GNC 2011 Annual Report Download - page 52

Table of Contents
The following trends and uncertainties in our industry could affect our operating performance as follows:
broader consumer awareness of health and wellness issues and rising healthcare costs may increase the use of the products we offer and
positively affect our operating performance;
interest in, and demand for, condition-specific products based on scientific research may positively affect our operating performance if we can
timely develop and offer such condition specific products;
the effects of favorable and unfavorable publicity on consumer demand with respect to the products we offer may have similarly favorable or
unfavorable effects on our operating performance;
a lack of long-term experience with human consumption of ingredients in some of our products could create uncertainties with respect to the
health risks, if any, related to the consumption of such ingredients and negatively affect our operating performance;
increased costs associated with complying with new and existing governmental regulation may negatively affect our operating performance; and
a decline in disposable income available to consumers may lead to a reduction in consumer spending and negatively affect our operating
performance.
Executive Overview
Our recent results of operations reflect steady growth, including through a difficult economic environment and despite a short-term reduction in revenue
that we experienced in 2009 due to the Hydroxycut recall. For the year ended December 31, 2010, we achieved revenue growth of 6.8%, operating income
growth of 18.4% and net income growth of 41.0% compared to the same period in 2009. Operating income growth resulted from higher sales and margins in
our retail and franchise segments and effective cost controls on unallocated expenses. Net income growth resulted primarily from higher operating income,
lower interest expense, and a lower effective tax rate.
Recent revenue growth in our domestic retail segment has been driven primarily by increases in the sports nutrition category resulting from new product
introductions. In addition, we have experienced significant growth in our GNC.com business primarily as a result of our redesigned website. Our domestic
retail comparable store sales increased 5.6% in 2010 compared to 2009. Included in this increase is a 26.2% increase in our GNC.com business. In recent
periods, our domestic franchise business has achieved increased product sales despite a lower store base. Sales in the international franchise business have
grown steadily as a result of an increased store base and strong organic sales growth.
Our manufacturing strategy is designed to provide our stores with proprietary products at the lowest possible cost, and utilize additional capacity to
promote production efficiencies and enhance our position in the third-party contract business. Under this strategy, our third-party manufacturing sales grew
3.8% and 38.7% in 2009 and 2008, respectively, over the prior year periods. For the year ended December 31, 2010, our manufacturing segment experienced
reduced sales in contract manufacturing compared to 2009, partially offset by higher product sales to Rite Aid, www.drugstore.com and PetSmart. The
reduction in the contract manufacturing business reflects a transition period during which we are moving from low margin commodity contracts to higher
margin, specialty product contracts.
We also continue to invest in opportunities to expand our brand beyond our existing domestic company-owned footprint and partner with companies
like PepsiCo and PetSmart to develop new
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