Could GNC execute a successful turnaround?
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GNC, a company that has a chain of stores selling a variety of health and nutrition products, has fallen a lot from its all-time high in 2013. Due to a variety of reasons like an aggressive membership program and competition from peers like Amazon and Walmart, sales for the company have dropped significantly.
There are things that attract me to the stock. One is that their cash per share is $1.62 even if the stock is trading at $0.56. That means that we get the business and a lot of cash at such a cheap price. Also, the high short interest is quite intriguing for a company like this. While the high short interest might be bearish for the company, with loads of cash in its balance sheet, at any point, a violent short squeeze could happen.
That short squeeze might not come if GNC continues to deteriorate.
The Turnaround
A partnership with Amazon
To alleviate some of the pressures and maintain survival, GNC has partnered with Amazon but has warned in its conference call that the partnership could be ending soon. GNC then partnered with Amazon again but this time in pick-up centers. While it does help GNC offset its declining foot traffic, the benefits GNC will have isn't clear since not everyone that is looking to pick up a package would take time out of their day to check out the inventory GNC is selling.
An expansion into CBD
Recently, GNC has made attempts to expand into the CBD industry in order to regain interest and foot traffic. GNC is introducing 12 new CBD-infused topical cream products from Physician's Grade and Myaderm, which include facial creams, body lotion, and shampoo. Those products will be sold exclusively in GNC stores.
And for those wondering, CBD is the non-psychoactive ingredient in marijuana that treats pain but doesn't get users high.
New product lines spur growth
GNC is also bringing on new product lines to help with its sales. Two new product lines in GNC, TamaFlex joint health supplements, and Earth Genius plant-based supplements have done really well over the past few years. By introducing better product lines in its stores, the company's sales will continue to do well.
Other Bullish Catalysts
Also, GNC has done many things. The company has divested weaker brands like LuckyVitamin, secured a $300 million investment from China's Harbin Pharmaceutical Group, and formed a new joint venture with supplement manufacturer IVC to streamline its supply chain. All of these are helping GNC execute its turnaround.
By removing the weaker brands, the company has fewer things holding them back from success. The joint ventures GNC is investing in can help them access high-growth opportunities around the world like China. Also, since China's Harbin Pharmaceutical Group seems interested in the company, if ever things do go south, the company has a suitor willing to acquire it.
To sum it up
The actions GNC has done to combat its deteriorating business and the successes some of those actions had do show that there is some hope with the GNC turnaround. While data hasn't been released on the success of its CBD lines, with the company focused on being the exclusive distributor of many great vitamin and supplement lines, the company can start gaining relevance to people's daily lives.
But there are still issues
Not only do sales continue to slow but the company is engaged with many lawsuits. Because the supplements industry is unregulated, GNC is exposed to a lot of legal risks. Looking at their quarterly and annual SEC filings, there are many lawsuits the company discloses to its investors. While the company hasn't given estimates on many of those lawsuits, there is a chance that those lawsuits could be detrimental to the company, hindering the turnaround efforts. The lawsuits could even lead to the company's bankruptcy if it goes far.
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