GNC (General Nutrition Stores) filed for bankruptcy on June 23, 2020.

Some might attribute GNC’s downfall to store closings related to COVID-19 since GNC is a retailer.  But GNC initially kept its stores open, claiming to be an essential service because it sells food and health products.  While GNC did end up closing around half of its stores following backlash from its employees, GNC’s troubles go a lot deeper than the pandemic.

GNC has been having problems for years.

The Pittsburgh-based company has been providing health supplements since 1935, and it had 5,773 stores around the world at the end of 2019 (in addition to 1,759 locations inside Rite Aid).  But same-store sales are in decline (a 2.9% decrease in 2019) and the company is losing money.  GNC lost $35 million in 2019, followed by a $200 million loss in the first quarter of 2020 alone.

The problem is that GNC’s prices are too high, and the company is being undercut by online retailers.  GNC’s large physical footprint has become a liability.  This explains why GNC’s stock has significantly underperformed both the S&P 500 and other retailers over the past 5 years.

GNC has shuffled through four CEOs since 2014 in an effort to change this, and they’ve tried all the usual turnaround strategies:  hiring consultants, closing stores, cutting costs.  But GNC declining sales and a high debt load have made the company strapped for cash, and it’s been difficult to make capital investments in its outdated stores.  GNC tried to address this by focusing more of its efforts on the franchising side of its business, but it wasn’t enough to right the ship.

GNC had $895 million of debt coming due within the next year, and it simply didn’t have the cash to survive.

But GNC’s executives don’t believe the company should be liquidated, and they plan to emerge from bankruptcy by either (1) giving equity to the lenders or (2) selling the company outright.  Either way, GNC will continue to exist in some form.

In case you need conversation starters for your next family gathering, I’ve provided GNC’s most recent 10-K and 10-Q below.