Press Release

GNC Holdings, Inc. Reports First Quarter 2018 Results
- Same store sales growth of 0.5%; third straight quarter of positive growth
- Net income of $6.2 million and $20.1 million on an adjusted basis; Adjusted EBITDA of $59.3 million
- Gross profit rate of 34.1%; the highest in six quarters

PITTSBURGH, April 26, 2018 /PRNewswire/ -- GNC Holdings, Inc. (NYSE: GNC) (the "Company") reported consolidated revenue of $607.5 million in the first quarter of 2018, compared with consolidated revenue of $654.9 million in the first quarter of 2017. The decrease was primarily due to the sale of Lucky Vitamin on September 30, 2017, which resulted in a $22.7 million reduction to revenue, and the termination of the U.S. Gold Card Member Pricing program in the prior year quarter, which resulted in a $23.0 million decrease in revenue.

Same store sales increased 0.5% in domestic company-owned stores (including GNC.com) in the first quarter of 2018. In domestic franchise locations, same store sales decreased 1.9%.

For the first quarter of 2018, the Company reported net income of $6.2 million compared with $24.7 million in the prior year quarter. Diluted earnings per share ("EPS") was $0.07 in the current quarter compared with $0.36 in the prior year quarter.  In the first quarter of 2018, the Company recorded a $16.7 million loss on debt refinancing. Excluding this item and other expenses outlined in the table below, adjusted net income was $20.1 million in the current quarter compared with $26.0 million in the prior year quarter and adjusted EPS was $0.24 in the current quarter compared with $0.38 in the prior year quarter. 

Adjusted EBITDA, as defined and reconciled in the table below, was $59.3 million in the current quarter compared with $73.7 million in the prior year quarter.  The prior year quarter includes the impact of $23.0 million in revenue and gross profit associated with the termination of the Gold Card Member Pricing program as well as higher marketing expense of approximately $6 million in connection with the launch of the media campaign around the One New GNC.

"During the first quarter of 2018, we continued to see the business improve, and were pleased with the progress of our strategic growth initiatives," said Ken Martindale, CEO. "Notably, we delivered meaningful gross margin growth, driven primarily by increased penetration of our private label brands. We continue to work to leverage our strength in innovation, expand our international presence and deliver a consistent, compelling experience at every customer touch point."

Key Updates

  • GNC brand mix for domestic system-wide sales increased to 50% in the first quarter compared with 48% in the fourth quarter of 2017 and 43% in the first quarter of 2017.
  • Slimvance, our category defining weight loss product, has successfully attracted new customers, drove a larger basket and despite overall sales declines, increased our share of the U.S. weight management market.
  • As of March 31, 2018, our loyalty membership increased 12.3% to 12.8 million members compared with December 31, 2017.  Included in our loyalty membership at March 31, 2018 are 935,000 members enrolled in PRO Access, a 23.6% increase compared with December 31, 2017.
  • In the first quarter, the Company improved its financial flexibility through the extension of its debt maturities.  In addition, the Company's strong sustainable cash flow will continue to be used to pay down debt.

Segment Operating Performance

U.S. & Canada

Revenues in the U.S. and Canada segment decreased $24.2 million, or 4.5%, to $512.4 million for the three months ended March 31, 2018 compared with $536.6 million in the prior year quarter.

In the prior year quarter, the discontinuation of the Gold Card Member Pricing program in the U.S. resulted in the recognition of deferred revenue of $23.0 million. In addition, company-owned store closures contributed an approximate $7 million decrease compared with the prior year quarter, while domestic franchise revenue declined $7.8 million due to a decrease in retail same store sales, as well as a reduction in the number of franchise stores. Partially offsetting the above decreases in revenue was an increase of $12.9 million relating to the Company's loyalty programs, PRO Access and myGNC Rewards.

Operating income decreased $7.0 million to $43.5 million for the three months ended March 31, 2018 compared with $50.5 million for the same period in 2017. Operating income as a percentage of segment revenue was 8.5% in the current quarter compared with 9.4% in the prior year quarter. Excluding the impact of the prior year quarter recognition of deferred revenue related to the Gold Card Member Pricing program and the prior year quarter marketing costs in support of the One New GNC media campaign, operating income as a percentage of segment revenue increased 2.0% due to a higher sales mix of proprietary product.

International

Revenues in the International segment increased $0.3 million, or 0.8%, to $40.1 million in the current quarter compared with $39.8 million in the prior year quarter primarily due to an increase of $3.4 million in China cross-border e-commerce sales. 

Operating income decreased $0.4 million, or 2.7%, to $14.5 million in the current quarter compared with $14.9 million in the prior year quarter.  Operating income was 36.1% of segment revenue in the current quarter compared with 37.4% in the prior year quarter.  The decrease in operating income percentage was primarily due to a higher mix of China sales, which contribute lower margins relative to franchise sales.

Manufacturing / Wholesale

Revenues in the Manufacturing / Wholesale segment, excluding intersegment sales, decreased $0.7 million, or 1.4%, to $55.1 million for the three months ended March 31, 2018 compared with $55.8 million in the prior year quarter primarily due to a $0.9 million decrease in third-party contract manufacturing sales. Intersegment sales increased $3.4 million reflecting the Company's increasing focus on proprietary products.

Operating income decreased $2.3 million, or 13.3%, to $15.0 million for the three months ended March 31, 2018 compared with $17.3 million in the prior year quarter.  Operating income as a percentage of segment revenue decreased from 14.7% in the prior year quarter to 12.5% in the current quarter primarily due to a lower margin rate from third-party contract manufacturing.

Cash Flow and Liquidity Metrics

For the three months ended March 31, 2018, the Company generated net cash from operating activities of $25.1 million, a $21.0 million decrease compared with the three months ended March 31, 2017 of $46.1 million. The decrease was primarily related to $15.8 million in fees paid to third-parties in connection with the Amendment to the Company's Senior Credit Facility.

For the three months ended March 31, 2018, the Company generated an increase in free cash flow of $4.0 million or 12.0% from $33.4 million for the three months ended March 31, 2017 to $37.4 million for the three months ended March 31, 2018.  The Company defines free cash flow as cash provided by operating activities (excluding fees relating to the debt refinancing) less cash used in investing activities (excluding acquisitions except for store acquisitions). At March 31, 2018, the Company's cash and cash equivalents were $53.9 million and debt was $1.3 billion, which includes $17.5 million in borrowings outstanding on its Revolving Credit Facility.

Store Count

At March 31, 2018, the Company had 3,385 corporate stores in the U.S. and Canada, 1,083 domestic franchise locations, 2,428 Rite Aid franchise store-within-a-store locations and 2,009 international locations. The Company now has 8,905 store locations worldwide. As part of the ongoing optimization of the Company's store portfolio, the Company intends to close approximately 200 stores in 2018.  Efforts toward favorable lease renegotiations or relocation opportunities are ongoing and may impact the amount of stores closings.  The Company expects a limited number of new store openings in 2018.

Update on Harbin Pharmaceutical Transaction

On April 26, 2018, shareholders of Harbin Pharmaceutical Group Holding Co., Ltd ("Hayao") voted to approve the company's $300 million investment in GNC.

As previously announced, on April 25, 2018, GNC convened and adjourned its Special Meeting of Stockholders (the "Special Meeting") to allow additional time to solicit proxies and obtain a quorum for the meeting.  A substantial majority (over 92%) of the proxies received by GNC as of April 25, 2018 authorized a vote in favor of the issuance of convertible preferred shares to Hayao (the "Share Issuance Proposal") in connection with Hayao's strategic investment in GNC.  However, holders of only approximately 36% of the outstanding shares of the Company's common stock submitted proxies to vote at the Special Meeting and the necessary quorum was not reached. GNC will reconvene its Special Meeting at 10:00 A.M., Eastern Time, on May 9, 2018.

Conference Call

GNC has scheduled a live webcast to reports its first quarter 2018 financial results on April 26, 2018 at 8:30 a.m ET. To participate on the live call, listeners in North America may dial (800) 263-0877 and international listeners may dial (323) 794-2094.  In addition, a live webcast of the call will be available on www.gnc.com via the Investor Relations section under "About GNC."  A replay of this webcast will be available through May 10, 2018.

About Us

GNC Holdings, Inc.  (NYSE: GNC) - Headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer.

GNC connects customers to their best selves by offering a premium assortment of heath, wellness and performance products, including protein, performance supplements, weight management supplements, vitamins, herbs and greens, wellness supplements, health and beauty, food and drink and other general merchandise. This assortment features proprietary GNC and nationally recognized third-party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third-party contract manufacturing, e-commerce and corporate partnerships. As of March 31, 2018, GNC had approximately 8,900 locations, of which approximately 6,700 retail locations are in the United States (including approximately 2,400 Rite Aid franchise store-within-a-store locations) and franchise operations in approximately 50 countries.

Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company's financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "projects," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions, or by discussions regarding dividend, share repurchase plan, strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain. The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to unfavorable publicity or consumer perception of the Company's products; costs of compliance and any failure on management's part to comply with new and existing governmental regulations governing our products; limitations of or disruptions in the manufacturing system or losses of manufacturing certifications; disruptions in the distribution network; or failure to successfully execute the Company's growth strategy, including any inability to expand franchise operations or attract new franchisees, any inability to expand company-owned retail operations, any inability to grow the international footprint, any inability to expand the e-commerce businesses, or any inability to successfully integrate businesses that are acquired. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. For a listing of factors that may materially affect such forward-looking statements, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Same Store Sales

Same store sales for company-owned stores include point-of-sale retail sales from all domestic stores which have been operating for twelve full months following the opening period. The Company is an omnichannel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store and through e-commerce channels which include its wholly-owned website GNC.com and third party websites (the sales from which are included in the GNC.com business unit) where product assortment and price are controlled by the Company, in which purchases are fulfilled by direct shipment to the customer from one of the Company's distribution facilities as well as third party e-commerce vendors. In-store sales are reduced by sales originally consummated online or through mobile devices and subsequently returned in-store. Sales of membership programs, including the new PRO Access loyalty program and former Gold Card program, which is no longer offered in the U.S., as well as the net change in the deferred points liability associated with the myGNC Rewards program, are excluded from same store sales.

Same store sales are calculated on a daily basis for each store and exclude the net sales of a store for any period if the store was not open during the same period of the prior year. When a store's square footage has been changed as a result of reconfiguration or relocation in the same mall or shopping center, the store continues to be treated as a same store. If, during the period presented, a store was closed, relocated to a different mall or shopping center, or converted to a franchise store or a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same period of the prior year. Corporate stores are included in same store sales after the thirteenth month following a relocation or conversion to a company-owned store.

The Company also provides retail comparable same stores sales of its franchisees as well as its Canada business if meaningful to current results. While retail sales of franchisees are not included in the Company's Consolidated Financial Statements, the metric serves as a key performance indicator for its franchisees, which ultimately impacts wholesale sales, royalties and fees received from franchisees. The Company computes same store sales for its franchisees and Canada business consistent with the description of corporate same store sales above. Same store sales for international franchisees and Canada exclude the impact of foreign exchange rate changes relative to the U.S. dollar.

Non-GAAP Measures

Management has included non-GAAP financial measures in this press release because it believes they represent an effective supplemental means by which to measure the Company's operating performance, including adjusted net income, adjusted EPS, adjusted EBITDA and segment operating income as a percentage of segment revenue, adjusted to exclude gains on refranchising and certain other items as reflected in this release, and free cash flow.  Adjusted EBITDA is defined as net income plus interest expense, net, loss on debt refinancing, income taxes and depreciation and amortization and certain other items as reflected in this release.

Management believes that these measures are useful to investors as they enable the Company and its investors to evaluate and compare the Company's results from operations in a more meaningful and consistent manner by excluding specific items which are not reflective of ongoing operating results and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.

However, these measures are not measurements of the Company's performance under GAAP and should not be considered as alternatives to earnings per share, net income or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, or as a measure of the Company's profitability or liquidity.  For more information, see the attached reconciliations of non-GAAP financial measures.

 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)



Three months ended March 31,


2018


2017


(unaudited)

Revenue

$

607,533



$

654,948


Cost of sales, including warehousing, distribution and occupancy

400,659



435,086


Gross profit

206,874



219,862


Selling, general, and administrative

160,730



166,027


Other income, net

(245)



(1,133)


Operating income

46,389



54,968


Interest expense, net

21,773



15,894


Loss on debt refinancing

16,740




Income before income taxes

7,876



39,074


Income tax expense

1,686



14,330


Net income

$

6,190



$

24,744


Earnings per share:




Basic

$

0.07



$

0.36


Diluted

$

0.07



$

0.36


Weighted average common shares outstanding:




Basic

83,232



68,246


Diluted

83,368



68,300


 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS

(in thousands, except per share data)



Three months ended March 31,


2018


2017


Net
Income


Diluted
EPS


Net
Income


Diluted
EPS


(unaudited)

Reported

$

6,190



$

0.07



$

24,744



$

0.36


Gains on refranchising





(124)




Retention (1)

808



0.01






Legal charge (2)





2,097



0.03


Loss on debt refinancing

16,740



0.20






Tax effect of items above

(3,654)



(0.04)



(716)



(0.01)


Adjusted

$

20,084



$

0.24



$

26,001



$

0.38










Weighted average diluted common shares outstanding

83,368





68,300




 

 

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)



Three months ended March 31,


2018


2017


(unaudited)

Net Income

$

6,190



$

24,744


Income tax expense

1,686



14,330


Interest expense, net

21,773



15,894


Loss on debt refinancing

16,740




Depreciation and amortization (3)

12,105



16,739


Retention (1)

808




Legal charge (2)



2,097


Gains on refranchising



(124)


Adjusted EBITDA

$

59,302



$

73,680


 

(1) Relates to incentive program to retain senior executives and certain other key personnel below the executive level who are critical to the execution and success of the Company's strategy.  The total amount awarded was approximately $10 million, which vests in four installments of 25% each over the next two years on the earlier of February 2019 or the closing of the Harbin transaction, February 2019, August 2019 and February 2020.


(2) Relates to the outcome of litigation the Company pursued relating to a potential breach under its UK license agreement.


(3) The decrease in the current quarter compared with the prior year quarter was primarily due to the prior year quarter accelerated depreciation associated with the re-platforming of the GNC.com website from a third-party to a cloud-based solution, as well as long-lived asset impairments recorded within the U.S. and Canada segment for certain of our underperforming stores in the third and fourth quarter of 2017.

 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

U.S. Company-Owned Same Store Sales (including GNC.com)



Three months ended March 31,


2018


2017

Contribution to same store sales:




Domestic retail same store sales

(1.9)

%


(3.6)

%

GNC.com contribution to same store sales

2.4

%


(0.3)

%

Total same store sales

0.5

%


(3.9)

%

 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)



March 31,


December 31,


2018


2017


(unaudited)

Current assets:




Cash and cash equivalents

$

53,871



$

64,001


Receivables, net

114,712



126,650


Inventory

507,968



485,732


Prepaid and other current assets

78,677



66,648


   Total current assets

755,228



743,031


Long-term assets:




Goodwill

141,200



141,029


Brand name

324,400



324,400


Other intangible assets, net

97,963



99,715


Property, plant and equipment, net

179,547



186,562


Other long-term assets

29,423



25,026


   Total long-term assets

772,533



776,732


   Total assets

$

1,527,761



$

1,519,763


Current liabilities:




Accounts payable

$

175,151



$

153,018


Current debt

213,111




Deferred revenue and other current liabilities

115,213



114,081


   Total current liabilities

503,475



267,099


Long-term liabilities:




Long-term debt

1,062,778



1,297,023


Deferred income taxes

56,923



56,060


Other long-term liabilities

83,831



85,502


   Total long-term liabilities

1,203,532



1,438,585


   Total liabilities

1,707,007



1,705,684


Stockholders' deficit:




Common stock

130



130


Additional paid-in capital

1,002,604



1,001,315


Retained earnings

550,046



543,814


Treasury stock, at cost

(1,725,349)



(1,725,349)


Accumulated other comprehensive loss

(6,677)



(5,831)


   Total stockholders' deficit

(179,246)



(185,921)


   Total liabilities and stockholders' deficit

$

1,527,761



$

1,519,763


 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)



Three months ended March 31,


2018


2017


(unaudited)

Cash flows from operating activities:




Net income

$

6,190



$

24,744


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization expense

12,105



16,739


Amortization of debt costs

3,609



3,288


Stock-based compensation

1,512



1,410


Gains on refranchising



(124)


Loss on debt refinancing

16,740




Third-party fees associated with refinancing

(15,753)




Changes in assets and liabilities:




Decrease in receivables

11,840



5,890


(Increase) in inventory

(22,766)



(15,921)


(Increase) in prepaid and other current assets

(9,473)



(11,871)


Increase in accounts payable

21,791



27,411


Increase (decrease) in deferred revenue and accrued liabilities

388



(5,660)


Other operating activities

(1,111)



197


Net cash provided by operating activities

25,072



46,103






Cash flows from investing activities:




Capital expenditures

(3,732)



(13,906)


Refranchising proceeds

465



1,344


Store acquisition costs

(116)



(98)


Net cash used in investing activities

(3,383)



(12,660)






Cash flows from financing activities:




Borrowings under revolving credit facility

50,000



64,000


Payments on revolving credit facility

(32,500)



(91,000)


Payments on Tranche B-1 Term Loan

(1,138)



(1,138)


Payments on Tranche B-2 Term Loan

(10,700)




Original Issuance Discount and revolving credit facility fees

(35,216)




Deferred fees associated with pending equity transaction

(2,183)




Minimum tax withholding requirements

(223)



(229)


Net cash used in financing activities

(31,960)



(28,367)






Effect of exchange rate changes on cash and cash equivalents

141



332


Net (decrease) increase in cash and cash equivalents

(10,130)



5,408


Beginning balance, cash and cash equivalents

64,001



34,464


Ending balance, cash and cash equivalents

$

53,871



$

39,872



 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

(in thousands)



Three months ended March 31,


2018


2017


(unaudited)





Net cash provided by operating activities

$

25,072



$

46,103


Capital expenditures

(3,732)



(13,906)


Refranchising proceeds

465



1,344


Store acquisition costs

(116)



(98)


Third-party fees associated with refinancing

15,753




       Free cash flow

$

37,442



$

33,443


 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Segment Financial Data

 (in thousands)



Three months ended March 31,


2018


2017


(unaudited)

Revenue:




U.S. and Canada

$

512,414



$

536,621


International

40,065



39,751


Manufacturing / Wholesale:




   Intersegment revenues

64,663



61,298


   Third-party

55,054



55,834


Subtotal Manufacturing / Wholesale

119,717



117,132


   Total reportable segment revenues

672,196



693,504


   Other



22,742


   Elimination of intersegment revenues

(64,663)



(61,298)


Total revenue

$

607,533



$

654,948


Operating income:




U.S. and Canada

$

43,490



$

50,490


International

14,464



14,869


Manufacturing / Wholesale

14,964



17,267


   Total reportable segment operating income

72,918



82,626


Corporate costs

(26,479)



(28,074)


Other

(50)



416


   Unallocated corporate and other costs

(26,529)



(27,658)


Total operating income

$

46,389



$

54,968


 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Store Count Activity



Three months ended March 31,


2018


2017

U.S. & Canada




Company-owned(a):




Beginning of period balance

3,423



3,513


   Store openings

5



19


   Acquired franchise stores(b)

6



12


   Franchise conversions(c)



(1)


   Store closings

(49)



(44)


End of period balance

3,385



3,499


Domestic Franchise:




Beginning of period balance

1,099



1,178


   Store openings

5



6


   Acquired franchise stores(b)

(6)



(12)


   Franchise conversions(c)



1


   Store closings

(15)



(9)


End of period balance

1,083



1,164


International(d):




Beginning of period balance

2,015



1,973


   Store openings

16



22


   Store closings

(22)



(46)


End of period balance

2,009



1,949


Store-within-a-store (Rite Aid):




Beginning of period balance

2,418



2,358


   Store openings

16



16


   Store closings

(6)



(3)


End of period balance

2,428



2,371


Total Stores

8,905



8,983


 

(a) Includes Canada.


(b) Stores that were acquired from franchisees and subsequently converted into company-owned stores.


(c) Company-owned store locations sold to franchisees.


(d) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made) and company-owned stores located in Ireland and China.

 

 

GNC HOLDINGS, INC. AND SUBSIDIARIES
Adoption of New Revenue Recognition Standard

The Company adopted Accounting Standards Update 2014-09 (Revenue from Contracts with Customers) during the first quarter of fiscal 2018 using the full retrospective method.

The adoption of the new revenue standard does not impact recognition of point-of-sale revenue in company-owned stores, most wholesale sales, royalties and sublease revenue, together which account for approximately 90% of the Company's revenue. In addition, the new standard has no impact on the timing or classification of the Company's cash flows as reported in the Consolidated Statement of Cash Flows and is not expected to have a significant impact on the Company's Consolidated Statement of Operations.   The impact to the applicable quarterly periods in 2017 are presented below for the Consolidated Statements of Operations and by reportable segment.

 

 


Three months ended March 31, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands, except per share amounts)

Revenue

$

644,838



$

983


$

3,086


$

6,041


$

10,110



$

654,948


Cost of sales (1)

431,867




2,624


595


3,219



435,086


Gross profit

212,971



983


462


5,446


6,891



219,862


SG&A (2)

160,581





5,446


5,446



166,027


Gains on refranchising

(154)



30




30



(124)


Other income, net

(1,009)








(1,009)


Operating income

53,553



953


462



1,415



54,968


Interest expense, net

15,894








15,894


Income before income taxes

37,659



953


462



1,415



39,074


Income tax expense

13,809



350


171



521



14,330


Net income

$

23,850



$

603


$

291


$


$

894



$

24,744


Earnings per share:









Basic

$

0.35



$

0.01


$


$


$

0.01



$

0.36


Diluted

$

0.35



$

0.01


$


$


$

0.01



$

0.36











Adjusted net income (3)

$

25,088



$

622


$

291


$


$

913



$

26,001


Adjusted diluted EPS (3)

$

0.37



$

0.01


$


$


$

0.01



$

0.38


 

 


Three months ended June 30, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands, except per share amounts)

Revenue

$

640,994



$

1,353


$

1,542


$

6,349


$

9,244



$

650,238


Cost of sales (1)

428,271




1,342


842


2,184



430,455


Gross profit

212,723



1,353


200


5,507


7,060



219,783


SG&A (2)

154,033





5,507


5,507



159,540


Long-lived asset impairments

19,356








19,356


Other income, net

(486)








(486)


Operating income

39,820



1,353


200



1,553



41,373


Interest expense, net

16,067








16,067


Income before income taxes

23,753



1,353


200



1,553



25,306


Income tax expense

8,092



497


73



570



8,662


Net income

$

15,661



$

856


$

127


$


$

983



$

16,644


Earnings per share:









Basic

$

0.23



$

0.01


$


$


$

0.01



$

0.24


Diluted

$

0.23



$

0.01


$


$


$

0.01



$

0.24











Adjusted net income (3)

$

27,841



$

856


$

127


$


$

983



$

28,824


Adjusted diluted EPS (3)

$

0.41



$

0.01


$


$


$

0.01



$

0.42


 

 


Three months ended September 30, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands, except per share amounts)

Revenue

$

609,469



$

(360)


$

(1,925)


$

5,769


$

3,484



$

612,953


Cost of sales (1)

412,663




(1,681)


679


(1,002)



411,661


Gross profit

196,806



(360)


(244)


5,090


4,486



201,292


SG&A (2)

150,961





5,090


5,090



156,051


Gains on refranchising

(230)



40




40



(190)


Long-lived asset impairments

3,861








3,861


Other loss, net

1,769








1,769


Operating income

40,445



(400)


(244)



(644)



39,801


Interest expense, net

16,339








16,339


Income before income taxes

24,106



(400)


(244)



(644)



23,462


Income tax expense

2,643



(146)


(91)



(237)



2,406


Net income

$

21,463



$

(254)


$

(153)


$


$

(407)



$

21,056


Earnings per share:









Basic

$

0.31



$


$


$


$



$

0.31


Diluted

$

0.31



$


$


$


$



$

0.31











Adjusted net income (3)

$

22,228



$

(229)


$

(153)


$


$

(382)



$

21,846


Adjusted diluted EPS (3)

$

0.32



$


$


$


$



$

0.32


 

 


Three months ended December 31, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As
Revised


(in thousands, except per share amounts)

Revenue

$

557,737



$

1,493


$

(1,672)


$

5,265


$

5,086



$

562,823


Cost of sales (1)

380,190




(1,452)


600


(852)



379,338


Gross profit

177,547



1,493


(220)


4,665


5,938



183,485


SG&A (2)

137,986





4,665


4,665



142,651


Long-lived asset impairments

434,577








434,577


Other income, net

(785)








(785)


Operating loss

(394,231)



1,493


(220)



1,273



(392,958)


Interest expense, net

15,921








15,921


Gain on convertible debt and debt
refinancing costs

(10,996)








(10,996)


Loss before income taxes

(399,156)



1,493


(220)



1,273



(397,883)


Income tax benefit (4)

(189,331)



4,606


(452)



4,154



(185,177)


Net loss

$

(209,825)



$

(3,113)


$

232


$


$

(2,881)



$

(212,706)


Loss per share:









Basic

$

(2.99)



$

(0.04)


$


$


$

(0.04)



$

(3.03)


Diluted

$

(2.99)



$

(0.04)


$


$


$

(0.04)



$

(3.03)











Adjusted net income (3)

$

17,689



$

962


$

(139)


$


$

823



$

18,512


Adjusted diluted EPS (3)

$

0.25



$

0.01


$


$


$

0.01



$

0.26


 

 


Year ended December 31, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands, except per share amounts)

Revenue

$

2,453,038



$

3,469


$

1,031


$

23,424


$

27,924



$

2,480,962


Cost of sales (1)

1,652,991




833


2,716


3,549



1,656,540


Gross profit

800,047



3,469


198


20,708


24,375



824,422


SG&A (2)

603,561





20,708


20,708



624,269


Gains on refranchising

(384)



70




70



(314)


Long-lived asset impairments

457,794








457,794


Other income, net

(511)








(511)


Operating loss

(260,413)



3,399


198



3,597



(256,816)


Interest expense, net

64,221








64,221


Gain on convertible debt and debt
refinancing costs

(10,996)








(10,996)


Loss before income taxes

(313,638)



3,399


198



3,597



(310,041)


Income tax benefit (4)

(164,787)



5,307


(299)



5,008



(159,779)


Net loss

$

(148,851)



$

(1,908)


$

497


$


$

(1,411)



$

(150,262)


Loss per share:









Basic

$

(2.16)



$

(0.03)


$

0.01


$


$

(0.02)



$

(2.18)


Diluted

$

(2.16)



$

(0.03)


$

0.01


$


$

(0.02)



$

(2.18)











Adjusted net income (3)

$

92,846



$

2,211


$

126


$


$

2,337



$

95,183


Adjusted diluted EPS (3)

$

1.35



$

0.03


$


$


$

0.03



$

1.38


 

(1) Includes warehousing, distribution and occupancy


(2) Defined as selling, general and administrative expense.


(3) Adjusted for certain expenses as previously defined in prior earnings releases.


(4) Adjustments include $3.7 million non-cash tax expense related to the remeasurement of the applicable net deferred tax assets in connection with the 2017 Tax Act.

 

 

The impact of adoption of the new revenue recognition standard on the Company's reportable segments was as follows:

 


Three months ended March 31, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands)

Revenue:









U.S. and Canada

$

530,179



$

401


$


$

6,041


$

6,442



$

536,621


International

39,417



334




334



39,751


Manufacturing / Wholesale









Intersegment revenues

61,298








61,298


Third party

52,500



248


3,086



3,334



55,834


Subtotal Manufacturing / Wholesale

113,798



248


3,086



3,334



117,132


Total reportable segment revenues

683,394



983


3,086


6,041


10,110



693,504


Other

22,742








22,742


Elimination of intersegment revenues

(61,298)








(61,298)


Total revenue

$

644,838



$

983


$

3,086


$

6,041


$

10,110



$

654,948


Operating income:









U.S. and Canada

$

50,119



$

371


$


$


$

371



$

50,490


International

14,535



334




334



14,869


Manufacturing / Wholesale

16,557



248


462



710



17,267


Total reportable segment operating income

81,211



953


462



1,415



82,626


Corporate costs

(28,074)








(28,074)


Other

416








416


Unallocated corporate costs and other

(27,658)








(27,658)


Total operating income

$

53,553



$

953


$

462


$


$

1,415



$

54,968


 

 


Three months ended June 30, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands)

Revenue:









U.S. and Canada

$

520,804



$

661


$


$

6,349


$

7,010



$

527,814


International

43,631



182




182



43,813


Manufacturing / Wholesale









Intersegment revenues

56,000








56,000


Third party

53,945



510


1,542



2,052



55,997


Subtotal Manufacturing / Wholesale

109,945



510


1,542



2,052



111,997


Total reportable segment revenues

674,380



1,353


1,542


6,349


9,244



683,624


Other

22,614








22,614


Elimination of intersegment revenues

(56,000)








(56,000)


Total revenue

$

640,994



$

1,353


$

1,542


$

6,349


$

9,244



$

650,238


Operating income:









U.S. and Canada

$

51,829



$

661


$


$


$

661



$

52,490


International

15,605



182




182



15,787


Manufacturing / Wholesale

17,927



510


200



710



18,637


Total reportable segment operating income

85,361



1,353


200



1,553



86,914


Corporate costs

(26,207)








(26,207)


Other

(19,334)








(19,334)


Unallocated corporate costs and other

(45,541)








(45,541)


Total operating income

$

39,820



$

1,353


$

200


$


$

1,553



$

41,373


 

 


Three months ended September 30, 2017


As Previously
Reported


Franchise Fees

Specialty
Manufacturing

Cooperative
Advertising and
Other Franchise
Support Fees

Total
Adjustments


As Revised


(in thousands)

Revenue:









U.S. and Canada

$

486,282



$

332


$


$

5,769


$

6,101



$

492,383


International

49,057



(599)




(599)



48,458


Manufacturing / Wholesale









Intersegment revenues

58,037