The Rise of DTC Supplements Constitutes a Threat to GNC

Speaking of a concessions business, GNC Holdings Inc. ($GNC) is a big proponent (have you been to Rite-Aid lately?) and look how well…oh, wait…nevermind.

When we last wrote about GNC back in February, the company had reported surprising earnings, margins and free cash flow; it also paid down its revolving credit facility and seemed on the verge of amending and extending its term loan. It had also just received a cash infusion commitment from a Chinese investment fund in exchange for 40% of the company. Subsequently, the company was able to amend and extend the term loan to 2021. Concurrently, the company entered into a new $100 million asset-backed loan due August 2022 and engaged in certain other capital structure machinations to obtain $275 million of asset-backed “first in, last out” term loans due December 2022. Textbook. Kicking. The. Can. Which, of course, helped the company avoid Vitamin World’s bankrupt fate. 👊 Goldman Sachs!

Meanwhile, this is what the stock looks like:

Pretty ugly. And it may get worse when you factor in what’s going on in the world of supplements, generally. What’s going on, you ask? A sh*t ton of venture capital investment, corporate cash infusion and growth.

Earlier in March, a company called Ancient Nutrition, producer of bone broth protein and collagen supplement, raised $103 million of funding from VMG Partners, Hillhouse Capital and ICONIQ Capital. Notably, the product is available throughout Chicago — just not at GNC. Rather, it is available at Whole Foods, Fresh Thyme Farmers Market and Heinan’s. Similarly, in New York City, it is predominantly found at Whole Foods, Fairway and Natural Green Market, among other places.

Supplements are going gangbusters elsewhere too. Earlier this month, Hims, an erectile dysfunction and hair loss company aimed at millennials and dubbed “Viagra, but for hipsters” (yup, you read that right), raised $40 million of funding at a $200 million valuation (kudos to GQ for creative photography). It’s distribution channel? Direct-to-consumer. Sorry GNC. Same goes for Roman and Keeps, two Hims-like competitors.

Meanwhile, The Clorox Company got into the game last week with an $700 million acquisition (3.5x sales) of Nutranext, a Florida-based wellness company that makes supplements and has a strong direct-to-consumer business. You know where you can’t get Nutranext…?

That’s right: GNC.

Perhaps those restructuring professionals disappointed by Goldman Sachs’ success in securing the refinancing should just put that GNC file in a box labeled “2021.”