Shorting Troubled GNC Holdings as the Clock Ticks


Small cap health and wellness retailer GNC Holdings (NYSE: GNC) is thesixth most shorted stock on theNYSE with short interest of 46.04% according to Highshortinterest.com. Aleading global specialty health, wellness and performance retailer, GNC Holdingsconnects 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.GNCHoldings 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 September 30, 2017,the Companyhad approximately 9,000 locations, of which approximately 6,800 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.


A technical chart shows shares falling since around the end of summer:

In October, Reutersreported that GNC Holdings wasseeking a partner to boost sales in China as it battles weak revenues and a sliding share price. Chinese companies and private equity firms expressed interest in a potential deal; but it was reported that several, including conglomerate Fosun International and Jack Ma-backed Yunfeng Capital, had pulled back as GNC’s share price continued to drop after the strategic review announcement. Nevertheless, China has been a bright spot for the Company and has become one of the top sellers onthe countrysonline shopping platforms.


However, Amazon.com (NASDAQ: AMZN) has also entered the nutritional supplementsbusiness with the launch of its Amazon Elements line of vitamins. In addition, GNC Holdingsended the third quarter with nearly $1.4 billion in long-term debt and only $40 million in cash meaning it will be difficult for the Company tosurvive any further downturn in its business.

In December, GNC Holdingsannounced that it had decided not to proceed with its previously announced plans to issue, via its wholly-owned subsidiary, General Nutrition Centers, Inc., senior secured notes due 2022 as the terms and conditions offered were not sufficiently attractive to the Company for GNC to move forward. Goldman Sachs was also retained as astrategic adviser to evaluate alternatives (which usually includes a sale).


Before Christmas, GNC Holdingsannounced that it had executed exchange agreements with certain holders of its 1.50% Convertible Senior Notes due 2020to exchange, in privately negotiated transactions, approximately $98.9 million aggregate principal amount of the 2020 Notes for an aggregate of approximately 14.6 million shares of GNC’s class A common stock, together with approximately $0.5 million in cash, representing accrued and unpaid interest on the 2020 Notes being exchanged.