This Health and Wellness Retailer Continues to Impress

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As more consumers become concerned about their health and well-being, companies that cater to this trend are seeing increased demand for their products and services. The primary beneficiary of this trend is nutritional-supplements retailer GNC (NYSE: GNC). Consumers are continuing to buy its products to help lead and build a healthier life. The focus on more natural ingredients has also lead consumers to GNC stores rather than going to their traditional drug stores.

Impressive second-quarter results

Shares of GNC hit a new 52-week high and rose over 10% following the release of the company's second-quarter earnings results. Total revenue rose 9.2% to $676.3 million compared to last year's second quarter. Sales rose across all of the company's operating divisions. Same-store sales rose 6.8% at company-owned stores, which also included online sales, and 5.2% at U.S. franchised locations. Earnings per share increased 17.7% to $0.73 per share.

Member program rewards

GNC has revamped its Gold Card program. The new program relies on the company's database and encourages more feedback from its members. The result has been that sales are spread out more evenly over the month instead of just in the first week on the old program. Gold Card members are able to pay a lower price than suggested retail prices to non-members.

The company initiated the new program by offering free membership and waived the initial $15 fee. As a result, 3 million new members signed up, giving GNC a total of 8.5 million members. The company plans to aggressively market its members with specials to get them back into the stores or buying online.

China growth

GNC announced that it is opening its first standalone location in Shanghai, China this month. GNC has been operating in China since 2011 and its prior strategy was having a store-within-a-store location at eight different retailers in China. GNC also sells its nutritional products online in China. GNC is looking to expand its standalone locations and open 25 more locations in the next year. To service this growth, GNC already has a Shanghai office and distribution center.

Key partnership

GNC has locations within approximately 2,190 Rite Aid (NYSE: RAD) drugstores. GNC and Rite Aid have been partners since 1999, which brought GNC mini-stores to Rite Aid locations. This alliance has been great for both companies. It gave GNC an expanded footprint to sell its products and also provided credibility to the company's wellness products by being sold within a pharmacy.

For Rite Aid, it provided the opportunity to tap into the wellness market and provide other health products not typically seen in a pharmacy. Almost half of all Rite Aid locations now have a GNC mini-store.

Rite Aid is in the midst of a turnaround and it can use all the help it can get from its partnership with GNC. Rite Aid has been working toward refinancing and paying down its staggering debt load of $5.9 billion. Fortunately for Rite Aid shareholders, signs of a turnaround are starting to emerge. In the first quarter, the company posted its third consecutive quarterly profit. Rite Aid earned $90 million compared to a loss of $28 million in the prior year.

The company has been remodeling its stores with a focus on its wellness offerings and having employees become wellness ambassadors. This initiative helps guide and inform customers of the wellness offerings available in each Rite Aid store. In 2010, Rite Aid also launched its wellness+ customer loyalty program. Rite Aid is following that up now with its wellness65+ to target seniors and increase the customer relationships to make the retailer their pharmacy of choice. The end goal for Rite Aid is transform its stores into neighborhood destinations for health and wellness.


A smaller competitor to GNC in the nutritional supplement retail market is Vitamin Shoppe (NYSE: VSI). Vitamin Shoppe operates over 600 retail stores in the U.S. and Canada. In Canada, its stores operate under the Vitapath name. The company also sells its products through its e-commerce website.

This year, Vitamin Shoppe closed on its acquisition of 31 Super Supplements locations in the Pacific Northwest. Going forward, the company plans to open an additional 50 stores in the U.S. to fuel growth. The company is also looking to bring more nutritional products to the market and increase its total number of items for sale in its stores and online. Vitamin Shoppe is looking to expand its Mytrition multipack vitamins for men and women and is also looking to launch a natural sweetener. Both appeal to the health-conscious consumer.

Foolish assessment

<table> <tbody> <tr> <td> </td> <td> <p>GNC</p> </td> <td> <p>Rite-Aid</p> </td> <td> <p>Vitamin Shoppe</p> </td> </tr> <tr> <td> <p>P/E</p> </td> <td> <p>21.34</p> </td> <td> <p>11.93</p> </td> <td> <p>22.27</p> </td> </tr> <tr> <td> <p>PEG Ratio</p> </td> <td> <p>0.88</p> </td> <td> <p>2.48</p> </td> <td> <p>1.33</p> </td> </tr> </tbody> </table>

After its recent phenomenal earnings report, GNC is the health and wellness retailer to own. It also has a lower PEG ratio than Rite Aid or Vitamin Shoppe. Rite Aid is still in the middle of its turnaround and has more work to do in reducing debt and increasing profitability. Vitamin Shoppe is working to integrate its recent acquisition of Super Supplements and compete with GNC. Meanwhile, GNC is focused on its core business. GNC expects earnings per share for 2013 to increase 21% to 24% over last year's results. For these reasons, GNC continues to impress and be the health and wellness retailer to own.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus