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GNC reports higher profit, sales in 2Q; shares jump 10%

| Thursday, July 25, 2013, 10:03 a.m.

GNC Holdings Inc. gave away discount cards to 3 million customers in May and June, revamping a nationwide membership program to resolve consumer complaints that they couldn't access discounts all month — a move executives say will improve sales.

The Downtown-based operator of 6,200 health, wellness and sports nutrition stores in the United States reported a 7.5 percent increase in second-quarter net income and higher sales.

Net income was $71.7 million, or 73 cents a share, compared with $66.7 million, or 62 cents a share, a year ago. Sales increased by 9.2 percent to $676.3 million from year-ago sales of $619.1 million.

“We accomplished our goals,” CEO Joe Fortunato said, referring to the giveaway during a conference call with analysts. The revamped Gold Card membership program improves customer's perception of prices at GNC stores, he said.

“Customers' primary complaint was their inability to use the Gold Card all month long,” he said. The program gave discounts for only seven days; now it will give lower percentage discounts the whole month.

Shares jumped 10.9 percent to close at $51.72, up $5.08. The stock is up 55.4 percent this year.

Fortunato said the program gives GNC the ability to “more effectively engage with these customers” by capturing data on purchases and tailor marketing and product offerings to customers' tastes and preferences. It will allow the retailer to manage prices and margins more effectively.

“We now will have a comprehensive view of their purchasing activity,” he said, calling the program “among the most significant undertakings in our company's history.”

The Gold Card giveaway ended June 30 and yielded more customers than expected, he said. Membership rose to 8.5 million, and GNC has returned to selling memberships at the regular price of $15.

The retailer is seeing “extremely strong” results on its gnc.com and LuckyVitamins.com websites and expects gains in the third and fourth quarters. It raised earnings per share forecast to a range of $2.83 to $2.88 for 2013, which is a 21 percent to 24 percent increase over 2012 earnings per share of 2.33 and an increase of 8 cents from its outlook for 2013.

The discount program was test-marketed in Kansas City, New York and Chicago.

GNC executives plan mail marketing that targets the 3 million names it collected, and “as we get them back in the store, we will be moving them to premium goods, cross-selling them ... and targeting their spending on things that we think they should buy, and pushing them in that direction.

“This is a nurturing process with the customers. ... It might take two or three visits to get them there, but we get them there,” he said.

GNC has more than 8,300 stores, including 969 franchise and 2,189 Rite Aid franchise store-within-a-store locations, in 55 countries. On Monday, GNC said it opened its first, stand-alone retail store in China.

John D. Oravecz is a Trib Total Media staff writer. Reach him at 412-320-7882 or joravecz@tribweb.com.

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