The Chapter 11 filing late Tuesday came days after GNC paid nearly $4 million in cash bonuses to top executives, including $2.2 million for CEO Kenneth Martindale. The chief financial officer received $795,000 while three other C-level executives were paid a combined $918,000, according to company documents filed Wednesday with the Securities and Exchange Commission.
The bonuses were issued on June 18, five days before the bankruptcy filing. Executives will have to return 25 percent of their after-tax bonuses if the company does not emerge from Chapter 11 protection within a year, documents show.
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, GNC said it had both assets and liabilities between $1 billion and $10 billion. Annual revenue fell 12 percent last year to $2.07 billion. GNC has 5,200 U.S. stores, as well as 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 like Walmart, Target, CVS and Costco. 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. Further adding to the pain: Many GNC stores are located in second- and third-tier malls, where traffic has dwindled for years.
By 2016, both sales and profits had begun to decline. The company was also aggressively buying back shares of its stock using large swaths of borrowed money, which left it deeply indebted at the same time that 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 in 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 percent on Wednesday to close at 61 cents per share, down from a peak of $60 in 2013. Shares are down nearly 80 percent so far this year.