Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

GNC Holdings (NYSE:GNC)

Q2 2014 Earnings Call

July 29, 2014 9:00 am ET

Executives

Dennis Magulick - Vice President of Treasury & Investor Relations

Joseph M. Fortunato - Chairman, Chief Executive Officer, President and Member of Organizational Development Committee

Analysts

Simeon Ari Gutman - Crédit Suisse AG, Research Division

Gary Balter - Crédit Suisse AG, Research Division

Mark Wiltamuth - Jefferies LLC, Research Division

Meredith Adler - Barclays Capital, Research Division

Karen F. Short - Deutsche Bank AG, Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Stephen V. Tanal - Goldman Sachs Group Inc., Research Division

Kate Wendt - Wells Fargo Securities, LLC, Research Division

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the GNC Second Quarter 2014 Earnings Release Conference Call. [Operator Instructions] Thank you. Mr. Dennis Magulick, Vice President, Treasury & Investor Relations, you may begin your conference.

Dennis Magulick

Good morning, and welcome to the GNC Second Quarter 2014 Earnings Call. This morning, we released our second quarter financial results, which are available on our website. With me today is Joe Fortunato, Chairman, President and CEO. Today's call will be limited to 60 minutes. Following our prepared remarks, we will be available to take your questions. After I read the disclaimer, Joe will provide an overview of the business and an update on our key initiatives. I will then review financials, after which Joe will wrap up with some closing remarks.

Now for the disclaimer. This conference call contains forward-looking statements, which include information concerning our future results, trends and other information that is not historical information. All forward-looking statements included on this call are based on information available to us on the date of this call, current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but they are inherently uncertain and may not prove correct. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this call. For a list of important factors that could cause our actual results to differ materially from the forward-looking statements on this call, please refer to our public filings with the Securities and Exchange Commission and our earnings release this afternoon.

I will now turn the call over to Joe.

Joseph M. Fortunato

Thanks, Dennis, and good morning, everyone. Today, I'll outline our strategic initiatives to address the widely reported challenges, retailers in general, are confronting due to broad shifts in shopping patterns and specific challenges our industry, and independently, our company are facing. The goal of these initiatives is to position GNC for success by protecting our brand and enhancing our long-term financial model. We expect to see progress on these fronts as the year progresses and into 2015.

Before I go into these strategies, I will provide some color on what we are seeing in the industry and within our business that support our thinking. As we have mentioned previously, over the last few quarters, a thorough interpretation of underlying trends has been challenged by a number of factors, including an increase in negative media surrounding the industry, severe weather and the implementation of company-specific initiatives such as Member Pricing. However, more recently we have had the opportunity to complete an extensive review of the factors influencing the industry in general and our business in particular, which provide the necessary insights to develop strategies to address the current environment.

In 2014, the broader market for supplements has softened, creating a pause in the growth cycle for what has been a very resilient factor in the past -- sector in the past, sorry. With industry-wide nutritional supplement growth, rates neared double digits for multiple years. Some levels of moderation is inevitable, especially for GNC as we delivered more than a 26% same-store sales increase, cumulatively from 2011 to 2013, well above industry growth rates. We do believe that health and wellness is still top of mind for the consumer and continue to see expansion of the category into areas like plant-based proteins, functional foods and other specialty products.

In addition to the industry-wide pause, our 2014 results are impacted by some difficult company-specific hurdles from last year, including the launch of Member Pricing. We estimate this launch contributed approximately 200 basis points to comp during the second quarter of 2013 due to increased customer traffic associated with the Gold Card giveaway. Also, as we mentioned before, the last stage of DMAA sales, which peaked in 2012, drove incremental traffic and sales last year prior to final sell-through in Q3 2013. And while we continue to be a leader in the pre-workout space, the most replacement products do not fully overcome the combined effect of also selling DMAA products last year.

Overall, GNC's exclusive branding and merchandising go-to-market strategies, which differentiate us in the marketplace from a product for superiority perspective, has been the linchpin to successfully delivering results in this industry over time. However, our most current assortment pricing approach and customer outreach efforts have not successfully overcome the aforementioned challenges, especially in light of the opportunity we had with the Member Price conversion last year. As a result, we did not anniversary the incremental business in Q2, which included both the traffic mentioned earlier and price investments designed to introduce these new customers to GNC.

Moving forward, as we define our strategic response, we first reestablished our retail framework for success, which has the following elements that are focused on simplification in our stores with our pricing and messaging to our consumer. They are: number one, branding, the GNC brand needs to stand for a differentiated unique customer proposition. Number two, vendor proposition, our third-party offering should have the same level of exclusivity, innovation and value as our priority -- proprietary product offerings. Three, merchandising. We need to become more relevant to consumers beyond our core, including females and the organic consumer. Number four, pricing. Our pricing needs to be straightforward, consistent with our product value proposition and easily understood by the consumer. And number five, our marketing should both effectively communicate the GNC differentiation, product superiority and overall value to new customers and engender ongoing loyalty and engagement with the brand for existing customers. Using this framework, we are reassessing our go-to-market strategies in key areas to optimize long-term position namely which, when built on GNC-branded platforms, has historically been an important growth driver for us.

I will now outline the primary efforts underway in pursuit of this goal. First, branding and merchandising, where we will drive a renewed innovation cycle, both with proprietary brand and exclusive third-party products. I am excited by the 2015 planned focus areas for GNC product development, which build on some of our most successful product and brand launches. In addition, based on recent vendor conversations, I am confident that we are turning the corner on their ability to more consistently bring great new exclusive product lines to us, which attract unique level economics for both sides.

We are also reexamining how we launch new products including marketing, pricing and customer communication, so as to optimize early consumer adoption and the resulting sales trends of our great assortment additions. In the past, we have seen sales upside when innovation is on target and the exclusive GNC sub-brands build equity over time. Our internal product development will be focused on highly visible branded products and successful line extensions. As a result of these initiatives, we expect an increase in overall penetration of branded and exclusive product offerings.

In the latter part of 2014, we will begin to test adjacent merchandise categories that are driving growth in our space such as plant-based proteins and functional foods, among others. As the authority in this industry, GNC has the ability to pursue successful expansion broadly within health and wellness. The key is to integrate into the GNC brand framework to ensure customer acceptance. And although we will stay true to our roots, we do not like the potential of certain category opportunities -- I'm sorry, we do like the potential of certain category opportunities.

Next, pricing. Our retail price and approach has become predictable, overly complicated and too dependent on bundled product promotions. As a result, we are not currently fostering transaction driving strategies, maximizing brand equity or getting credit from our consumers for our very confident outdoor -- competitive out-the-door pricing. Go forward, we intend to use Member Pricing and targeted event-driven promotions. And though we will still utilize bundled promotions from time to time, they will be positioned as more special, episodic events, better capitalizing on specific shopping patterns. Similarly, while we still have special web-only promotions, we will seek more consistently -- consistency across channels, which should enhance our overall price perception and capitalize on superiority and equity of our brand.

And lastly, marketing. We strongly believe the best approach to capitalize on our Gold Card customers is by adding value to each shopping experience through personalization and by rewarding loyalty. In direct marketing, as we implemented the dunnhumby strategy, starting in September, every communication piece will be customized based on purchase history, providing relevant offers and content targeted to each of our valued consumers' particular regimens. This approach defines the most relevant next category to buy based on past shopping patterns and product affinity. We are also working on specific reward elements for the Gold Card beyond the member price as next step in the evolution of this program. We expect to begin communication -- communicating these Gold Card value-enhancing components to customers in the fourth quarter.

Also in marketing, the Beat Average campaign has reignited brand awareness with its direct yet humorous approach to GNC as a partner for achieving health goals. From an ongoing customer acquisition perspective, our next step is to transition Beat Average to focus more on product differentiation and superiority. In the next month, ad messaging will directly link the ability to Beat Average in many pursuits with a specific GNC or exclusive third-party product line or attribute. And of course, we will amplify efforts in the digital and social channels as a primary medium to deliver this campaign. So our marketing goal is to have a product differentiated based marketing campaign, a fully customized direct marketing plan and a value-enhanced Gold Card program working in concert. And we formed and -- as we formulate our 2015 marketing plan, we will utilize the most optimal vehicles to best deliver these results.

Complementing these strategies will be an updated store layout with customer focus areas in relevant adjacencies. All this would be supported by an enhanced training program for our store associates emphasizing their interaction with the customer. For competitive reasons, we are not planning to go into more detail about the specifics of the strategies. However, we believe the combination will correspond to an elevated product value proposition. We also feel good that we have external partners in marketing and brand strategy to assist us in assessment and implementation, including a top-tier consulting firm that has demonstrated success in optimizing positioning for many consumer brands.

So we are taking the necessary steps to ensure the long-term growth and evolution of the GNC brand. I will address our International business later in the prepared remarks, but will now turn the call over to Dennis to provide details on our financial performance.

Dennis Magulick

Thanks, Joe. First, to the consolidated results. Our second quarter consolidated revenue decreased 0.2% to $675.2 million. Retail segment revenue increased 0.6%, and our franchise and manufacturing/wholesale segments revenue decreased 0.4% and 5.8%, respectively.

Second quarter gross profit, calculated after deducting product, warehousing, distribution and occupancy costs, was 38.3% of revenue compared to 37.8% in Q2 2013, reflecting less promotional activity as we anniversary the Member Pricing launch in last year's second quarter. These gains are partially offset by a lower Gold Card deferral revenue recognition related to the Member Pricing rollout and occupancy deleverage associated with retail same-store sales below our leverage point.

Second quarter consolidated SG&A expenses were 20.9% of revenue, compared to last years of 19.6%. Within consolidated SG&A, advertising and promotion expense was 3.3% of revenue as compared to 2.4% in Q2 2013. In 2014, the company's Beat Average campaign launched in the second quarter, whereas in 2013, the Respect Yourself campaign launched in the first quarter. Q2 2014 net income was $69.9 million, a 2.5% decrease from the prior year. Diluted earnings per share was $0.77, a 5.5% increase over 2013 results.

Now for information by segment. First, to our retail segment. Our retail segment includes domestic and Canadian company-owned stores, The Health Store in Ireland and the Internet businesses including Discount Supplements. Q2 retail segment revenue grew 0.6% to $505.5 million, driven primarily by growth in our e-commerce businesses, the addition of 149 net new GNC stores as compared to the end of Q2 2013, and 9 Health Store locations in Ireland acquired in April 2014. These gains were partially offset by negative same-store sales and approximately $2 million due to the exchange rate trend of the Canadian dollar.

GNC.com revenue increased 3.7%. Operating income for this business increase nearly 40% with operating margin rate expanding several hundred basis points, reflecting a moderation of promotional activity. As Joe mentioned, this is consistent with more line channel pricing and should result in strong operating profit growth, go forward.

Q2 retail operating income decreased by 5.9% to $94.4 million and was 18.7% of segment revenue in Q2 2014, compared to 20% in Q2 2013. Operating margin rate was negatively impacted by lower Gold Card revenue recognition related to the Member Pricing rollout in 2013, higher advertising spend corresponding with the company's Beat Average campaign launch and expense deleverage associated with negative same-store sales.

In the quarter, we add 30 net new domestic company-owned stores. We expect to add a total of approximately 150 net new domestic company-owned stores in 2014. And while new stores continue to perform to expectation, we have been very selective with new site approval, particularly in malls, given the current environment. Although we will provide more details with our formal 2015 guidance, at this point, we anticipate a more modest new store growth plan for 2015.

Next to our franchise segment. Revenue in franchising is generated primarily from wholesale sales through our franchisees, the collection of royalties on franchise retail sales and fees. Q2 franchise segment revenue declined 0.4% to $110.1 million. Domestic franchise revenue increased 6.4% to $70.3 million. International revenue decreased 10.5% to $39.8 million. A 2.5% franchisee reported local currency same-store sales result was offset by lower wholesale product sales.

As previously discussed, the growth rate of our International franchise business has recently been affected by a series of regulatory and geopolitical factors. And while in many markets we remain the clear market share leader, select challenges in certain countries can have an impact on overall segment results. Our outlook anticipates continued pressures through 2014.

Q2 franchise operating income increased 12.2% to $41.1 million and was 37.3% of segment revenue in Q2 2014, compared to 33.1% in Q2 2013. The increase in operating income percentage was driven primarily by higher gross profit margin and a $3.3 million gain from the conversion of 9 company-owned stores to franchise stores. The demand for new franchise stores from both new and existing operators, which drives the conversion process, reinforces the strength of our brand. In the quarter, we added 24 net new domestic franchise locations and 25 net new International franchise locations.

And third, to our manufacturing/wholesale segment. Revenue in this segment is generated primarily by third-party sales at our manufacturing facility and product sales to Rite Aid, Drugstore.com, PetSmart and Sam's Club. Q2 manufacturing/wholesale revenue decreased 5.8% to $59.6 million. Again, this quarter, the decline was due primarily to lower purchases by one of our wholesale partners.

Q2 operating income decreased 10.1% to $22.9 million and was 38.5% of segment revenue compared to 40.3% in Q2 2013. The decrease in operating income percentage in the quarter was driven primarily by a lower mix of proprietary product sales. We opened 9 net new Rite Aid store-within-a-store locations in the quarter.

Next to our balance sheet and cash flow. For the first 6 months of 2014, we generated $153.3 million net cash from operating activities. We spent $36.1 million on capital expenditures, primarily for new stores, store maintenance, updates and remodels, corporate IT, infrastructure and other manufacturing facility expenditures. We generated $116.9 million free cash flow, which we define as cash provided by operating activities less cash used in investing activities excluding acquisitions. We used $6.4 million for the acquisition of the Health Store. We paid $29 million in cash dividends in our common stock, and we repurchased $190.2 million in shares of our common stock. The company now has approximately $250 million remaining under its $500 million authorization.

As of June 30, 2014, we had a cash balance of $118.5 million and long-term debt of $1.34 billion. We have an undrawn $130 million revolving credit facility with $1.1 million pledged as collateral for outstanding letters of credit.

Now I will provide our current 2014 outlook. As outlined in our earnings release this morning, for the full year, we expect diluted earnings per share to be approximately $2.85 for the full year 2014 or approximately equal to 2013 adjusted EPS. Our 2014 EPS outlook is based on share repurchase activity completed through the second quarter of 2014. Other key assumptions underlying EPS guidance are the consolidated revenue is expected to be approximately flat for the full year 2014. This is based on achieving a domestic company-owned same-store sales result, including the impact of GNC.com, of a mid-single-digit decrease for the remainder of 2014. For the third quarter 2014, which is on a product-only basis, the year-over-year comparison is more challenging as we anniversary 2013's Member Pricing launch.

That completes the financial update. I will now turn the call back over to Joe.

Joseph M. Fortunato

Thanks, Dennis. As I addressed in the first part of the script, driving the domestic retail business is the biggest priority we have and will benefit both corporate and franchise stores. I believe we have identified the right issues, again both industry and GNC specific, to address. They are improved focus on our brand, better vendor proposition, merchandising to a broader customer base, simplified pricing and more impactful marketing. I am confident the proper execution of these strategies will turn the tide for the business.

Moving on to our International business, we need to relentlessly work towards the regulatory challenges in several key franchise countries. Our operators continue to report robust demand for our products, so we have every reason to believe that the overall business will turn as we make progress in manufacturing, product development and compliance related to such changes.

From an International expansion perspective, we are focused on a few specific opportunities. I am very excited about opening our first franchise store in Russia later this year. And we also see bigger opportunities in China in the near future, including the potential for more GNC stand-alone stores. I remain bullish on our International prospects and believe they represent a substantial revenue and earnings growth engine for the future.

So as to ensure we can deliver on our strategies, we are accelerating organizational enhancements that will add any necessary resources, both through internal hires and with consultants, to enhance our effectiveness and drive results.

Before we go into questions, I would like to thank Mike Nuzzo for his numerous contributions during his tenure here, in addition to leading us through the transformation from a private to a public company. Mike spearheaded many efforts associated with our long-term strategies and capital structure, established important business processes and built a strong finance team, all of which will benefit GNC for the years to come. We wish Mike all the best.

Now we are available to take your questions. [Operator Instructions]

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley.

Simeon Ari Gutman - Crédit Suisse AG, Research Division

Joe, the strategies you laid out, they sound promising and they're pretty comprehensive. So having been around this industry for a long time, what gives you confidence that the business response or turns quickly to them? And granted you have somewhat of a reduction in guidance, but it's not a massive reduction, and so what gives you confidence that it can also be done without a huge amount of disruption?

Joseph M. Fortunato

Well, I think when you look at some of it, it's going back to basics. We got away from what we did well, and that is focusing on our brand, the proposition. The industry economics have changed little bit, so I believe that our relationships with our vendors have not favored the specialty retailers as much as they used to. So I've already had a couple of those conversations and clearly, that is something they fully understand. And I also have had a few direct meetings with people that have already stepped up to the plate and understand the economics of the world have changed and somewhat driven by them before -- because of some of their proliferation into the mass. So they are going to have to give us specialty offerings like we did before. Or we're going to continue to move towards what made this company successful in the past, and that's more and more acceleration of our own brands in the marketplace. We have to remain a specialty competitor -- specialty business, and we are -- we have leaked away from being just a specialty business in the past 6 to 9 months especially. So the comp rate level we have to answer your -- yes, to answer your question a little more directly, I think this is the first time in over 2 quarters that we've had a clean look at the business. If you look at last year, Member Pricing kind of started to mask some downturn in the business that started in the mid to late third quarter. So it was very rough to get a handle on what was going on outside of the fact we saw Member Pricing look like it was fairly successful along the test we had run earlier. When you got further into the year, a soft retail environment didn't help us any with trying to compare Member Pricing to non-member price. And then the impact of a November, December that was not obviously you know as well as anybody from a retail perspective, that impressive. I mean, we did turn in a 5% comp, but we were short of what we felt we were going to able to do with the Member Pricing. As we went into January, February, and I told this to numerous people that had called me, for the first time in my life I had a hard time saying, I really understand what's going on with the business. Because the weather was so bad, Member Pricing was convoluting. There was a lot of noise. There was a lot of media, negative media. And there were some industry swings that were starting to occur, impacted by that negative media and regulatory environment. So what we had a chance to do in the past 2 months was take a step back, thoroughly spend a lot of time analyzing the business. And I think you're right, it's not, and I try to stress this to everybody recently, that this is not a dramatic change where you're going to shake the apple cart up. I mean, the goal about this is to have a very smooth, methodical transition back to what we always did well and what will continue to drive this business. And that's our brand, special relationships with vendors, exclusive offerings. And to me, a huge component of it, which is kind of we let go further and further over time, was the amount of discounting and the look and feel of our store that just looks like we're a store, a Kmart on sale, has got to be reversed. The key to that is that we are not getting credit for the consumer, no matter how much we escalate discounting, which is not the right thing to do for our brand and clearly, not which will differentiate us in the market and never has, has not had an impact on the business. If anything, it's had a negative impact on the business. The numbers are clear. And that simplification of message, I just had another consumer report at my desk today, is what we need to get credit for what -- for our brand in what is a very substantial model in regards to being competitive in the marketplace. And our complexity of out-the-door pricing does not allow our consumer to understand our pricing. That's that simple. So again, it's not anything -- what gives me confidence, what gives me confidence is we're not changing the world here. We're getting back to some things that we leaked away from, that from a merchandising and store perspective, we let continue to foster because we were unclear as to the impact it was having. I thought it was leaking too far, and obviously that has proven out in the numbers. But I think this whole back-to-basics simplification process, and we've got the innovation which we're always comfortable with, have to be done and it will be methodically done over the next 6 months. That's why as we move through the fourth -- third quarter and fourth quarter, the biggest hurdles of the year, by the way, the third quarter. And while you're seeing adjustments on in the numbers, I am confident that as we get into Q1, which is a softer quarter to start with, that we will get things -- the wheels in motion to change back to what used to deliver all these -- used to deliver the numbers for us and differentiate us in the marketplace.

Operator

Your next question comes from the line of Gary Balter with Crédit Suisse.

Gary Balter - Crédit Suisse AG, Research Division

One question, and I'll make it 2 parts. How much of the problem, Joe, that we're seeing now reflects weakness in sports nutrition maybe driven originally by DMA -- the DMAA, but -- going into other categories? And part B is, could you be clear on the Gold Card pricing? Like we see online, you've gone back up to $15. But when we visit stores, we see specials at $9.99. Like what is the message that you're trying to deliver with the Gold Card pricing at this stage?

Joseph M. Fortunato

We spent -- we sent a special message in the stores this quarter because we knew we were having trouble hurdling the 200-plus basis points impact from Member Pricing. And clearly, we are losing around 200-plus basis points from the Member Pricing program with our inability to retain that consumer, which worked in test, looked obviously very positive in that second to third quarter last year, and then started tailing off. And due to the retail environments and the other things leading into January, February, it wasn't really apparent that it was tailing off at the pace it was. And we just failed to retain that consumer. I mean, it's that simple. Our fault. Whatever we didn't do we try to go back and start reinvigorating that program. We've got a couple of things coming up, make sure we're driving traffic back to the stores. Dunnhumby has focused on that consumer and what we can do to induce them back into the store. But it's -- some of the numbers are fairly simple. I mean, I think that we -- and again, to the previous remark about some of it is simplicity, it doesn't seem that complicated. 200 bps from the Member Pricing program are built all the way into the third quarter -- second quarter and into the third quarter. That will start subsiding. Now anything we can do to offset some of that by invigorating the program will help. 200 to 250 bps are going to go away with DMAA. And the combination of what was hurdling for DMAA, non-DMAA and DMAA products in the second quarter started to diminish, and we were not able to hurdle those numbers. Last October, they were hurdled in a combination basis. As we got into this year, that consumer pre-workout for a strong, strong category, still strong, lost that trendy product that was out there with DMAA. And some of those sales combined could not hurdle the highest points in non-DMAA and the highest points in DMAA outside the 2012 numbers in DMAA. So that is causing us some problems. And I was very clear last call that, that will get us up through October. It's still embedded in the numbers, but will tail off substantially come September and to October. And beyond that, it goes away. So you'll bear and you kind of -- and this is some the comfort level I give, again, to do earlier call. There's 450 bps built in between Member Pricing that we start hurdling that starts tailing off, and 250 bps built into DMAA. And that does not include some of what I believe will be pricing issues as we move further beyond the third quarter. And we started getting our pricing clarity built into the store. There's not one survey that doesn't come back into this company that we are discounting significantly. The investors have all commented on it, everybody on this phone, I've heard it substantial times. And the complexity in our stores fails to let the consumer really understand the out-the-door pricing that they're really getting for the products. So you remain with the stigma of still being relatively high priced, when we are clearly not and substantially maybe out-the-door lower than most competitors. And that's even with brand, which is a mistake. We've got to get brand back up to have a premium value for consumers, and that shouldn't be hard to do. But if you look at all that, you're probably talking 550 bps that are built into the numbers right now, which give me a confidence level as we get into the fourth quarter and beyond with some other changes that I've outlined for the business in marketing, merchandising, maybe even the aesthetics, a little bit we're looking to the aesthetics of the store environment. We should be able to build momentum significantly as we move into the first quarter and especially the second quarter of 2015.

Operator

Your next question comes from the line of Mark Wiltamuth with Jefferies.

Mark Wiltamuth - Jefferies LLC, Research Division

Joe, could you maybe comment on what to think the industry growth rate is now? And what you think normal will be once we come out of this pause period?

Joseph M. Fortunato

Yes. I started giving that some thought in preparation for the call today. And I really believe that NBJ's good organization, but I stated probably at the conferences and things in the past, sometimes they've overshot the mark. Sometimes, they've undershot the mark. Halfway through the year, they readjust. Oftentimes, I -- based on what's going on with the industry, we still know some of the negative media, fish oil is struggling everywhere. I mean, raw material suppliers of fish oil are calling us to help get into a kind of Got Milk campaign. I mean, that shows you the extent of the fish oil implications from what happened. And we see it, everybody else has seen it. If you look at the mass market data, same thing. Multivitamins, same problem. The men's category for us is significantly impacted. The women's category is really, really strong, which is encouraging to us. So I think that ongoing NBJ and the other forecasters of growth, are going to come down. I think for the next 12 months, they have to come down in the trends of the business. But there is -- I charted a chart for 15 years and showed, because I've been here a long time as you all know, I showed the business trends up and down. And they really cycle around 2 things: product innovation drives this business. And we know it, 2006 periods, the '10, '11, '12 all driven by significant innovation. And we are very focused on getting a reined in product development effort that is really going to be built around these great sub-brands we already have, built in more equity into those sub-brands and marketing those products. You can't have 50, 100 new products come in. You can only heavily market a certain number of them. And I think we're -- again, it's back to simplicity, back to basics, back to fundamentals for this business. And I think that is going to turn around -- back to the original answer, I think they're going to forecast down the industry for the upcoming months. And then I think you'll see a resiliency. That chart alone showed every time this business has rebounded, and it always has, and the industry, in general, has rebounded off of lows, whether it was coming off of the diet fads of the early 2000s, the 2007, 2008 trends, yet it always picks up. And I put the products right next to the peak cycles, and they're right there. That's what caused it. And a lot of it on our side has always been the ability to outperform because our specialty product development areas has been extremely strong in those kinds of uptick cycles, and that's back to where we're going.

Mark Wiltamuth - Jefferies LLC, Research Division

Okay. And then looking forward here for your guidance for the next couple of quarters, you said declines in the mid-single digit negative for comps. Is that in total for the remaining 6 months? Or do you expect a deeper decline in the third and then some recovery in the fourth as you lap the weather?

Joseph M. Fortunato

Yes. That's exactly right. You hit it on the nose. So it will be deeper. I look at it this way. If you look at the comps from last year, I think there were 8.2 product comps in the third quarter and then they tempered some in the fourth quarter down into the 5 range. Every quarter, I've looked at for the first quarter, second quarter, if you look at the 2-year run rates, they're flat. They're basically flat, slightly up. If you look at the same thing we're forecasting for Q3 and Q4, the same. Basically, we did a 6% comp. We're kind of forecasting positive -- or a negative 6% comp. But we still think there's some opportunity in the fourth quarter to start accelerating that based on some of the things we're doing. We can't affect pricing. Just so everybody's clear, I want to make sure everybody understands. We can't affect pricing in the -- until the fourth quarter because everything's pretty much baked. We're always 90 to 120 days ahead of the cycle. So that part will not be able to be affected. What we will do is reset the stores, redo our pricing messaging in the stores, get away from the complexity of coupon, BOGO, OMS and sale and everything else. I mean, I get in the store sometimes right now and I've been sending this message for about 4 months. And now I'm done sending it. I can't understand the pricing sometimes. And I have done survey after survey after survey that says we have tremendous time understanding the complexity of pricing and by the way, Member Pricing, Gold Card which goes into effect. So that's going to be altered by then, but the actual pricing itself will not be able to be altered until the fourth quarter and into the first quarter. But we are way -- when I look at the number trends, I can just be clear to you, we have become way too promotional. And as I outlined in the script, we have become a very predictable BOGO BOGO, BOGO BOGO, BOGO BOGO. Some 2 months of sports, 2 months of vitamins, 2 months -- if I was my competitors, I'd know exactly what we're going to do every month. If I was the customers, I'd know exactly what we're going to do every month. I laid out 12 catalogs in this room and I looked at every one. I said, no wonder everybody knows what you're doing. Customers, it lends to stockpiling, which I think will eventually cycle through a 2- or 3-month period and get consumers back in the stores more often. And I think the amount of it has actually led to in-store discounting with the customer, which I refuse to hurdle. And that's causing part of the problems in the third and fourth quarter, so that we don't continue to be hooked on this promo or bundled promo, whatever we want to call it, that become -- has become a constant pricing strategy for us. We need to make it an event. We need to make it exciting for the consumer. We need to market it that way. We need to make it periodic. We need to keep the consumers focused on the high profile of goods and making sure that we're getting the premium for our brand and we're getting the right high-profile goods in our stores, exclusives and that the vendors are supporting those exclusives to the extent they need to. And that has been a very positive message sent at our franchise convention this year to every top vendor. And several of them have been in, and we are pretty satisfied so far that they got the message.

Mark Wiltamuth - Jefferies LLC, Research Division

And just lastly, Joe, could you reaffirm the dunnhumby relationship now that Kroger is going to be acquiring Vitacost?

Joseph M. Fortunato

Yes, Stuart Harris called me and he, I think, was a little concerned that I was overly concerned. I had called initially to everybody internally here and said any reason this should concern us? We came to the consensus, not really. I mean, they have a firewall that's -- and that what Stuart said to me, we're not allowed to utilize data and that we can assure you that's not going to happen. So I mean, we're -- look, we're still in the early stage with them. They do a full million launch. And the interesting part, a million different types of customized catalogs will go out of here in September. And that's just an incredible amount of customization for consumers, and we expect to start benefiting from that. From the Kroger relationship, I've voiced that Stuart -- we have trust and integrity in dunnhumby. We started down the path with them. We're confident they're going to deliver the goods. And that I'm not overly concerned on his word that, that firewall exists and will continue to.

Operator

Your next question comes from the line of Meredith Adler with Barclays.

Meredith Adler - Barclays Capital, Research Division

I'd like to ask a really big picture question, something I've been thinking about. It looks like consumers are very interested in healthy eating, whether that's natural, organic, gluten-free. Do you think that, that has replaced their interest in taking supplements? There is such a kind of faddish element in all of this category. I'm just wondering what your view is on that.

Joseph M. Fortunato

Well, I think it has. I think that you'll see some share of wallet. We were taking share of wallet for a long time and market share. I think some share of wallet is going to the sprouts, the whole foods, those players in the natural space. And I think it's because every kind of point of data we are receiving are -- and we have really, really been very focused on these kinds of issues obviously, now that we can identify some of the things affecting us that the natural space is evolving. We just launched a PUREDGE line of natural proteins. We are working on several more natural lines to launch within our own category and our own GNC brand. And we are looking at bringing in significant number of, for this reset in late October, organic products, proteins, women's proteins. We are very focused on the women's category and all the way down to some efforts potentially involving getting some kind of cosmetic, cosmeceutical-type products sold in our stores. And we've got a test program that's going to test that concept out significantly in 5 to 10 stores as we roll into the fourth quarter. We are -- I will readily admit, I think we have done very well with what we've done well with. And that's the fitness category. We've always been on the top of that game. I think the consumer will always be there for us. And they're easier to manage because keep offering -- keep product offerings high, keep the innovation high, keep the superiority high and they're there. I think we have not done a great job of nurturing the female consumer. And that's all the way from aesthetics in the store, the look and feel, some of the service, some of the employees. it's a very bipolar industry especially for GNC. And we have to make sure we have the right employees in the stores to focus on the female consumers. And we will be doing a major reset that shows -- right now, I've walked through the store several times recently and said, we have a lot of women's products. We go from probiotics to hair, skin and nails to collagen products, everything, you can name it. Women's beauty pack, Vitapak, everything else but they're all over the store. This will be a concentration of women's products all in 8- or 9-section run, which will include some cosmeceuticals and a lot more natural products to entice that consumer. And then obviously, the marketing has to go with it. We need to get that consumer base. First of all, we have 45% of our consumer base is female. The problem is they don't spend near as significantly as the males. They are moving towards proteins faster than the males are accelerating at this point. And plant-based proteins are 20 -- I think the last data I saw was 23% of the overall protein market. So you'll see a significant change in our store and relationship to those things.

Meredith Adler - Barclays Capital, Research Division

And then I want to follow up on some of the comments. You made a number of comments that talked about you deviating -- or I mean because some of the initiatives you're talking about are what I think GNC always done -- does, and yet it seems like you need to reinvigorate it. And I'm trying to understand, did you lose focus? Did the Member Pricing make you lose focus? How could you have deviated from the specialty business? I'm not sure I understand that. Could you kind of talk about how you got off track?

Joseph M. Fortunato

I think it's a great question. I appreciate it. I think Member Pricing was kind of top of mind. We thought that would solve some of the price perception issues. It didn't do anything because we kept marketing or merchandising in our stores with this convoluted approach to, "Here's a member price. So okay, here's a sales price and here's a two-for-one price, and here's a BOGO price. And here's, at the register, you can get a special offer if you're buying these types of product." It's nonsense. We need to be direct to the consumer. We need to understand our out-the-door pricing. And we got into a cadence that led to too much discounting of third-party brands to think we needed to compete to that level, with not as much support from vendors. And that's being remedied quickly as we speak. And we started, I believe -- not believe, I know that from a merchandising perspective, decisions were starting to be made to get more aggressive about promoting our brand, which sometimes people believe that's the answer. I don't believe that's the answer. I believe the answer is to continue to elevate your brand and market superiority, which you heard from me. And I think it leaked down the path over 5 or 6 months where it continues to get worse and got us into this situation -- as a contributor, to this situation.

Meredith Adler - Barclays Capital, Research Division

And my final question is there are a lot of initiatives, and I know you said that it will all be done very smoothly. But from listening to you, it sounds like everybody's got a lot on their plate. Do you have any concern that it's too much?

Joseph M. Fortunato

I don't -- I'd be remiss to say that it's not a lot. I do think since we've been here before, and probably something I'd emphasize to everyone is because I tried during the call but the script doesn't always -- words are words. Simplification and reining in some of the processes. So we've always done a fabulous job. I'll give you an example: Product development. But I checked again and this happened in 2005 when I looked. I looked closely at it. We're back to doing 75, 80 new products, 300 reformulations, wasting resources to change one raw ingredient in a product. That's got to stop. Back in '05, I said I want 25 new products that are impactful to the business, that are differentiated in the business and we can market. Then I want reformulations reduced. If they don't mean much to the consumer, we can't market to the consumer and, we already have a very superior formulation. Why are we wasting our time and effort? So go back to simplification. What makes me more comfortable even though we've got a lot to do is it spread out into different areas of the organization. And that I'm reining in product development to be much more focused, pricing, marketing to be much more focused and strategic. And we've got a lot of external help coming in. We've hired a nationally renowned consulting firm that is going to come in and ensure that the course of action we're taking, as they get through their study, which will include pricing and merchandising and assortment. And we know -- and some of the early feedback already is that there most likely will be an agreement. But if they come back with anything, obviously, we're looking forward because we know they're one of the best around and they can provide value. We'll tweak things as we go, but I don't think there will be any major hauls to the strategy we're heading into. And remember, these strategies are going to be executed over 5, 6 months. So it's not something -- and I'm being very cautious about this. You can't turn the dial tomorrow and just change everything overnight. These things aren't created overnight and it's not going to go away overnight. But over the next 6 months, as we attack one thing at a time, starting with the reset, the what I'll call the messaging of pricing in the stores, making revisions to our Gold Card program, they are pretty fundamental things. And it's not like we haven't done them before. It's just it's going to require resources. And where we don't have the resources, we are hiring experts from outside, whether it's dunnhumby. We're bringing in some social and digital media experts. We also already have the outside, what I'll call one of the best national consulting firms in the country or in the world, coming in. So we're going to get either help from the outside where we need it. And I'm also accelerating hiring processes of some key personnel in this company that we're going to need to get through the transition. So I'm being cautious, but I'm not going to do anything to shake up the applecart because I know confidently that some of this goes away on its own, so I'm not -- I'm never one to panic. But I'm not, even in light of what the numbers we forecasted were against the heaviest part of the year, I don't want to just recreate the same problems that have -- things that have caused us problems, some of the bundled promotions, the pricing in that, through the rest of the year. I just decided to back out of it, and that's 200 bps. So I'm saying, "Okay, I know once I get through that, I'm going to have some upside." But the work effort is there, and this company is very used to making changes over time. And this is not the first time we've been faced with these challenges. And we're still excited about the company, excited about the brand and we have tremendous business. And we'll execute -- we execute extremely well and we'll get it done.

Operator

Your next question comes from the line of Karen Short with Deutsche Bank.

Karen F. Short - Deutsche Bank AG, Research Division

Just wondering on a couple of things in terms of the new structure. I guess the first question are there going to be any change in compensation with the associates at the store level?

Joseph M. Fortunato

We're looking at it. I spent all day Thursday and Friday with my new head of store operations. He's a 20-year guy that ran Manhattan, Chicago, some of the hardest markets in the world for a long time. Then he came into merchandising for 4 years, which is very helpful. And now he's going back over and take the stores over. Yes, we're looking at that. I had some long discussions with him on how to enhance that. Again, it's not about the dollars. It's about positioning the dollars where they're going to be most effective for us. We have layers and layers of people in the organization. Maybe we don't need layers and layers and layers. Maybe we need to take and allocate some of those dollars to the store employee as we get in more to this kind of cosmeceutical test and everything, we're going to need people that are relevant to that space. We have certainly long discussions about that. So the answer to your question is, will it result in incremental dollars? I don't believe so. Will it result in repositioning of dollars? The answer is most likely yes. Just like the discounting. Just like the discounting. There's a lot of avenues we're dropping discounting into and we can -- we need to focus it back where we do. And there is probably excess things taking place in areas that I've looked specifically at.

Karen F. Short - Deutsche Bank AG, Research Division

Okay. And then -- I mean, obviously, you guys were a prime beneficiary of kind of the evolution of the pre-workout category. And that was a significant contributor to your comps for, I would say, probably a couple of years. But do you have any visibility on what the next wave of innovation will be maybe a year from now? Or do you just kind of -- obviously, the data tells you that there hasn't been much. But do you -- can you say with confidence that you think there is something kind of imminent that will help, I guess, reinvigorate the industry going forward?

Joseph M. Fortunato

Yes. I think that's a great question, Karen. I think that one of the issues, and I said this to a number of people the other day in the President -- CEO forum here. We always had kind of the categories come along, right? Weight loss, proteins, creatin, amino acids, nitric oxides. Yet that is one thing that's been lacking in industry, and I think it's hurting the industry a little bit. That's why I'm back to create your innovation internally, market that. Consumers will react to products that are good and differentiated in the marketplace. But I had one of the prime -- the big, in our stores, pre-workout vendors in here yesterday and with our new head of merchandising. And they are doing things that continue to accelerate innovation with certain raw ingredients and things like that, that should be appealing to the consumers, some more science behind them. But it's not the same as coming out with a whole category. So part of the issue I talked to him about and even internally is how do you cut through the clutter? Because it's been more about knockoff, knockoff, knockoff from multitude of vendors that, in my mind, some of them are devaluing their brands. But they've got to run their own businesses. I don't run their business. I just want them to deliver with they need to deliver for us. But he had some great innovation, and I think that will be appealing to the consumer. But a new category I don't see coming along in the near term. I don't -- although you know I'm not the scientist, so -- But every indication shows me there's not a new stimulant category that's going to stimulate significant growth like nitric oxide and things like that.

Karen F. Short - Deutsche Bank AG, Research Division

Okay, that's helpful. And just any update or comments on the CFO search?

Joseph M. Fortunato

No. It's underway. We have a great list of candidates that we want to try to recruit from people we know and people -- obviously, we have a lot of contacts over time in the industry and everywhere else. So we have a wonderful list of names that we have. A couple of them could have fit the bill immediately, but I actually personally made a couple of calls, believe it or not. And unfortunately, 1 of my 2 main targets was unable to do it because of situations right now. But we've turned the whole thing over to a search agency, and we're going to let them take it from there. But we have a tremendous list of candidates that I think will be able to fill that role very effective.

Operator

Your next question comes from the line of Chris Horvers with JPMorgan.

Christopher Horvers - JP Morgan Chase & Co, Research Division

I just wanted to follow up on the pricing comment. So Joe, is the benefit from dialing back and clarifying the promotions to the consumer, is it sort of an average ticket benefit, and then a longer-term traffic benefit as the consumer can perceive the value more clearly? Basically, in other words, as you get to 4Q and you get through the planned promotion period, is it just sort of a natural lift to comps because you're not going to be promoting as much in the store because it's not driving unit demand in the first place?

Joseph M. Fortunato

Yes. Until you get through -- so there are a couple of components of it, right? One is some of the in-store promotions. Some is one of the constant bundled promotions that I think are just driving too much discounting out the door and not getting credit for it. The bundled promotions, I've already said and baked into these numbers is we’re not going to hurdle for the second half of the year. And they were substantial. The in-store promotions again, you guys can do the math, probably 200 bps in the second half of the year. So I'm not hurdling. I just said, there will be a couple of promotional events, Labor Day weekend, things like that, and will be priced effectively in the store. But I'm not going to get into the cycle of try to sell more to the same product -- I'm sorry, same customer. And so initially, my take is you're going to see a slight decrease in average ticket. And if you roll into less BOGO periods, with that, you'll see the same thing, but you'll get a repeat traffic that we keep people out of the stores. We let them stockpile. 70% of all the BOGO transactions in the stores are the same unit. What does that tell you? They just stay out of the store longer. So we almost are implicating or negatively impacting our own transactions by doing that. And truthfully, with the amount of discounting we've been doing, I think we're negatively impacting average ticket and total comp because it's simple to figure out. If you're doing 30% discounting, you've got to sell 50%, 45% more units. We're not. So that's impacting your overall comp number. So I think what you'll see initially is less -- a little less average ticket. But you'll see a transaction trend upward, and you'll see better flow-through as you get into the fourth and first quarter. If you look at -- I'll give you a quick example. If you look at what happened with our web, we pulled back promotions on our web in the past quarter, and we slowly pulled it back. We didn't do it dramatically. So the growth numbers went down. I mean, that's what's going to happen. The growth numbers went down, and I think they'll continue to ramp as we get more transactions there now again, too. But you may have done where you are doing double-digit growth rates or extensive double-digit growth rates, you're going to do mid-single and get back to more normalized growth rates. But the EBITDA went up 38% over last year. So if you just start thinking about it, our richer bottom line model, initially so you can get transactions in the stores and all these pieces start fitting together, lower average tickets to hurdle these kind of BOGOs where we've got -- that's been kind of inflated and with no value to getting more consumers in the stores.

Christopher Horvers - JP Morgan Chase & Co, Research Division

So basically, it's driving unit demand. But it's really just displacing that in time so you're not getting that opportunity to sell more products when that customer is in the store on a more frequent basis?

Joseph M. Fortunato

Correct. What people used to do, now you're in the store and you think about it as a consumer, okay, BOGO on sports, every sports item in the store. Well, you only buy one. Sometimes, you'll mix with something else you may take. As we said, 70 -- over 70% of them were buying 2 proteins, 5-pound tubs, 2 5-pound tubs. You might have come in -- we used to have -- sports consumers came in every month almost consistently. We saw it in Gold Card. Sports, the first day of the month, was, by far, the highest day in the month, every month. Now it's certainly leveled off, which was part of the intention to go to Member Pricing. But also that consumer now stocked off for 2 months. So he's not coming back in your store. You don't have an opportunity to sell him vitamins. You don't have an opportunity to sell him amino acids or other things that go with his workout regimen. Vitamins, BOGO, Vitapak in the sports category are on fire. So there we go again. We missed that opportunity because they're out of the store too long. So we're going to get impacted by that. I think we've even had this conversation before. There's a 3-month window where you have to work your way through that. I've decided, right or wrong, everybody can complain about it, but I've decided as a business, if we're really going to make 2015 an effective growth year for this company, top line, to some extent, bottom line, significantly, we have got to get off of these promotions so that we have upside to the business and get changes in how we're managing our business effectively to entice and enhance consumers into the stores.

Christopher Horvers - JP Morgan Chase & Co, Research Division

So -- and also following up on the Gold Card, the cost of the Gold Card itself. The concern out there is this slippery slope of 2 years for $15 versus historically 1 year, $15 or whatever deals that you're running, that you're never going to be able to get the consumer back to normalized pricing. I know you did some extra deals as you lapped the Gold Card launch last year. Are you now, in July, back to normal levels of how you price the Gold Card, say, back in 2012?

Joseph M. Fortunato

Yes, we -- look, what happened was we ran some special promotions in May and June, I believe that those are the months. And the reason I did it was since the Member Price was such a big hurdle for us -- and that's not in the product comp by the way. It's out of the product comp. But it did generate tremendous -- some significant revenue stream for us. And the flow-through the Gold Card is high. So what I said was let's get some more cards back in the market. I don't want to lose the total Gold Card consumer base. And since we're not hurdling with the program we had, and dunnhumby is just really kicking it into full gear in September to help rejuvenate some of those consumers, let's get a special out there. We've run these specials before. So I just want to make sure everybody's aware, this is not the first time we've done that $9.99. We did -- this time, we did a $15.99 -- $15 2-year. And normally, I think our 2 years a $20 card. And that's doing pretty well for us, so we're not discouraged with that program. Actually, we like it. Because first of all, we can hold on to our Gold Card consumers more effectively. And remember, a good portion of them are sold at over the price point. So if you can start thinking about, "Well, if that's the reason they're really buying the card." What we decided to do is relaunch Gold Card with a couple value-added components to it, some stickiness. So in other words, we're spending a lot of money on coupons. And if you look at the pricing, there's cost to BOGO. There's cost to Member Pricing. There's cost to couponing. There's cost to what I'll call one more sale in the store to your existing consumer. There's cost that run all the way down the line, and it adds up to significant, significant amounts of money, which I hope we can turn that, along with vendor relations, to help improve the bottom line, and I'm pretty confident about it. The question is where do you want to target that spend? For me, the coupons ought to be done mainly by dunnhumby. But we are looking at doing things, so again, not compounding pricing, the complexity of the pricing in the stores. We are looking at reinvigorating the Gold Card. And I don't have all it worked out yet. But I will tell you, it will be along the lines of adding value to the Gold Card proposition, which should help us keep people, some stickiness to the program, still sell the card and the 2-year card or maybe even further, will exist. But you'll have coupons that will keep you coming back into the stores. So you sell a card and I may give you $50 worth of coupons. I'm giving them anyway in some form. It's just to have more focus and provide value to the consumer. And that will be prorated through the years, so it keeps you coming back for things you're looking for. In addition to that, there may be something in regards to a health magazine subscription that will be part of buying a Gold Card. We're looking at all that now. So I don't want to get too far into the details, but I can tell you, there will be more to the Gold Card than just selling the Gold Card.

Operator

Your next question comes from the line of Stephen Tanal now with Goldman Sachs.

Stephen V. Tanal - Goldman Sachs Group Inc., Research Division

Just round up the discussion on pricing. Just to be totally clear, Joe, it sounds like your goal is really to simplify. It's not that you see yourself as highly -- like too -- you need to cut pricing or anything. So like we should think about this as sort of net out-the-door pricing that ends up being flattish. Is that right?

Joseph M. Fortunato

That's exactly -- well, net out-the-door pricing will probably be favorable. Because what I look at it is, all these things I just mentioned, and a lot of spend going to no value to the consumer, no perceived value to the consumer. So that spend has become so excessive and so spread out everywhere. Narrowing it in, focusing it, it may result in some changes to pricing. But for what the consumer is getting out the door, they're probably going to perceive a better out-the-door pricing than they do now with more extensive discounting or promotion. So it's really how they are seeing what we're doing, the complexity of multiple discounts to one product, they can't even add it up. I mean, they get on the calculator and try to figure it out. This way, it will be very clear. Here's the price. Here's the member price. You're a member, you get this. And oh, by the way, dunnhumby's got coupons out. They'll be redeemable. And there's always going to be some special promotional event. And there may be -- we'll still have BOGO events. Not as frequently as we've had because they become too predictable. The consumer waits for them and we may rotate on and off what months they are. But we have had basically a BOGO event in the store 10 months out of 12 months, which is not a good form for continued transactions, repeat purchases, repeat business from customers. And so I think in the end, my answer to you is more along the lines, you probably will see some benefit. To perceive whether it's increased pricing, less promotional pricing, whatever it is, I mean, we've gone too far with our brand, and our brand deserves a premium. And we're looking into that with part of the consulting group. We did it 7, 8 years ago, but we haven't done it since. If you're going to build more complex products, you better get the price for them or you shouldn't be building them and superior products. And then that marketing message will help drive that. But that should lead to better out-the-door pricing on our brand and either more support or better out-the-door pricing, which should result in better out-the-door pricing or net-net pricing -- net-net profit from our vendors.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Understood. That makes sense. And just on the quarter, the gross margin actually looked very strong relative to where we thought it would shake out. I mean, it sounds like there's a few things going on maybe a little bit in the franchise segment. But were you guys generally less promotional year-on-year? I think that's what I'm gathering here. You sort of ceded some of that. Is that right?

Joseph M. Fortunato

Yes. You have it exactly right again. We -- you can already see, I think we're over 100 points better in margin. And this is what I'm saying -- to one of the other callers. Sorry, I don't remember who exactly it was. But what you'll see is revenue is tempering a little bit until we can start getting more transactions into the stores, which is forecast here in the guidance and margin improvement, which we already started cutting back some things. And that was that example I gave you on web, 38% increase in EBITDA, but lower revenue growth. We're already seeing some of that with our business now because we have started tempering some of the pricing to consumers. But we still aren't messaging it as correctly as I'd like. So you can't write the real value out of it outside the margin flow-through until you message it right. Then the consumer should be there on both ends.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Understood. And then just lastly for me. It sounds like you sort of alluded to a new product cycle launch coming in October, maybe something on the natural organic side. If you can expand on that? And then just within that, it sounds like DMAA is going away. dunnhumby's up and running in September. There's actually a few good things here for the third quarter, but it doesn't seem to be reflected in guidance. If you can just tie up the discussion on maybe a product launch with some of those items as you're thinking about third quarter, that will be hugely helpful.

Joseph M. Fortunato

Yes. PUREDGE has launched already. It's kind of a soft launch. We really like what we're seeing so far. And that is the organic line of proteins and amino acids and various things like that. That line will be extended significantly as we move into the first quarter. So again, these product launches, they started in October, November, December, but they're really soft launches. You don't get a lot of benefit out until you start getting it to the heavy cycle early in the year, which unfortunately, we missed this year. But -- and some of the other things we're doing in the reset will not only be our products, but products that are more, functional foods, very focused from the female consumer. And some of them will be third-party brands, but -- and we're launching an extension again of PUREDGE. And we're launching a whole new -- I don't want to give away too much, but we're launching a whole new generation of Total Lean, which has been a phenomenal product for us. But that will be going into the first quarter again.

Operator

We have time for one final question since we're reaching the end of our scheduled time, and that question comes from the line of Kate Wendt with Wells Fargo Securities.

Kate Wendt - Wells Fargo Securities, LLC, Research Division

I know this is getting lengthy but just wondering whether the GNC brand is performing better than third parties currently? It sounds like it is. And then maybe if you could get into what the lead times are on getting more exclusive third-party product?

Joseph M. Fortunato

Both probably the cycle I just gave. The brand is performing better. We have pretty much -- I don't want this to be misunderstood. But the messaging we've sent to vendors is that we want differentiation like we used to get. And I think we don't get nearly that kind of -- I know we don't get nearly that kind of differentiation today. And what I'm hearing about so far is very positive. But again, they're developing product lines specifically for specialty, which is what the request has been, along with a couple of other things. And that takes -- I'll just give you I know, the rule of thumb will be it's going to be 4, 5, 6 months before they get introduced.

Operator

I'll now turn the call back over to Mr. Fortunato for any closing comments.

Joseph M. Fortunato

I just want to thank everybody very much. I sometimes maybe got into a little more explanation of things, but I think that it was very important in my mind to make sure that we're giving transparency to everybody. I know that's been a struggle the last couple of quarters because we didn't have as much transparency as we would have loved to have due to the things I mentioned. And I'm sure we'll be having some one-on-one calls. And I'll be up at the Goldman Sachs conference in about a month, I believe, something like that, and I look forward to talking to you further. But I elaborated probably 2 things. I know a lot of people are in the call, and there may be a lot of questions. But usually, they're around some the same guidelines. So hopefully everybody got by expanding on some of those explanations that covered some of people's ability not to get on the line and ask a questions. And I appreciate all your patience and time and look forward to seeing you or talking to you again.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: GNC Holdings' (GNC) CEO Joseph Fortunato on Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts