Why GNC Stock is Declining Today
NEW YORK (TheStreet) -- Shares of GNC Holdings (GNC) - Get Report are falling by 2.17% to $28.49 in mid-morning trading on Wednesday, as vitamin retailer stocks take a hit from federal officials' Tuesday announcement of fraud charges against dietary supplement companies.
GNC Holdings is a Pittsburgh, PA-based specialty retailer of health and wellness products, including vitamins minerals and herbal supplement products (VMHS), sports nutrition products and diet products.
The Justice Department, the Food and Drug Administration and other U.S. agencies have accused the manufacturers, USPlabs LLC and SK Laboratories Inc., of nutritional products of fraud in the sale and marketing of dietary products, Bloomberg reported.
GNC sells products manufactured by the two companies but has not been charged with anything. The company issued a statement yesterday noting that it is cooperating with the investigation.
"Defendants sometimes tested the products on themselves and sold the ones that made them feel good. With one product, defendants allegedly recognized that the substance could potentially cause liver toxicity, but without causing conducting a single test, they went ahead and sold, Benjamin Mizer, a principal deputy assistant attorney general told a news conference, CBS reported.
Separately, TheStreet Ratings team rates GNC HOLDINGS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate GNC HOLDINGS INC (GNC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Specialty Retail industry and the overall market, GNC HOLDINGS INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- GNC HOLDINGS INC's earnings per share declined by 23.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GNC HOLDINGS INC increased its bottom line by earning $2.81 versus $2.72 in the prior year. This year, the market expects an improvement in earnings ($2.89 versus $2.81).
- The debt-to-equity ratio is very high at 2.21 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, GNC's quick ratio is somewhat strong at 1.16, demonstrating the ability to handle short-term liquidity needs.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Specialty Retail industry average. The net income has significantly decreased by 28.9% when compared to the same quarter one year ago, falling from $64.31 million to $45.75 million.
- You can view the full analysis from the report here: GNC
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.