GNC Holdings Inc (GNC) has had an abysmal year, with shares falling from a 52 week high of US$35.90, to a low of US$7.62, about a 78.8% decrease. Share price fell on the back of falling revenues and earnings, as consumers came to view their offerings as too pricey and they faced weaker traffic. Revenue had been flat for the past 3 years and is expected to fall about 3.7% yoy when GNC reports its 2016 results. Its GAAP net income fell 14.3% in 2015 and is expected to fall another 22% in 2016. With the fall in share price, GNC is now trading at a PER of about 3.20, and a dividend yield of 9.45%, which we believe to be very much undervalued.
Following a failed turn around attempt, the previous CEO of GNC stepped down in July 2016. Robert Moran, an independent director, then stepped in as interim CEO. After taking some time to do an honest evaluation of the company, Moran was candid about the company’s poor business model and proposed a new business plan, dubbed New GNC. The plan would call for lowering of single product pricing policies, introduction of new products, new loyalty programs, and addition of new technologies like a mobile app to improve and personalize the shopping experience.
We believe that despite the trend of falling revenue and earnings, the tumble in the share price of GNC is overdone and has caused GNC to become attractively valued. GNC is currently still profitable and there were many low hanging fruits for management to take advantage of to turn things around, such as poor inventory management, that caused items to be out of stock. At current pricing, GNC has been priced for failure and the company, while struggling, is not out for the count yet.