4 Key Questions Ahead Of GNC's Q4 Earnings Report

GNC Holdings Inc GNC is scheduled to report its Q4 results on February 16.

The company’s transition to a new pricing and promotional strategy could have a significant impact on comps, margins and earnings, Deutsche Bank’s Shane Higgins said in a report. He added, however, that the transition could position GNC for a return to growth by 2018 or 2019.

Higgins maintained a Hold rating on the company, while reducing the price target from $16 to $10. The EPS estimates for FY2016, FY2017 and FY2018 have been lowered from $2.46 to $2.45, from $2.38 to $1.82 and from $2.37 to $1.76, respectively.

See Also: GNC An Exercise In Patience As Turnaround Will Take Time

4 Key Questions

Higgins noted four key questions for Q4 and beyond:

1. How are comps and EBITDA trending in the seven markets where the new pricing and loyalty program had been initially rolled out?
2. How the company plans to leverage the ‘My GNC Rewards’ loyalty program to drive sales and whether this initiative can be expected to more than offset the loss of sales and earnings from the Gold Card program;
3. Whether GNC continued to be committed to refranchising up to 1,000 stores over the next 3-4 years and how much cash would the company expect these conversions to generate;
4. Declining EBITDA would likely exert pressure on leverage ratios. This can restrict GNC’s ability to pay its dividend. Would the company continue to pay the $0.20 quarterly dividend, or will cash of ~$55 million per year go towards debt reduction, while the company resets the business.