Goldman Sachs Upgrades GNC, Cuts Vitamin Shoppe

GNC Holdings Inc GNC is nixing discounts in favor of profits while a margin recovery for smaller rival Vitamin Shoppe Inc VSI flounders with repeated delay, an analyst said Friday.

Goldman Sachs' Stephen Tanal swapped his affections in the heath-powders and potions segment, upgrading GNC to Buy and cutting Vitamin Shoppe to Neutral.

The rumors of last month that the nation's two largest dietary supplement retailers might merge got no mention in Tanal's recent analysis.

GNC recently posted a 12 percent drop in quarterly profit on a 3 percent revenue decline. Vitamin Shoppe's profits fell 25 percent on sales growth of 13 percent.

GNC's newly named Chief Executive Michael G. Archbold plans to ditch a pricy advertising campaign and cut production at a South Carolina manufacturing plant to bring inventory in line with sales.

Tanal said Archbold can plot a course toward "sustainable, double- digit" earnings growth, given his track record as chief operating officer at Vitamin Shoppe. Tanal boosted his GNC target 11 percent to $49.

A series of acquisitions and investments in a new distribution center at Vitamin Shoppe have kept profit margins under pressure. Although Tanal sees margin expansion in 2015, potential gains to Vitamin's current share price are "less compelling."

Reuters reported last month that Vitamin Shoppe had contacted investment bankers for a possible sale, following pressure from activist shareholders.

Rumored buyers included GNC or private equity investors.

Earlier this autumn, Vitamin Shoppe's Chief executive Anthony N. Truesdale said he will retire in June 2015.