Document #1631536 (2005)Full Document 

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Conference Call Transcript

GNCI — Q4 2004 GNC Corporation Earnings Conference Call
Event Date/Time: Mar. 04. 2005 / 11:00AM ET
Event Duration: N/A

Thomson StreetEvents 617.603.7900

     © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.



Robert DiNicola
GNC Corporation — Chairman & Interim CEO

Patrick Fitzgerald
GNC Corporation — Director of IR

Curt Larrimer
GNC Corporation — CFO


Gary Giblen
C.L. King & Assoc. — Analyst

Carla Casella
JPMorgan — Analyst

Vincent Larra


Matthew Arnaz
Goldman Sachs — Analyst

Susan Jansen
Lehman Brothers — Analyst

Shelly Hambrecht
C.L. King & Assoc. — Analyst

Adam Moss
US Trust — Analyst

Shannon Ward
AIG — Analyst



     Good morning, ladies and gentlemen, and welcome to GNC 2004 year-end investor conference call. At the time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note this conference is being recorded. I would now like to turn the call over to Mr. Robert DiNicola, Chairman and Interim CEO. You may begin, sir.

     Robert DiNicola — GNC Corporation — Chairman & Interim CEO

     Thank you, Marcella. Good morning, everyone, and thanks for joining us today. I’m here with Curt Larrimer, our CFO, and Dave Heilman, who you all know.

Before we begin the meeting, I’m going to ask Patrick Fitzgerald, our Head of IR, to read through the necessary disclaimer. So Patrick, why don’t you go ahead and do that?

     Patrick Fitzgerald — GNC Corporation — Director of IR

     Thanks, Bob. This conference call includes forward-looking statements, which include information concerning our future results, trends, and other information that is not historical. All forward-looking statements included on this call are based on information available to us on the date of this call, current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but we may not


realize our expectations and our beliefs may not prove correct. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this call. For a list of important factors that could cause our actual results to differ materially from the forward-looking statements in this call, please refer to our public filings with the Securities and Exchange Commission. I’ll now turn the call back over to Bob.

     Robert DiNicola — GNC Corporation — Chairman & Interim CEO

     Thanks, Patrick. The agenda for today’s meeting is basically threefold. First, Curt is going to brief everyone on the financials for ‘04, detailing the statistical performance of the Company for last year. Then, we’re going to discuss ‘05, the performance and the repositioning of the Company for this year and beyond. And then lastly, we’re going to take your questions. So why don’t we start off with Curt and he’s going to talk about the numbers for ‘04. Curt?

     Curt Larrimer — GNC Corporation — CFO

     Thank you, Bob. Good morning. Before I begin to talk about the fourth-quarter and year-end results, I would like to discuss the two issues that we mentioned in our press release that are not included in our current financial results. Number one, the Company’s accounting for leases and number two, the transfer of our franchise rights in Australia.

As you know, the Company leases all of its corporate store locations. Recently, many companies in the retail and restaurant industries have been reviewing their accounting for leases including conforming the term used for calculating the straight-lining of rent expense with the useful life used for calculating depreciation expense on leasehold improvements. The Company will change its accounting for leases and is having ongoing discussions concerning these accounting practices with its external auditors and its audit committee, and has not yet made a final determination of the amount of any corrections. The Company expects to complete its review of lease accounting matters prior to filing its Form 10-K, which is due by March 31st, 2005. However, the Company does not expect that any changes to the preliminary unaudited results when lease accounting matters are resolved, will be material to the financial position or results of operation. Cash flow will not be impacted at all by any of these changes. We believe the cumulative non-cash impact will be between $0.5 million and $3 million and such impact is not included in the following discussion.

Second, in Australia, the Company also recently agreed to transfer the GNC Australian franchise rights to Global Active Limited, an organization that already owns and operates GNC franchise locations in the Asia-Pacific region. The Company expects to receive proceeds of 4.375 million related to this transaction, a portion of which may be recognized as a subsequent event in the fourth quarter of 2004 with the remainder recognized in 2005. The agreement was actually signed late last night and that’s why it’s not included in these financial results.

I will now review the actual financial results of the fourth quarter and year ended December 31st, 2004. Consolidated results were as follows — consolidated revenue was 301.3 million, a decrease of 42.4 million or 12.3 percent from the fourth quarter of 2003. For the year, consolidated revenue decreased by 84.8 million or 5.9 percent to 1 billion and 0.345 million (ph). The decrease for the quarter and year were largely due to the decline of sales of diet products and the closing of a net 171 company-owned and franchised domestic retail locations. Consolidated gross profit margin for the quarter was 32.3 percent, an improvement of 225 basis points over the fourth quarter of 2003. Our gross profit margin is calculated after the cost of product, warehousing, distribution, and occupancy expenses.

For the year, gross margin was 33.5 percent, a 334 basis point increase ever 2003. These increases for the quarter and year were the result of improved margins at retail as the mix of sales changed from lower-margin diet products to higher margin VMHS products; the improved management of inventory, which resulted in lower cost of expiring products; lower occupancy costs; and improved manufacturing efficiencies at our plant in South Carolina.

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