Vitamin and nutrition chain GNC Holdings has filed for Chapter 11 bankruptcy, with plans to close as many as 1,200 of its 5,200 U.S. stores as it searches for a buyer.
GNC — General Nutrition Centers — has struggled for years to shore up sales as it tried to pay down more than $900 million in debt. Then came the coronavirus pandemic, which forced it to shutter about 40% of its stores. The company reported a $200 million loss during the first quarter of this year, and last month it warned some of its temporary store closures could become permanent.
The bankruptcy filing comes days after GNC paid nearly $4 million in cash bonuses to top executives, including $2.2 million for CEO Kenneth Martindale. Four other executives, including the chief financial officer and chief human resource officer, received a combined $1.7 million in bonuses, according to company documents filed Wednesday with the Securities and Exchange Commission.
The bonuses were paid last Thursday, five days before the bankruptcy filing. Executives will have to pay back 25% of their after-tax bonuses if the company does not emerge from bankruptcy within a year, according to the filing.
The chain, founded in 1935 in Pittsburgh, is the sixth major U.S. retailer to file for bankruptcy protection during the pandemic, which has already led to thousands of permanent store closures and billions in lost sales across the industry.
In its bankruptcy filing Tuesday, GNC said it had both assets and liabilities between $1 billion and $10 billion. Annual revenue fell 12% last year to $2.07 billion. GNC has 5,200 U.S. stores and 1,600 locations inside Rite Aid pharmacies.
For years, GNC was the country’s go-to retailer for vitamins, protein powders and nutritional supplements. But by 2015, analysts said it was rapidly losing market share to chains such as Walmart, Target, CVS and Costco that moved quickly into the company’s health and wellness niche.
The rise of e-commerce also chipped away at GNC’s dominance as shoppers turned to Amazon and other discount websites for health and wellness products. (Jeff Bezos, the founder and chief executive of Amazon, owns The Washington Post.)
There were other missteps, too. The retailer, which was “best known for its muscle-building formulations” was slow to pivot to natural health, nutrition and wellness products popular among baby boomers, according to David Silverman, a senior director at Fitch Ratings. Many GNC stores are located in second- and third-tier malls, where traffic has dwindled for years.
By 2016, sales and profits had begun to decline. The company was also aggressively buying back shares of its stock with large swaths of borrowed money, which left it deeply indebted at the same time profits fell off a cliff.
That debt cast a shadow over the company’s finances. Profits, which totaled $219 million in 2015, swung to a $286 million loss a year later. More recently, GNC was facing a $160 million debt payment due in August, and another $450 million due next March.
“There are typically two reasons for bankruptcy filings — you either run out of cash or you’re unable to meet upcoming debt obligations, and this was the latter,” said Silverman, who downgraded the company’s credit rating in March. “GNC had liquidity, it was able to manage the COVID crisis fairly well, but it was facing significant [debt] maturities that it was unable to meet.”
Shares of the company’s stock tumbled nearly 25% on Wednesday to close at 61 cents per share, down from a peak of $60 in 2013. Shares are down nearly 80% this year.