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I told you last week that I'd have a piece for you on my latest "private-equity victim." I didn't know then just how good this was going to get.
I released the full version of this piece, with a detailed recommendation, on Feb. 6 for my Zenith Trading Circle members. (Subscribers can go here to get that recommendation now.) At that time, the company was still anticipating earnings, and I anticipated that it was headed for disaster.
I wrote, "[It] pays a $0.80 dividend, which gives it a ridiculous dividend yield of 8.87%. Look for the company to cut the dividend, which costs it roughly $40 million a year [it turns out the number is closer to $50 million – ed.], after another quarter or two of losses triggered by failure of its new strategic plan. A dividend cut will gut the stock even further."
Today, the company released abysmal earnings for Q4 2016 – same-store sales were down 12%, revenue in the United States and Canada fell by $41.1 million, or 8%, from $472.6 million to $513.7 million, and even e-commerce sales dropped from 8.8% of the total to 11.4% of the total a year earlier (which is what happens when you raise on-line prices in a cutthroat pricing environment). Also – as I expected – the board of directors decided to suspend the company's quarterly dividend in order to use free cash flow to reduce debt (which will save about $50 million a year but really won't make a dent in the company's $1.5 billion debt load).
The stock was down 10% on the news, and since it's trading at about $7, it still has quite a bit of room to fall.
That means you still have time to profit…
All the Vitamins in the World Won't Save This Company
GNC Holdings Inc. (NYSE: GNC) has been passed around from one private-equity firm to another over the last 20 years like a Harley at a Hells Angels convention. Being sold by one LBO firm to another is never a good sign because it means that a company is unattractive to strategic buyers. (I've discussed that sad phenomenon here.) As a result of its private-equity lineage, GNC has carried a heavy debt load for years that diverted valuable intellectual and financial capital away from improving its business. As a result, it failed to react to structural changes in the retail industry, leaving the chain on its last legs.
Over the last year, GNC's stock dropped from a 52-week high of $34.90 per share to $7.25 per share (after releasing its disastrous Q4 2016 earnings on Feb. 16). Even Wall Street, which never issues sell ratings on stock, is negative on the company's prospects unless it can manage to find a foreign buyer. And even then, upside from its current depressed price is probably only a couple of dollars higher. The company is run by an interim CEO who announced a dubious Hail Mary plan to completely revamp the business that appe…
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Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.