GNC Holdings (GNC) Michael G. Archbold on Q4 2015 Results - Earnings Call Transcript

| About: GNC Holdings, (GNC)

GNC Holdings, Inc. (NYSE:GNC)

Q4 2015 Earnings Call

February 11, 2016 8:30 am ET

Executives

John F. Mills - Partner, ICR (Integrated Corporate Relations)

Michael G. Archbold - Chief Executive Officer & Director

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Analysts

Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker)

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Meredith Adler - Barclays Capital, Inc.

Stephen Vartan Tanal - Goldman Sachs & Co.

Karen F. Short - Deutsche Bank Securities, Inc.

Curtis S. Nagle - Bank of America Merrill Lynch

Tami Zakaria - JPMorgan Securities LLC

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the GNC Holdings Fourth Quarter 2015 Earnings Call. During today's presentation, all participants will be on a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to John Mills of ICR. Please go ahead, sir.

John F. Mills - Partner, ICR (Integrated Corporate Relations)

Thank you. Good morning and welcome to the GNC fourth quarter 2015 earnings call. This morning we released our fourth quarter financial results, which are available on our website. Also on our website and webcast, is a presentation accompanying this morning's call.

With me today is Mike Archbold, CEO; and Tricia Tolivar, Executive Vice President and CFO. Today's call will be limited to 60 minutes. Following our prepared remarks, we'll be available to take your questions. After I read the disclaimer, Mike will provide an update on our key initiatives. Tricia will then revenue financials, after which, Mike will wrap up with some closing remarks and then we will take your questions.

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 SEC and our earnings release this morning.

I will now turn the call over to Mike.

Michael G. Archbold - Chief Executive Officer & Director

Thanks, John, and again, welcome, all, to the call. I'll go back to a year ago. We outlined our plans for improving our brand positioning. We certainly had an opportunity to expand our share of wallet with our sports and performance customers and to broaden our reach with our wellness customers. And we're beginning to see progress. The athlete and bodybuilder segments grew their total spend with GNC in 2015, and we saw a year-over-year increase in our wellness customers during the last six months. On the sports side, the growth was driven by a combination of increased trips and average spend per item. Average annual spend for the bodybuilder segment grew by about $28, a little more than. And the athlete segment generated an average annual spending growth of over $11 for the year.

In the wellness category, the largest growth came from our Natural Living as well as our Grab-n-Go segments. These trends translated into our third consecutive quarter of same-store sales improvement with a fourth quarter positive domestic retail comp of positive 0.8% and higher domestic retail product margin rate. In addition, domestic retail comp improved throughout 2015. The combination of positive same-store sales and the elimination of unprofitable promotions enabled us to deliver positive domestic retail product margin dollars throughout 2015.

Additionally, in 2015, we generated free cash flow of $309 million, representing a 32% increase over 2014. On a per share basis, free cash flow increased 42% over 2014. This supports our focus on cash flow for the creation of shareholder value, investing for growth and then returning value to our shareholders. In 2015, GNC returned more than $0.5 billion to its shareholders through dividends and share repurchases.

We fully recognize that we still have work to do, but our recent results reinforce our commitment to the brand pillars which we've shared with you before and they are what you see on the screen here. We have meaningful long-term connections with our customers built on deep expertise in health, wellness, and performance.

We deliver a customized plan to meet our customers' unique health, wellness, and performance goals through those engaged knowledgeable associate interactions. We do it all through best-in-class shopping experience, which is based on customer-driven decision-making, fact-based, and rigorous quality standards for all things that we do, of course, including our products.

And that's how we fulfill our brand promise which is connecting our customers to their best. This includes driving innovation in our product offering as well as training for our associates to ensure that the solutions we offer are the best for each individual customer.

The kind of change we're undertaking takes time. To help you better understand where we are, we're changing our approach to how we talk about the quarter and the year. We're going to first talk about what has worked, then talk very candidly about areas where we're not yet meeting our expectations. Then, we want to discuss what we've done and continue to do to put our house in order and close by clearly communicating what we will focus on during 2016.

First, let's start to what's worked. Number one on the list, expanded assortment. In the second half of 2015, we added more than 500 additional SKUs to approximately 1,000 of our lower volume stores. This resulted in approximately a 4% improvement in comp trends for these stores, and a return on investment that well exceeded our cost of capital. Expanding the assortment gives our associates more opportunities to find solutions and to say yes to our customers, thereby creating a customized plan for each customer that's resonating with them. What we're focused on now is continuing to drive this initiative deeper into the additional SKUs as well as to additional stores, and then moving from there to engaging our franchisees to also do the same.

Number two on the list, promotion. We tested an all-store BOGO, which is an event in-store with no exclusions. So it's literally the entire store at a BOGO 50%. We tested this in December in our company-owned stores. The test results were successful. And as a result, we then executed an all-store BOGO for four days in December in all of the company-owned stores. Some of you may have seen it if you were out in the malls the week before Christmas.

We saw an improvement in top line sales of 20% during that promotion period. And the performance was consistent across all company-owned store real estate type, so mall, strip, downtown. Interesting, only 40% of the sales were for the same product, meaning customers were using the BOGO to try new things. Or said differently, there was less pantry loading.

We've also seen our customers come back in January at a similar rate to the prior year when the promo did not occur. And we incurred a similar average ticket. So the bottom line is, that's a promotion that worked. In fact, it worked so well that we're going to strategically place these all-store BOGO events in 2016.

Creating profitable promotions supports our commitment to a best-in-class customer experience that is based on customer-focused decision-making. As a next step, we plan to extend this opportunity to our franchise partners, who largely did not participate in the December event because we turned it around very quickly. However, those that did participate experienced very similar results.

Next, product innovation, near and dear to all of our hearts. As we continue to focus on Fewer, Bigger, Bolder and an integrated launch process for our new products, we've experienced success in areas such as natural and plant-based proteins, new product launches such as Total Lean Advanced, and even probiotics.

One way we can demonstrate our deep expertise in health, wellness and performance solutions is to introduce new products and we're pleased with our efforts in this area in 2015. We grew our sales of natural and plant-based proteins by 72% in 2015 and we did it with a combination of proprietary products, as well as national brands, important national brands.

While these products account for less than 2% of company-owned domestic store sales, we continue to see rising demand from consumers for these products and expect them to be important contributors going forward. We also drove innovation in our probiotics offering. We did this with condition-specific proprietary products and name-brand third-party products, and that resulted in a 36% increase in the category in 2015, far outpacing industry growth in this category.

The combination of all new proprietary products are just those that are proprietary, so our new proprietary products contributed 1% to total domestic retail same-store sales in 2015, net of the effect of any cannibalization.

Next, marketing, more specifically, targeted marketing. Targeted marketing includes things like direct mail, e-mail, retargeted paid search. As we've said on prior calls, we continue to partner with a third-party media measurement company to asses our marketing spend as part of making sure we remain fact-based. The results reinforce that when we speak directly to our customers about things that are relevant to where they are on their health and wellness journey, we're very successful.

During 2015, we sent over 16 million direct mail pieces leveraging the dunnhumby data and our relationship with dunnhumby that drove approximately 1% of incremental sales. These are some of the first steps in creating meaningful long-term connections with our customers.

Next, refranchising. We successfully converted 21 stores during the quarter. We restructured the team to position ourselves for success, which I'll explain more about in a minute, and completed our learning process in a handful of markets.

These past few months have allowed us to learn, understand and position ourselves to roll out nationally. We will expand with our existing base of franchise owners as well as franchise operators that will be new to GNC. The average number of stores our franchisees currently own is two. We expect that number to grow significantly as we are open to and having conversations with different franchisees, including those that are interested in hundreds of stores. Based on the success of our program to-date, we plan to accelerate our efforts in 2016 and beyond, and I'll talk about that more in a moment.

The last thing I'll discuss on how we're improving upon our ability to provide customers what they need. We're no longer being agenda sales-based. We're solution sales-based. The best measures of our success in this area are customer satisfaction and complaints.

Customer satisfaction is high. Total complaints are down 17% for the year. Our service-related complaints are down more than 24% for Q4 alone. Issues with forceful and aggressive selling are down a staggering 45% for the year. But that's not enough.

In 2016, our marketing campaign is designed to attract new people to our store, to be seen as trusted partners in healthy living, and leverage the knowledge and expertise of our associates who also live the lifestyle. That's why we're telling our people – we're telling people in our marketing campaign, Just Ask. We Make It Simple.

If you haven't seen our new ads, so I invite you to visit the website. There's a video link on the home page. But it isn't about us, and that's why this campaign is important. So, we want them to ask. We make it simple, we can find solutions for them. Because it's about the customer. It's about determining what is best for them and providing them a customized plan to meet their unique needs. We're making progress, but there's much more to be done.

Now, I want to turn to talking about areas where we're not yet meeting our expectations. What's interesting is that the things that aren't working have a common theme. When we aren't focused on giving the customers what they need, we're not successful. Case in point, vitamins.

Our performance in the VMHS, or vitamin, mineral, herbal supplement category, had a negative 1% impact on same-store sales in 2015. Clearly, this is not in line with our expectations. But we have a clear strategy to address these results which involves: recognizing that we need to be more focused on delivering vitamin solutions and evaluating our quality price value proposition in vitamins.

We're seeing declines in a number of one-and-done Vitapak customers of more than 33%, another example that we're listening to our customers and finding solutions for their needs. While we still have work to do, as a result of our efforts, we're now seeing growth in a number of units purchased and trips being made by current Vitapak users.

In order to capitalize on our opportunity in the category, we will focus on the high quality and good value of our proprietary product that you can't get anywhere else. Couple that with leading-edge innovation and proprietary and important third-party products to drive growth. This work is underway, and for the time being we're being realistic and planning that vitamins will have a negative impact on the total company comp in 2016.

Next, marketing. Despite our success in targeted marketing, our broader brand marketing efforts are not where we want them to be. We have significant brand awareness, more than 82%, which you can see on the chart. What we're focused on is turning that awareness into consideration, purchase and new customer relationships. We will continue to leverage new products and programs to make our messages more effective to drive this conversion and connect customers to their best.

Our intent is to increase consideration of GNC among health and wellness customers. We increased our assortment to provide solutions, we focused on customer solutions and we trained our associates on the new approach. Now, it's time to invite people back.

Gold Card, next. Over the course of time, this has become a discount card. Our focus for 2016 is to test loyalty components and roll out an enhanced program in 2017. Remember that our customers come to our store, on average, once every four months. As such, it's critical we read results over an appropriate time period as we create enhancements.

Our intention is to return the Gold Card to its roots as a loyalty card that provides value and further strengthens our relationship with our customers, ultimately creating meaningful long-term connections. As we learn, we will share more details in subsequent calls.

Next, pricing. While we've taken steps to simplify and improve our value perception with our customers, our pricing remains complicated and is perceived higher than some competitors. Going forward, with the help of some outside resources, we will continue to push for more simplified pricing and enhance perceived value by targeting KVIs (16:05) and establishing role and intent by category. We expect to continue testing these approaches in Q2, and implement the necessary changes to our pricing structure with a focus on driving incremental sales and product margin dollars in late 2016.

In order to implement long-term meaningful change at GNC, we've made some very specific changes over the last 12 months to get our house in order, so to speak. Let me spend a couple of minutes telling you more about how we've advanced these initiatives.

First, leadership. Nearly one-half of the vice president leadership team is new to GNC or new in position over the last 14 months. This week, our new Executive Vice President, Merchandising, Tim Mantle (16:50) joined GNC, and with this addition, the team is now largely complete. The impact of these talented leaders, both new and existing, is very evident in the day-to-day operations of GNC, both at the corporate and the store level.

Second, the industry coalition. We've mentioned this before. We are highly dependent upon consumer perception of the safety and quality of our products, and the ingredients they contain, as well as that of similar products distributed by other high-quality companies. Questions regarding the quality, purity, potency, safety or efficacy of dietary supplements can have a material effect on our reputation, the demand for our products, our ability to generate revenues, and the value of our stock.

Over the past 12 months, we and others in the industry, particularly specialty retail, have experienced volatility in sales and stock performance as a result of such publicity, including unfounded and meritless allegations. While we know the lengths that we go to to ensure our customers receive the best product, these attacks can undermine consumer confidence. It's critical that we highlight our rigorous quality standards and change the perception of the quality players in the industry.

As a result, GNC is leading a coalition of 40-plus companies that include retailers, raw material suppliers, the manufacturers, multilevel marketing companies, practitioners, and even pharmaceutical companies. This large and growing base has a number of goals. Our goals are to improve the narrative about the industry, increase consumer confidence, and reduce the amount of distraction that occurs to our legislators as a result of such unfounded and meritless allegations.

We're excited about the potential of this coalition and proud to be leading it, and are beginning to see an impact. For example, in January, the American Herbal Products Association, AHPA, and United Natural Products Alliance, UNPA, re-enforced their commitment to the industry's product safety, compliance, and best practices through its announcement in individual press releases. They also launched a campaign to enhance constituents understanding of the industry, helping to ensure consumers have informed access to safe beneficial products. These and other trade associations are working with the coalition to help achieve the goals.

The goals of the coalition include issue botanical raw materials, GMPs, the cGMPs to improve traceability of botanical materials all the way from seed to shelf. We're going to create and publish facilities certification standards requiring independent third-party inspection on an annual basis to certify that GMP compliance.

We're going to roll out a product database, including manufacturer, ingredients, and labels. This database will be available to the FDA as a critical resource and will also ultimately be available to consumers. We're going to establish quality seals such the consumers can identify products that comply with these higher standards. And we're going to initiate a media relation strategy to change the narrative.

While we expect to accomplish all of this in 2016, we recognize that change in perceptions will take some time. As such, we've been somewhat conservative in our guidance, which Tricia will review later. In addition to these efforts, we've also undertaken two important initiatives to refine and enhance our operations.

First, we've established a Franchise Advisory Council. The council is comprised of eight franchise owners, four appointed and four elected. This council has been created to drive franchise growth and operational consistency, address top issues impacting franchisees, and support the GNC vision and values. The first meeting is next week, and we believe this is an important first step to further our ability to make that concept a reality.

Second, we've completed a significant reorganization of our ops team. The team is now structured in three distinct functional areas, customer experience and sales, real estate and construction, and an integrated field operations team that includes both company-owned and franchise stores. To create the kind of consistency we want and expect to see an execution of customer experience, we can no longer treat our company-owned and franchise stores organization separately. This new organization is up and running and already having a positive impact on how we're doing business.

Among the most critical aspects of the reorg is to help us execute our refranchise strategy. We refranchised 33 stores in 2015, and as I mentioned earlier, we have plans to significantly accelerate our efforts in 2016 and beyond. We're now well-positioned to execute this plan across the U.S. and ultimately convert up to 1,000 stores to have a domestic portfolio balanced between owned and franchised operations within three years to four years.

As part of this effort, we expect to refranchise approximately 200 stores in 2016. We are in conversation with current franchisees to expand their opportunities with the brand. And as we shared on the last call, we're also talking with potential new partners. In fact, eight new franchisees opened stores during the fourth quarter.

Further, we've dedicated internal resources to this important effort, engaged a National Franchise broker, and we're attending or presenting at franchise conventions throughout 2016 and beyond. We look forward to continuing to update you as this work progresses.

Before I turn things back to Tricia, I want to share some thoughts about moving forward. Our 2016 efforts can be broken down to four broad efforts that will enable us to drive improved and more consistent performance. And they are what you see on the screen here; refranchising, pricing, customer loyalty and the Gold Card, and the industry coalition. We enter 2016 with the most recognized brand in our industry, strong, predictable cash flows, a leading management team and a clear roadmap to continue turning this company around. We're excited about our positions and the growth opportunity ahead of us.

I'll now turn the call over to Tricia to provide some details on our financial performance.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Thanks, Mike, and good morning, everyone. First, to our consolidated results. Our fourth quarter consolidated revenue increased 1.8% to $618.2 million. Revenue increased in the company's retail and manufacturing/wholesale segments by 1.8% and 7.2%, respectively. Revenue decreased in the company's franchise segment by 1%.

Fourth quarter gross profit increased by 2% and was 36.9% of revenue as compared with 36.8% in Q4 2014. Gross profit calculated after deducting product, warehousing, distribution and occupancy costs, and excludes $3.5 million of expense in the prior year associated with lower manufacturing volumes and the company's previously announced plans to begin to align inventory levels with business trends. The Q4 2015 increase in gross profit dollars and gross profit rate was driven by our continued focus on profitable growth, which once again resulted in domestic retail product margin rate improvement.

Fourth quarter consolidated SG&A expenses, excluding the impact of a legal settlement we will cover in more detail later, were 22.6% of revenue as compared with 21.7% in the fourth quarter of 2014. Advertising expense increased to 2.6% of revenue as compared with 1.8% in the fourth quarter of 2014 as we restored marketing spend to more normalized level.

In the fourth quarter, we recorded a $2.7 million pre-tax loss on the sale of substantially all of the assets associated with our investment in Discount Supplements. Combined with the related tax impact, the resulting net impact is $1.8 million or a reduction in earnings of $0.02 per diluted share.

For the quarter, the Discount Supplements' business generated a $2.6 million operating loss, and for the full year, Discount Supplements generated $24 million in revenue, resulting in a $6 million loss.

In the fourth quarter, we recorded a $6.3 million pre-tax adjustment related to the settlement of two wage and break claims in California, or a reduction of $0.07 per share. For the full year 2015, we recorded $9.5 million pre-tax related to the settlement or a reduction of $0.08 per share. These claims related to activities going back to 2007, and we are currently in compliance with California wage and break laws. But we settled the matter, as we felt it was in the best interest of GNC and our shareholders.

Adjusted earnings per share for the fourth quarter of 2015 was $0.63, a 3.3% increase as compared with $0.61 adjusted EPS from the prior year.

Now, for more information by segment. First, to our retail segment. Q4 retail segment revenue increased by 1.8% to $451.9 million, due primarily to an increase in same-store sales of a positive 0.8%, and the addition of 97 net new company-owned stores since the end of the fourth quarter of 2014.

Domestic retail store comps have improved in all location types, including malls and strips over the past two quarters. In fact, our strip comps were a positive 4% in the fourth quarter. While malls were negative in the quarter, they have improved throughout 2015, and continue to create much shareholder value.

Our strategy to optimize shareholder value from mall locations, includes short-term renewals, renegotiations, and relocations, each of which we have successful done. This provides us with greater flexibility while continuing to ensure we maintain these stores, 95% of which continue to exceed our cost of capital.

GNC.com revenue increased 6.4%, but operating income dollar growth declined largely due to increased competition for some of our top-selling products in foreign markets and increased marketing spend. Q4 total retail segment operating income, excluding the loss on sale in 2015 and reversal of contingent purchase price liability in 2014, decreased by 3.9% and was 14.7% of segment revenue in Q4 2015 as compared with 15.5% in Q4 of 2014. Improved domestic retail product margin rate was more than offset by higher advertising spend. In the quarter, we opened 38 net new company-owned stores.

Next, to our franchise segment. Revenue in franchising is generated primarily from wholesale sales to our franchisees and the collection of royalties on franchise retail sales and fees. Q4 franchise segment revenue decreased 1% to $104 million. Domestic franchise revenue decreased 8% to $58.5 million due primarily to lower wholesale sales.

As mentioned in prior quarters, we began selling additional third-party products to franchisees late in 2014 and we are beginning to anniversary those results. Additionally, franchisees increased wholesale purchases in Q3 lowering the purchases needed in Q4. Overall, domestic franchise revenues increased 8% for the full year of 2015.

International revenue increased 9.6% to $45.5 million. This increase was due to an increase in wholesale sales. International franchisees, excluding the franchise in Venezuela, reported a 3.6% local currency same-store sales decline. Franchise operating income in both the current and prior year periods includes the gain recognized from the conversion of company-owned stores to franchise stores. The prior year also includes an international franchise receivable reserve adjustment.

Excluding the conversions and the reserve adjustment, operating income decreased 0.4%, but was 35.6% of segment revenue in Q4 2015 as compared with 35.4% in Q4 of 2014. The increase in the operating income percentage was driven primarily by higher gross margin rate.

As we execute our refranchising initiative, the conversion of company-owned stores to franchise locations will impact a number of income statement line items, including revenue and other income, and I will discuss this in more detail shortly.

Moving to international, in the quarter, we opened 55 and closed 75 international franchise locations. The majority of the Q4 closures related to a single franchise owner with operations in Venezuela, Colombia and Spain that was unable to meet our franchise standards, as this owner was negatively impacted by the economic and political unrest in Venezuela.

Third, to our manufacturing/wholesale segment. Q4 2015 manufacturing/wholesale segment revenue, excluding intersegment sales, increased 7.2% to $62.3 million. Q4 2015 operating income decreased 1.8%, $23.6 million and was 19.2% of segment revenue as compared with 20.3% in Q4 2014, excluding the $3.5 million of expense associated with lower manufacturing volume in the fourth quarter of 2014.

The decrease in operating income percentage was driven primarily by incremental third-party manufacturing activity, which generally contributes lower margins. Although, this incremental business delivers a lower margin rate, the production utilizes existing capacity and drives a positive return. We opened eight net new Rite Aid store-within-a-store locations in the quarter.

Next, to our balance sheet and cash flow. As Mike mentioned earlier, our business generates predictable significant cash flow and we're keenly focused on capital allocation to drive returns for our shareholders. For the full year of 2015, we generated $354.5 million net cash from operating activities, representing a 16.7% increase as compared with the full year of 2014. We generated $308.9 million in free cash flow.

On a per share basis, we generated $3.67 in free cash flow for the full year of 2015, an increase of 42.1% as compared with $2.58 for the full year of 2014. The increase is the result of improved working capital and lower capital expenditures.

We invested $45.8 million on capital expenditures primarily for new stores, store maintenance, updates and remodels, corporate IT, infrastructure and manufacturing facility expenditures. This is a decrease of $24.6 million as compared with the full year of 2014, which included $20 million for our new distribution center. As I have mentioned before, we have a disciplined approach to investments, and we will only expend cash in investments that exceed our hurdle rate.

As an additional example of returning value to our shareholders, we paid $59.6 million in cash dividends on our common stock, which is an increase per share compared to the prior year of more than 10% and reflects the third consecutive annual per-share increase in the company's dividend, which we instituted in 2012. And we repurchased $479.8 million of our shares of common stock in connection with our authorized share repurchase program. We have a consistent record of buying back stock and will continue to do so when we believe the stock price is below intrinsic value, keeping in mind that we plan to measure our leverage ratios to maintain our current credit rating. As of December 31, 2015, we had a cash balance of $56.5 million.

Now, I'll provide our initial 2016 outlook. As outlined in our earnings release this morning, we expect earnings per diluted share of approximately $3.15 to $3.35 for the full year 2016. Our EPS outlook excludes the one-time positive impact from corporate to franchise store conversions. This impact includes the gain on sale, associated goodwill write-off, and related tax impact, which I will talk more about later in this section.

Key assumptions underlying the full year 2016 EPS outlook are as follows: flat to up 1.5% in domestic company-owned same-store sales, including the impact of GNC.com; consolidated revenue moderately higher than domestic company-owned same-store sales; consolidated revenues also impacted by the sale of Discount Supplements, which in 2015 generated $24 million in revenue in U.S. dollars; and by the conversion of company-owned stores to franchise stores, which results in less consolidated revenue for GNC while creating shareholder value as we shift to a more capital-light model. Again, I'll discuss this more in detail shortly.

Then, flat to low single digit increase in domestic system-wide retail sales to approximately $2.4 billion. Domestic system-wide retail sales is a measure of GNC's presence at the point of sale across all domestic formats. This includes all retail sales at company-owned stores, franchise stores, and GNC.com, and retail sales of GNC-branded products at our partner businesses point of sale, which include Rite Aid, PetSmart, and Sam's Club. And I will explain why this is important in a few minutes.

Domestic franchise revenue increase from new stores; the conversion of company-owned to franchise stores and same-store sales results similar to domestic company-owned stores; international and manufacturing/wholesale segment revenue approximately equal to 2015; stable domestic retail product margin rate; consolidated depreciation and amortization of approximately $60 million combined; tax rate of approximately 36%, excluding conversion-related impact, which I will discuss shortly.

Share repurchases through the year of approximately 6% to 8% of beginning of the year shares outstanding of $76.3 million; operating cash flow consistent with 2015; capital expenditures of approximately $75 million, including approximately $20 million for key initiatives, which I will talk more about in a moment.

New store expectation: approximately 125 total net new U.S. and Canadian locations, with the majority franchised; approximately 50 net new international franchise locations; and approximately 50 net new GNC-Rite Aid store-within-a-store locations.

As relates to our strategy to maximize shareholder value by increasing the percentage of domestic relocations that are franchise locations, as Mike mentioned before, we intend to increase the percentage of domestic franchise locations by converting up to 1,000 stores to target a balanced portfolio of domestic company-owned and franchise locations over the next three years to four years.

Turning to our refranchising plans, as we have discussed previously, the quantitative aspect of our decision to convert stores is based on the ability to drive great returns for GNC and the franchisee as determined by the present value of cash flow. The P&L and balance sheet impact of each store conversion is as follows.

Consolidated revenue to GNC decreases as sales recorded in our retail segment are replaced with royalties from and the wholesale sales to our franchisees recorded in our franchise segment.

On an annual basis, on average, the revenue decline is expected to be approximately $100,000 per store. Cost of sales, occupancy, payroll, and variable expense dollars are reduced in our retail segment. The leverage point for occupancy and other expenses remains at approximately 2% same-store sales growth consistent with previous disclosures.

Cash is received from the franchisee resulting from the sale of the store and its inventory and franchise fees. Working capital is reduced by the aforementioned inventory, partially offset by increased receivables on franchise revenue.

As we mentioned earlier, each conversion generally results in a gain, which will be recorded in a separate line item on the income statement. Additionally, a portion of the company's goodwill will be written off as each store is converted. Further, the majority of the associated goodwill is not tax-deductible. And as a result, there will be a negative tax impact as well.

It's our intention to discuss GNC's income statement results including and excluding the impact of these conversion-related adjustments each quarter beginning in 2016. Overall EBIT dollar impact per store is negligible.

Additionally, as a result of the consolidated revenue shift that are expected during the execution of our refranchising strategy, we will begin to communicate system-wide sales results and expectations going forward and explain the components of system-wide sales a few minutes ago.

I will also comment on Q1 as there are a couple of things we should note that will impact our near-term outlook. Our domestic company-owned increase in same-store sales full year guidance assumes an increased quarter-to-quarter as initiatives ramp, for example, our coalition.

The first quarter will be impacted negatively by a shift in Easter and January 2016 weather which we expect to drive a negative low single digit comp in Q1. The Easter impact will have a positive impact on Q2 of approximately 50 basis points. First quarter EBIT margins will also be impacted by increased marketing spend year-over-year. In 2016, marketing expenses as a percent of sales are expected to be 2.4% to 2.5% each quarter. As such, it is likely that Q1 adjusted EPS will be below Q1 2015 adjusted EPS.

Before I turn the call back over to Mike, I would like to reinforce our capital allocation and capital structure strategy. As outlined on prior earnings calls, first and foremost, we will invest where necessary in support of our business, emphasizing projects that generate returns in excess of our cost of capital, thereby, creating value.

In 2016, these investments, which account for approximately $20 million in increased incremental capital expenditures, include customer-facing initiatives, enabling our store associates, marketing and e-commerce teams to more effectively engage with our customers. Specific examples include store register replacements are approximately 1/3 of the stores and e-commerce re-platforming.

Beyond that, we continue to view returning capital to shareholders as our top priority which we have demonstrated consistently since the inception of our program in 2012. Since that time and through 2015, we have returned more than $1.7 billion to shareholders, which includes $1.5 billion in share repurchases, accounting for approximately 1/3 of our IPO share base and $200 million in cash dividend.

As I mentioned previously, as we look to 2016 and beyond, our plan is to maintain our existing credit rating, utilizing excess cash flow for share buybacks when appropriate.

In conclusion, I'm confident the disciplined approach we're taking to our business, the predictability of our strong cash flows, coupled with the strategies discussed throughout this call, position us to meet our financial objective for 2016, and maximize shareholder value over the long-term.

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

Michael G. Archbold - Chief Executive Officer & Director

Thanks, Tricia. So, before we go to questions, I want to reiterate our focus is on generating long-term shareholder value by delivering more consistent and improved performance. We are in this for the long haul. We're starting to see the impact to some of our strategies, and we're confident that the progress will continue as we move into 2016.

Pricing, enhancing customer loyalty, refranchising, and leveraging the industry coalition are at the top of our list of priorities. But at the very top remains our desire to help our customers to live well. At this point, I'd like to open it up for questions, George.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Peter Benedict with Robert Baird. Please go ahead.

Michael G. Archbold - Chief Executive Officer & Director

Good morning, Pete.

Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker)

Hi, Mike. Good morning, and thanks for all the disclosure. It's a lot, but it's helpful. I'll just ask one question, then turn it over to the others. Just on the pricing evaluations that you guys are doing, can you – to the extent that you're willing, some more color on how you're approaching the process? Is there an online versus a brick-and-mortar approach, branded versus your GNC items? And how are you engaging the franchise partners in this process? I know you got the new executive board with those guys. Thank you.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Hey, Pete, it's Tricia. Yes, there is definitely an evaluation online versus brick-and-mortar. And as you know, we, on a regular basis, evaluate our pricing and compare it to brick-and-mortar and online customers. And more than half the time, we're at or below our competitors. But more specifically as we turn to the pricing strategy, we'll be evaluating and identifying our known value items and making sure we're pricing those more precisely and more effectively to drive the results that we want contributing incremental margin dollars. And then as well, we'll be looking at all of our categories and identifying their role and intent by category to drive the behavior that drives that improved performance too.

Michael G. Archbold - Chief Executive Officer & Director

Just to build on that, we'll also include role and intent of the different brands within those categories and the pricing of where our proprietary product would be against third-party national, understanding how well we'll then play against each other. And then we'll turn to the franchisees, right? Because we'll be able to do this, test it, get proof of concept, and franchisees love getting facts and proof of concept to seeing that something already worked. That's the easiest way in our experience to get franchisees on board to be able to roll something out.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

And we'll leverage the council that you mentioned...

Michael G. Archbold - Chief Executive Officer & Director

Yes.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

...as a tool to do that too.

Michael G. Archbold - Chief Executive Officer & Director

Absolutely.

Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker)

No, it's great. And then once you guys figure out what you want to do, it's later this year that you would roll it out, is that what I heard earlier in the call?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Yes, you did. We'll test during the year and it's likely that there'll be impact late in 2016.

Michael G. Archbold - Chief Executive Officer & Director

Right.

Peter S. Benedict - Robert W. Baird & Co., Inc. (Broker)

Okay, terrific. Thanks so much, guys.

Michael G. Archbold - Chief Executive Officer & Director

Thanks, Pete.

Operator

Thank you. And our next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Michael G. Archbold - Chief Executive Officer & Director

Good morning, Simeon.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Good morning, Mike. Good morning. So, if I heard it right that the first quarter expecting a little bit of I guess slower comps versus Q4. I think you mentioned Easter shift. But can you talk about why the change? I think it compares a little bit easier. Was it different promotional cadence? I guess, the New Year, I would figure you'd start the year with some momentum especially if the sales strategy seems to be working, so, why the flip?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Hey, it's Tricia. I think we also mentioned weather, so there's an impact in January that we've seen from a weather perspective. But I go back to the initiative that we talked about on the call, the coalition, the pricing initiative, extended assortment, and others; those will ramp throughout the year. So, we expect to see more of an impact on the top line in the latter part as the quarters progress throughout 2016.

Michael G. Archbold - Chief Executive Officer & Director

The other piece that we talked about is the marketing effect. That's right. We continue to work through the marketing effect (46:36) and we're spending to understand the marketing effect and is working with our third-party provider, but we're not building in the incremental effectiveness of that right now, because of the fact that we're not seeing it yet.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Okay. And then the gross margin, I think you mentioned in the guidance that product margin looks like it'll be flattish. And can you talk about the puts and takes of promotion side? How does that factor in? Is it going to be up or down versus a year ago? Acquisition costs, are you getting improving terms from vendors? And then anything that relates to pricing, I guess it's early, but just the different buckets that are sort of going into and out of the gross margin side?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Yes. So, from the promotion side, we're focused on profitable promotions. So, we're testing and rolling out and the all-store BOGO is a perfect example of that where what we will be promotional, but it'll be profitable promotions. And so, hence, part of the reason why stable margins, so we'll make sure that we're driving those returns.

Our acquisition cost is a function of this and while some of our acquisition cost went down in the fourth quarter, the impact was not material to overall margins. And we're sure that we are pricing effectively based on the market to determine the retails on those products in those key categories.

The pricing impact, as you said, is more of a longer-term impact and the resulting impact to margins. So, we'll be testing different pricing changes again earlier in 2016 and then communicate more as we learn. But the impact from a margin perspective would likely be later in the year.

Michael G. Archbold - Chief Executive Officer & Director

And just to build on the first part of that would be promotions, Simeon. So, you'll recall that a year ago, we were weaning ourselves off of what we've called excessive promotions, right? So, we're putting big pieces, big portions of the store on sale. And as we pull back on that, we've got the product margin improvement and that's been critical to the transition that we've gone through, obviously impacting the comps in the near-term, but actually improving our product margin.

What we're saying now is from here, there is a role for promotions to certainly play. And we're figuring out how to make them profitable promotions, and the one that we talked about that we did in December and a number of others are now proving to be effective and we're figuring out how to actually use them. So, from where we are right now, we're saying we're not predicting continued product margin improvements. There is a little bit of acquisition cost that we do see a little bit of benefits from some of the commodities, but remains to be seen, whether the market sets that, that goes back to the consumers. So, we'll keep a close eye on it. But right now, we're being conservative in saying that we expect flat product margins.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Right. And then just a follow-up on that, Mike, the basket, the way you look at the basket size and the variety, is it building or is it evolving in a healthier way, meaning people aren't stocking up on the same item and that's how you're driving your basket? You're selling them a wider group of product across a wider group of categories?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

We...

Michael G. Archbold - Chief Executive Officer & Director

So to that, yes and yes, because it – so we are seeing better in ticket and we're actually seeing more diversity in terms of what they're buying. Particularly when we did the BOGO event in December, we actually saw a lot more cross-merchandising. Because typically, when we would do a BOGO, it was a sports BOGO or it was a wellness BOGO. This was an all-store BOGO, so that you could mix and match across the different categories. That created a lot more cross-shopping which we're actually very happy about.

Simeon Ari Gutman - Morgan Stanley & Co. LLC

Okay. Thank you.

Michael G. Archbold - Chief Executive Officer & Director

Thanks, Simeon.

Operator

Thank you. And our next question comes from Meredith Adler with Barclays. Please go ahead.

Michael G. Archbold - Chief Executive Officer & Director

Good morning, Meredith.

Meredith Adler - Barclays Capital, Inc.

Yes. Good morning. I'd like to talk just a little bit about some of the changes you're making to operations, obviously, to service a refranchising effort. But I'd like to understand a little better how it works if you have the same field organization for both franchise stores and your company-owned stores? Who pays for those people and how much influence you have over the behavior of the franchisees?

Michael G. Archbold - Chief Executive Officer & Director

Wow, really good questions, Meredith. So, what we've done to create consistency of what we refer to as the branded customer experience, the GNC-branded customer experience, we felt it was necessary to bring the two organizations together more at the top. I would tell you that as you get out into the field, right down into the field level, the multi-unit management, what folks may typically know as district managers, we refer to them as RSDs out there. They're the ones who are overseeing our company-owned stores.

We have a separate dedicated group out in the fields who are DFOs, Domestic Franchise Operations, and they are really focused on engaging with the franchisees, because, as you can imagine, you need to engage with the franchisees on a different basis, right? These are entrepreneurs. These are business owners. These aren't just store managers. So, we need to make sure that we can enroll them in the possibilities.

When we roll out initiatives, that's why we're able to roll out things quickly in company-owned stores and test so many things, and then we're able to provide proof of concept. Typically, we see that proof of concept and then having to explain to the franchisees to get their buy-in, so that they enroll.

So, it's together at the top. It's still different down in the field in terms of the actual engagement with the franchisees. So, it does feel different. Those folks are on our payroll and are expecting to continue to be on our payroll. So, what we may see is a shift between those – the company-owned side and one on the franchisee side, so that we can support the business appropriately. But that has always been on our payroll, so we're not expecting any kind of negative leverage on the infrastructure.

Meredith Adler - Barclays Capital, Inc.

Got it. That makes good sense. And I'd just like to clarify, at the end of three years, if you have refranchised 1,000 stores, how and what percentage of the store base is likely to be franchised given that you're also opening more new franchise stores?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Meredith, it's Tricia. It will be a balanced portfolio. So about half and half.

Meredith Adler - Barclays Capital, Inc.

Okay.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

You see, you have to factor in like you said, the conversion of those 1,000 locations plus the new...

Michael G. Archbold - Chief Executive Officer & Director

Plus the majority of news, right?

Meredith Adler - Barclays Capital, Inc.

Okay. And, I guess – sorry, one final question. I think you had mentioned that there is interest from buyers of large groups of stores. Could you talk at all about that any more? Are there are a number of them? Are they serious? Do they get the business?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Great question, Meredith. So, yes, we are talking to, I would say, a handful of several hundred potential store conversions. These are franchisees but not in our space, so they have significant franchise experience. And so they have market presence in certain areas. They have an infrastructure that they could leverage. So, they're viable alternatives, but you're right, part of it is an education about our industry and our business, because this is something that's new and different to them.

So, I'd say we're in early discussions with them, but there are a number of them, and they're certainly interested in the opportunity that we have.

Michael G. Archbold - Chief Executive Officer & Director

And they are very serious players. So, to your point, are they serious? They are very serious. But I would say that there's a learning curve, right? Because this franchise model looks different than the typical QSR franchise model. But they are very intrigued about the ability that they have to bring to the market, whether it's their local market experience, whether it's their leverageable infrastructure, whether it's their real estate knowledge. These are all things that make it very interesting for them, but they need to get grounded in the differences between this model and a lot of other models that are out there.

Meredith Adler - Barclays Capital, Inc.

That's very helpful. Thank you.

Michael G. Archbold - Chief Executive Officer & Director

Thank you.

Operator

And our next question is from Stephen Tanal with Goldman Sachs. Please go ahead.

Michael G. Archbold - Chief Executive Officer & Director

Good morning, Stephen.

Stephen Vartan Tanal - Goldman Sachs & Co.

Good morning, guys. Thanks a lot for all the incremental disclosures. It's very helpful. So, the first place I'd like to start, just real quickly, we noticed more promotions. And I want to understand with gross product margin rate in the retail side or at least the product margin rate being up year-on-year, are input costs at all helpful? Whey protein is obviously down a lot year-on-year. Does that help you guys much?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

So, as I mentioned earlier, there was a small impact that's immaterial in the quarter as a result of cost changes. And again, we base our retail pricing on market, and we adjust it on a regular basis. So, I wouldn't say it's a significant contributor to it.

Michael G. Archbold - Chief Executive Officer & Director

Right. So, it hasn't been cost. It's really been about the effectiveness of the promos that we've been running and continuing to really wean ourselves off of some of the promos in the prior year. And yes, so there is a little bit that we get from commodities. I would point out that if you're looking at kind of the publicly available metrics, I'm sure when you're looking at whey protein, as you mentioned, right, that's the, what's known as the WPC 80% contract, and that is the kind of the entry level to concentrate, that's the C.

It's an entry level product. And what we're seeing in the space is actually many more of the products are actually skewing more towards the higher end product, towards either the isolates are actually even much more customized than, say, casein or others. So, there's a mix. So, there is some benefit to the product costs, but most of what you're seeing is really about the promotional factors.

Stephen Vartan Tanal - Goldman Sachs & Co.

Okay. That's great to hear. And then can you remind us on the company-owned store mix? It's great to hear that the comps are up 4%, and the strip centers and the malls are down, which I don't think surprises anyone. But potentially if you can help us with percent of stores that are malls versus strip versus downtown locations and even percent of sales would be great. Then we could start thinking about what the mall drag is on the total comp?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Sure. Our strip stores are about 60% of our total store units and about 50% of dollars. Mall stores are more like a third of the units and higher than that from a sales contribution, sales mix perspective.

Stephen Vartan Tanal - Goldman Sachs & Co.

Got it. That's very helpful. And just to wrap up with a couple of very quick ones. If you could size the January headwind to comps, that'd be great, or at least to the overall quarter outlook. And then, just to confirm the Discount Supplements $6 million loss in 2015, that's in the numbers, right? So that's a $0.05 hit to the full year EPS number.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Correct. The $6 million is in the number. Yes. That is correct. The headwind in Q1, we really wanted to add color. We don't typically provide guidance on Q1 inter-quarter and so I just wanted to give some color on what we're seeing.

Stephen Vartan Tanal - Goldman Sachs & Co.

Fair enough. Thank you, guys.

Michael G. Archbold - Chief Executive Officer & Director

Thanks, Stephen.

Operator

Next, we have Karen Short with Deutsche Bank. Please go ahead.

Karen F. Short - Deutsche Bank Securities, Inc.

Hi. Thanks. Just one point of clarification on the franchising. Are you offering any financing on that?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

We have in the past offered financing for the franchisees. However, going forward we'll be partnering with other third-party lenders and offering those as alternatives, so we don't want to be in the financing business with this refranchising initiative. So we've provided solutions and other options for the franchisees as they explore this.

Karen F. Short - Deutsche Bank Securities, Inc.

Okay. And then you guys gave a comment, had a comment or a metric that you provided at a recent conference. I wanted to see if you could give a little more color on it. I think the metric was that you commented on what percent of wallet you capture of your most loyal customers, and I believe that number was 27%. But the data that interested me was that you said the remaining 73% was purchased at mass. So, I guess what I want to ask is: do you know directionally how that has changed over time, whether that metric is getting better or worse?

And then the second question is, I guess that concerns me a little bit because it tells me that your customer is really just a cherry-picking customer. So any color you could give around that will be great.

Michael G. Archbold - Chief Executive Officer & Director

Sure. So, yes, so I did mention that our share of wallet with the health, wellness and performance customer is as low as 27% and that we do share our wallet with obviously a number of players, but one of the largest one is in the mass market. So, what's interesting is the mass market which is going to compete on more of the entry level and the commodity-oriented products, they, historically as you know, Karen, always over-indexed in the vitamin space.

So, it's kind of interesting because we all consider ourselves, in short speak, we're in the vitamin business when, in fact, the mass market really over-indexes in the vitamin because those tend to be the entry points for customers in this space. So we think that's actually a good thing because anything that gets folks interested in health and wellness is good for the overall industry. And as they become more advanced and more interested in refining their goals, they tend to then wind up being a GNC customer.

But we view everyone who sells products as being competitors to our space. So we think that having mass there is good, but it also does put the onus on us to make sure that we continue to innovate and drive new product, so that we have a reason for them to continue to keep coming to the specialty side of the business, right, because as I said, there's products in this space that will have a leaning towards commoditization. We need to keep driving on the innovation to make sure that doesn't happen. And we couple that with the broad assortment that we can deliver that the mass market can't deliver along with the highly engaged, knowledgeable service that we can provide. Those are really the points that will differentiate us against mass over the long-term.

Karen F. Short - Deutsche Bank Securities, Inc.

Okay. That's helpful. Thank you.

Michael G. Archbold - Chief Executive Officer & Director

Thank you, Karen. I think we only have time for one more? Okay.

Operator

All right. Our next question comes from Curtis Nagle with Bank of America Merrill Lynch. Please go ahead.

Michael G. Archbold - Chief Executive Officer & Director

Hey, Curt.

Curtis S. Nagle - Bank of America Merrill Lynch

Hey. How are you doing, Mike?

Michael G. Archbold - Chief Executive Officer & Director

Good.

Curtis S. Nagle - Bank of America Merrill Lynch

Thanks for taking the question. So, maybe just two quick ones. One, I guess why is 50%/50% the right balance in terms of how you're platforming the stores over the next couple of years or I guess few years? And then, two, what did you change in terms of, I guess, the strategy around BOGO to drive more adjacency versus pantry loading?

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Hey, Curt, it's Tricia. So, the balanced approach is really a result of our quantitative analysis of what's the right mix of company-owned and franchise locations that will drive the highest value for our shareholders. Then, when we went through and looked at it, we went on a store-by-store basis and looked at a discounted cash flow model and found the optimal mix that we believe is 50%/50% that drives that highest return. So, that was the large piece of it.

There's also a little bit of a qualitative piece too that goes into it, and whether it's the right balance so that we can do the things that we're talking about where we try new things and we test, and then we roll them out to the franchisees after they understand more about the success of those programs.

When you asked about BOGO, really expanding it and trying to find, identify just if there was pantry loading. So, as we tested it, we looked in the BOGO event that we currently did, as Mike mentioned earlier, is very different. The entire store was on BOGO. And we saw a far less degree of pantry loading than we do in our prior BOGO activities. Not to say that BOGO, the way we used to do it before are going away. We still think there's value there, but this is something that we were intrigued by. It was successful and will certainly do again.

Curtis S. Nagle - Bank of America Merrill Lynch

Thank you very much.

Michael G. Archbold - Chief Executive Officer & Director

Oh, thank you, Curt. So, hey, George, I'm going to call an audible here because I know we have one more call – question in the queue here. And I want to beg some forgiveness. I know we're going over on our time, but we spent time going into a lot more detail here and want to make sure we have time for questions. So, I think we've got one more.

Operator

All right, sir. The next question is from Christopher Horvers with JPMorgan. Please go ahead.

Tami Zakaria - JPMorgan Securities LLC

Hi. This is Tami Zakaria filling in for Chris Horvers. Thanks for squeezing me in. We're trying to understand the (62:33) guidance for the manufacturing segment for the year. Can you comment on what's driving that?

Michael G. Archbold - Chief Executive Officer & Director

Manufacturing guidance.

Tricia K. Tolivar - Chief Financial Officer & Executive Vice President

Okay. The guidance we gave that it would be consistent with 2015.

Michael G. Archbold - Chief Executive Officer & Director

So, we expect it to be about the same, and that really reflects our third-party business and what we manufacture for others. It's a small part of the business, but important for us, and uses our manufacturing capability, being one of the only vertically integrated players that are in the space. It's really important to us strategically, but obviously not a big impact on us financially.

Tami Zakaria - JPMorgan Securities LLC

Sure. Thank you.

Michael G. Archbold - Chief Executive Officer & Director

So, thank you very much. So, again, apologies for going over on time, but we wanted to make sure we got all of these messages out here. 2015 has clearly been a year of progress. We're committed to the level of transparency that you've seen on this call and other calls. We'll talk about going forward what's working and candidly about what's not yet working as well as we expected, right? And we'll focus on those big four initiatives: pricing, enhancing our customer loyalty, our refranchising initiative, and, of course, the coalition. So, we'll talk about those things as we go through the year.

And just to remind everyone that we do all of these things in service of the vision that we have for GNC which is passionately creating a world of health, wellness and performance solutions, inspiring everyone, everywhere, every day to live well.

Thanks very much for your interest and we look forward to talking to you soon.

Operator

Ladies and gentlemen, thank you for your participation. You may now disconnect.

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