CEO takes the blame as sales continue to fall at vitamin retailer GNC
Mike Archbold fell on his sword Thursday, calling an unexpected drop in first-quarter sales at GNC a “self-inflicted wound.”
Archbold, who was hired as CEO in August to turn around a yearlong slump in sales and profit, said he mistakenly cut the Downtown-based vitamin and supplement retailer’s advertising budget by $5 million.
“We intentionally did not deploy a full slate of marketing. … This caused us to talk to our customers less, a lot less,” he told analysts. “To be clear, this was a mistake.”
Not a factor in the decline, he said, was negative publicity from a probe by the attorney general of New York that questioned the purity and authenticity of some herbal supplements sold by GNC and other retailers.
GNC reached a deal in March with New York Attorney General Eric Schneiderman to test its herbal supplements to confirm their authenticity. The deal was made after Schneiderman’s office sent letters to GNC and other retailers in February, alleging that store brand herbal supplement products weren’t what they said they were.
“The New York Attorney General has now confirmed that our products are pure, safe and fully compliant with all applicable regulatory requirements,” Archbold said. “Another important aspect of the agreement is that consumers can take great confidence in purchasing supplements like those produced by GNC.”
GNC is ramping up its marketing and is analyzing individual store performance to figure out why some produced strong sales while others were down, he said. Chief Operating Officer Michael Dzura, whom Archbold hired in February, will lead the analysis of performance at the chain’s 8,900 stores.
One thing the company won’t change as it tries to boost sales is a commitment to reducing reliance on excessive discounts and promotions to drive sales, which were blamed for falling profits under Archbold’s predecessor, former CEO Joseph Fortunato.
The poor showing in the January-March quarter led the company to widen its outlook for full-year profit by lowering the bottom range of the forecast. The company expects $3 to $3.15 a share in full-year adjusted net income, down from its earlier prediction of $3.10 to $3.15.
GNC’s shares tumbled 8 percent to close at $43.05.
The results were unexpected because in February Archbold told analysts that sales were up in January and looking stronger for 2015. The effect of less advertising and cutting promotions was underestimated and not detected until March, Archbold said.
Same-store sales, a key indicator of a retailer’s health, fell 4.1 percent at company-owned stores and 1.5 percent at franchises, the company said. The metric removes the effect of building new stores on revenue growth.
Archbold said he expects to see same-store sales turn positive in the second half of this year.
Total sales dropped 1 percent to $670.2 million in the quarter, from $674.5 million a year ago.
Net income was $63.3 million, or 72 cents a share, compared with $69.9 million, or 75 cents a share.
Analysts had expected GNC to report net income of 81 cents a share on revenue of $696.1 million, according to Bloomberg.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or [email protected].