GNC CEO bemoans 'badly broken business model'

Dive Brief:

Interim GNC CEO Robert Moran asked for patience after the embattled nutritional supplement retailer's comeback efforts hit a speed bump during the third quarter.
GNC missed expectations for Q3 earnings and sales, posting same-store sales drops of 8.5% in domestic company-owned stores (including e-commerce) and 8.9% in franchise stores. Third quarter revenue fell 8.1% to $628 million, missing Thomson Reuters analysts’ forecast for $651.3 million; Q3 net income was $32.4 million, compared to $45.8 million in the third quarter of 2015.
“GNC is on a journey and will not be turned around overnight,” Moran told analysts on a Thursday conference call, according to a Seeking Alpha transcript. In pre-market trading, GNC shares — already down 35% this year — dropped another 6.1%.

Dive Insight:

After Moran took his post in July following the abrupt resignation of CEO Michael Archbold, he implemented a 90-day review of GNC's business that revealed a floundering strategy. “Frankly, what we found was a badly broken business model in need of change, in particular, across five key areas that require our immediate attention and will set us up to launch the new GNC late in 2016,” Moran told analysts Thursday, identifying the customer experience, pricing, loyalty initiatives, product innovation and e-commerce enhancements, and marketing improvements to better target profitable customer segments.

Moran called improving the customer experience GNC's primary goal, saying it has been “subpar” for a while.

“We must first earn back the trust of our customers, suppliers and associates,” Moran said. “To do that, we're making investments in technology, training and management ... We also realize that once the store experience is fixed, we need to improve our omnichannel strategy.”

But GNC’s problems start with the products themselves: Supplements in general are under scrutiny from public health officials and state attorneys general.

Faced with mounting concerns over the effectiveness of its signature dietary supplements that culminated in a damning New York State attorney general’s office probe, Archbold shifted GNC’s emphasis to its vitamin business. But his efforts were undermined by cuts to the company’s marketing budget, and in late April, GNC announced plans to sell and refranchise 84 of its stores to franchisee Sun Holdings for $17 million. GNC said at that time it is looking to sell a total of 200 company-owned stores this year and another 1,000 in total over the next several years.

Moran has already instituted a number of changes at GNC, including revamps of its confusing pricing strategy and stalled Gold Card loyalty program. “We need to fundamentally change the way we operate as a company,” he said. “We are moving forward with urgency to implement necessary changes, but there is no silver bullet or quick fix solution.”