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Will GNC Holdings' (GNC) Q1 Earnings Surprise Investors?

GNC Holdings, Inc. GNC is slated to report its first-quarter 2016 financial numbers on Apr 28, before the opening bell. 

Last quarter, the company posted a positive earnings surprise of 1.61%. However, GNC Holdings’ earnings lagged the Zacks Consensus Estimate in 3 of the past four quarters, with an average miss of 4.75%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

GNC Holdings ended 2015 on a mixed note, in the face of volatile sales and stock performance that significantly affected the specialty retail industry. However, the company’s strong cash balance and latest rebound in domestic company-owned same-store sales are encouraging.

Meanwhile, management is quite optimistic that its recent initiatives will drive performance in quarters ahead, starting from the first quarter of 2016.

Coming to its first-quarter’s performance, the company expects to register a sequential increase in domestic company-owned same-store sales in the first quarter, as well as the following quarters; which in turn has raised the company’s guidance for this metric for 2016.

However, management expects a shift in Easter timing and the weather conditions in the month of January to impact GNC Holdings’ first-quarter results. This is turn is expected to result in a negative low single digit comp in the quarter. Meanwhile, EBIT margins are likely to be impacted by increased marketing expenditures, for the quarter.

With respect to the bottom-line performance, management anticipates a year-over-year decline in first-quarter adjusted EPS owing to higher marketing expenses.

On a brighter note, management believes that GNC Holdings will overcome the aforementioned adversities in the remaining quarters of 2016. In particular, the company has adopted a four-pronged strategy to drive growth: refranchising, pricing, customer loyalty and the Gold Card, and the industry coalition.

For full-year 2016, GNC Holdings expects adjusted EPS in the range of $3.15–$3.35, excluding the positive impact from corporate to franchise store conversions to enhance comparability with prior periods. The current Zacks Consensus Estimate for 2016 EPS is pegged at $3.22, within the company’s guidance.

Earnings Whispers

Our proven model does not conclusively show that GNC Holdings is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:  GNC Holdings has an earnings ESP of 0.00%.That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 75 cents.

Zacks Rank: GNC Holdings has a Zacks Rank #3 (Hold)which increases the predictive power of ESP. However, a 0.00 % ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:  

PAREXEL International Corp. PRXL, earnings ESP of +2.25% and a Zacks Rank #1.

Gilead Sciences Inc. GILD, earnings ESP of +1.65% and a Zacks Rank #2.

Zimmer Biomet Holdings, Inc. ZBH, earnings ESP of +1.04% and a Zacks Rank #2.

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GILEAD SCIENCES (GILD): Free Stock Analysis Report
PAREXEL INTL CP (PRXL): Free Stock Analysis Report
GNC HOLDINGS (GNC): Free Stock Analysis Report
ZIMMER BIOMET (ZBH): Free Stock Analysis Report
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