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Goldman Sachs Downgrades GNC, Warns 'Pressure To Persist In Specialty Vitamin Retail'

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The promotion-driven positive same-store sales seen in Q4 reversed for GNC Holdings Inc GNC in 1Q16, with the company reporting a higher-than-expected decline in same-store sales.

Goldman Sachs’ Stephen Tanal downgraded the rating on the company from Buy to Neutral, while lowering the price target from $40 to $30.

Declining Same-Store Sales

Tanal was moving to the sidelines because “the business now appears to be stagnating at best.”

“The vitamin and supplement category remains sluggish, but sales are still growing in the mass channel, which has taken significant share from the specialty retailers over the last number of years,” the analyst mentioned.

Tanal explained that earlier, GNC Holdings was expected to be able to continue to drive sales through efficient marketing and reaching out to tis Gold Card members.

However, following the new and aggressive promotional programs were all unable to sustain positive same store sales growth.

“We believe stable and growing SSS is an essential condition to a largescale refranchising program, and currently lack visibility into this outcome,” Tanal stated.

Looking Ahead

Although GNC Holdings attributed the decline in same store sales to “a non-recurring sale to clear aged inventory” and the shift of Easter to March, management guided to “more of the same” for the remainder of the year.

Tanal stated that he was not convinced that “GNC’s strategy of broadening the appeal of the store to bring in new, more traditional vitamin/supplement users is the right path forward.”

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