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GNC abruptly replaces CEO

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Tuesday, Aug. 5, 2014, 11:03 a.m.
 

The chairman and chief executive of GNC Holdings Inc. was abruptly replaced on Tuesday amid a slump this year in its stock price and a decline in profits the company blamed on a failing sales strategy that focused on customer discounts.

The Downtown-based company said Joe Fortunato, 61, who was named CEO in 2005, will be succeeded as CEO by retailing veteran Michael Archbold. Michael Hines, GNC's lead independent board director, will become chairman.

Archbold, 53, comes to GNC from women's apparel retailer Talbots Inc., where he was CEO since the company was taken private in 2012. His experience includes executive positions at GNC rival Vitamin Shoppe Inc. Talbots has 495 stores in the United States and Canada. GNC has more than 3,300.

“There is no doubt that the hiring of Mike Archbold as CEO of GNC is a win/win for the company, in our opinion,” analysts from Sterne Agee wrote in a note to investors.

Investors appeared to agree. Shares of the health and wellness products retailer closed Tuesday at $33.52, up 39 cents, or 1.1 percent.

The shake-up in leadership was surprising given Fortunato's track record since being named CEO in 2005. He managed a successful initial public offering in 2011 and oversaw a doubling of the company's revenue and steady profit growth during his nine years.

But trouble for the company surfaced earlier this year when sales started falling. Its stock plunged 42 percent from an all-time high of $60.98 in November. In February, GNC cut its forecast for 2014 earnings and gave its first hint that promotions and discounts might not be working.

Fortunato acknowledged last week that GNC's strategy of luring customers into stores with a host of discounts, coupons and promotions was failing. He announced a plan to reduce reliance on price cuts and investments in aggressive marketing.

“We are not getting credit from the consumer no matter how much we escalate discounting,” he told analysts.

The company has struggled with a softness in same-store sales during the first half of the year. Same store sales are a key measure of a retailer's performance because it shows how much of the revenue growth comes from improved management rather than from newly opened stores.

The spiral was underscored last week when the company reported a 4 percent decline in same-store sales for the April-June quarter, quarterly net income that missed analyst expectations and lowered its prediction for full-year profit.

“The board is committed to delivering improved financial results and creating value for GNC shareholders and we are pleased that Mike has agreed to join GNC,” Hines said.

Prior to Talbots, Archbold was president and chief operating officer at Vitamin Shoppe. He also worked as chief financial officer for Saks Fifth Avenue and AutoZone Inc. during his 25 years in retail.

Archbold was “instrumental” in Vitamin Shoppe's success since it went public in 2009, and “we think his presence will help stabilize a rocky situation” at GNC, the Sterne Agee analysts wrote in their note. Vitamin Shoppe's sales increased 40 percent from 2009 to 2012.

Fortunato received total compensation last year of $2.9 million, which was down from 2012 compensation of $5.4 million.

His severance agreement requires GNC to pay him a lump sum of two times his base salary of $1 million, and two times his average annual bonus. His only bonus in the last three years was a $223,000 payment last year.

“Joe Fortunato led GNC through a period of considerable growth, innovation and transformation. We thank him for his significant contributions to the company and we wish him well in the future,” Hines said.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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