UPDATE: May 18, 2020: GNC cut a deal with lenders to extend a looming maturity on part of a term loan that was previously set to come due this past Saturday, according to a press release. The deal gives GNC a temporary reprieve, pushing the maturity out to August, as long as its liquidity doesn't fall below $100 million on or after June 15, according to a filing with the Securities and Exchange Commission. The deal also puts limits on GNC's ability to prepay some debt and on some use of its cash. It also caps its revolver borrowings at $66 million and requires new and more frequent disclosures to its lenders.
Dive Brief:
- Nutrition supplement retailer GNC has been battered by the coronavirus pandemic, with its comparable sales down 10.1% in the first quarter, the company reported.
- The company recorded a $157.5 million asset impairment related to disruption from COVID-19. That led to a net loss of $200.1 million for Q1, wider by more than 1200% than its net loss from the prior year.
- As of May 6, about 40%, or about 1,300, of GNC's U.S. and Canadian stores were closed, and some of those may be permanently closed in the future, the company said in a securities filing. GNC may have to file for Chapter 11 so it can restructure, the company also said in the filing.
Dive Insight:
Dozens of retailers collectively closed thousands of stores in March in an effort to slow the spread of the COVID-19 pandemic as it tore through the country. GNC at first kept its doors open.
As Retail Dive reported at the time, the retailer said it viewed itself as essential by virtue of selling some food and beverage products. One state where GNC operated, Pennsylvania, told Retail Dive that the retailer was not essential under its guidelines. And some employees said that they didn't feel safe at the stores.
The company ultimately closed 30% of its stores by March 31 because of the pandemic, increasing the number as time went on. The company attributed those closures, without elaborating, to state government orders for non-essential businesses to close.
Along with the closures, the company said its impairment charge was driven by uncertainty over the severity and duration of the COVID-19 outbreak, possible government and business actions, and impacts on supply chain and customer demand.
GNC has tried to offset sales declines by launching a curbside pick-up service, but the company did not say how much revenue it generated. GNC did note that e-commerce sales rose 25% during the quarter, due in part to increased demand from the pandemic. By the end of Q1, e-commerce accounted for roughly 10.6% of U.S. and Canadian revenue, up from 7.4% the year before.
"As people around the globe cope with the COVID-19 outbreak, GNC's mission has never been more clear," GNC CEO Ken Martindale said in a statement. "Our transformation into a true omni-channel brand continues and we are working diligently to reposition and restructure our business for the future."
As its sales have fallen, the company's financial situation has become more dire. GNC currently has negative free cash flow of $15.9 million, due to operating loss and "unfavorable working capital changes," and $137.4 million in cash and cash equivalents, the company said. In April, the company tapped its revolver for an additional $30 million.
A maturity on a loan tranche is due May 16, and GNC has already said it does not have the money to repay it. Because of that, the company has said there is "substantial doubt" it can survive over the next 12 months. Failure to refinance the upcoming debt or reach an out-of-court deal with lenders and other stakeholders could further tighten GNC's liquidity or force it to file for bankruptcy, the company said.
It added that it is pursuing "all strategic alternatives to address upcoming debt maturities, including refinancing and restructuring options."
