Why GNC Holdings Is a Good Buy Despite a Mixed Quarter

GNC Holdings (GNC, Financial) reported a mixed set of numbers for the third quarter as revenue failed to meet the street expectations but earnings were better. The stock fell considerably in the past one year touching its 52-week low few months back. But since then it is again showing signs of growth and the stock is rising.

A solid store model will drive the financial performance

The company has a solid store model, which continues to have strong performance and the management anticipates huge potential for domestic organic growth, both through company-owned stores and franchises. It is right for the management to feel this way as demand for vitamins and supplements have surged on the back of an aging population and consumer’s greater focus on health.

To further enhance its performance, GNC is also focusing on brand promotion. The beat average campaign it launched was a laggard and did not yield much result. Consequently it closed this operation, and for the days ahead its marketing efforts will be focused on brand positioning. From a study it found that promoting a product is more beneficial rather than just offering discounts on all items or a part of the store.

By next year it will align will align the advertising with its new brand positioning and will measure marketing in terms of return on investment. Along with a strong marketing campaign; innovation, product differentiation and quality are some of the key areas that will help the company to grow.

Online shopping in focus

Its online shopping platform is yet another area through which the company could improve its top line. In this regard, the management said, “We have multiple platforms to embrace our customers wherever they choose to shop, providing a complimentary GNC-branded customer experience, especially as omnichannel has now become table stakes in retail.”

Going forward the management is determined to boost its growth. And now with a change in leadership, with Michael Archbold as the new CEO GNC seems to have regained the lost momentum and could do better in the coming months. However there are some concerns, as for the past two years, its inventory has been growing at a faster pace than its sales.

But, management reaffirmed, “We are confident we can sail through the inventory without issue, we are dialing back the manufacturing plant to begin to align our inventories with the business.” In the past few months its shares have gained considerable ground and rose from its 52-week low. And considering its future prospects we could expect more upside to this stock.

Conclusion

By focusing on growing its stores at a steady pace and also improving its online presence, GNC is moving in the right areas. As a result, the stock looks like a good investment for the long run.