Summary
The oft speculated yet ever illusive short squeeze remains so based on third-quarter results.
The staged preferred stock transaction suggests the company may try to redeem $50 million in convertible notes by the end of the year.
The company's free cash flow projections were reduced during the earnings call yet still strike us as optimistic.
Otherwise, the company is tracking almost exactly as we'd expected earlier this year.
We hold to our valuation range of $3.25 to $6.50 with a bias towards the lower half of the range.
GNC Holdings (GNC) reported lackluster results for the third quarter which, under the circumstances, shouldn’t have been a great surprise, although the after-hours market reaction certainly suggested otherwise. The company reported marginal profitability (excluding asset impairment charges) and ongoing erosion of revenues and same-store sales figures. However, the results were nowhere near levels which would represent an existential threat to the company in light of the closing (at least in part) of the Harbin transaction.
We’d have liked to see better results in terms of same-store sales performance at physical store locations as well as in the online segment. The company’s management is clearly still seeking tools to reverse the negative trends in same-store sales and, so far, appear to be coming up rather short. The announcement of additional store closings over the next three years is probably necessary from a retail standpoint, but the revenue recapture discussed in the earnings call struck us as too low to provide a high degree of confidence.
