &
performance
~$5 BN
Source: NBJ
III. GNC’s Strategic Evolution Brand Evolution
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III. GNC’s Strategic Evolution
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
Progress
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III. GNC’s 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 customer’s perception of quality
Improved operational consistency
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GNC’s 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 Highly Valued, Trusted Brand
82%
0% 20% 40% 60% 80% 100%
Vitamin World
Whole Foods
Sam's
Costco
Vitamin Shoppe
Rite Aid
Target
Amazon
CVS
Walgreens
GNC
Walmart
Brand Awareness
GNC
Source: Decision Analyst 2015 GNC Brand Equity Study
Brand Awareness includes aided and unaided awareness
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More than 40 industry-leading companies participating in the coalition
Includes retailers (including e-commerce), raw material suppliers,manufacturers, multi-level marketing companies, 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
Formed CoalitionIV. GNC’s Commitment to Quality
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Coalition Working GroupsIV. GNC’s Commitment to Quality
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 GMPGroup
•Establish RM cGMPs
•Traceability
Standards
•Testing Requirements
Industry ProductNotification Database& Numbering Codes
•Review and
recommend on
advisability of
industry database•Mechanics of
industry notification
and numbering
system
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Company-Owned vs. Franchise Store Strategy
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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*
V. Company-Owned vs. Franchise Store Strategy
* 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
105%
71%
144%
GNC S&P 500 S&P RETAIL
Total Shareholder Return since IPO
GNC S&P 500 S&P Retail
Source: Bloomberg Capital IQ, IBES. Market data as of December 31, 2015
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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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