GNC Holdings filed for bankruptcy protection late Tuesday with the aim of selling itself and closing up to 1,200 stores after its latest effort to manage its debt load unraveled amid the coronavirus pandemic.
The health and wellness company’s Chapter 11 petition filed in U.S. Bankruptcy Court in Delaware allows the retailer to keep operating while it pursues a dual-track process to restructure its balance sheet in a standalone plan or complete a sale, according to a statement.
The retailer has at least 25 stores in the Indianapolis area.
GNC entered into the process with support from a majority of its secured lenders and an affiliate of its largest shareholder, Harbin Pharmaceutical Group Holding Co., the Pittsburgh-based company said in the statement. The agreement also includes its largest vendor and joint venture partner, IVC. Certain lenders also provided $130 million in additional liquidity to financially support the company through its proposed restructuring.
The company’s pre-negotiated plan will close stores as it looks to emerge leaner. It also reached an agreement in principle to market and sell itself through a court-supervised process, with an initial bidding price of $760 million, subject to court approval. A higher bid could be presented and accepted, and would be implemented instead of just the standalone plan transaction, according to the statement.
With the support of its lenders and stakeholders, GNC expects to confirm a standalone plan of reorganization or complete a sale that will allow the business to exit from its restructuring process by the fall. GNC’s U.S. and international franchise partners and its corporate operations in Ireland, which are separate legal entities, aren’t part of the bankruptcy.
The turnaround will be complicated by the retail industry’s temporary shutdown of stores to help stop the spread of COVID-19. That has been partially offset by the company’s e-commerce operations, whose sales increased 25% in the first quarter.
GNC has been led since September 2017 by CEO Ken Martindale. The former head of Rite Aid Stores was brought in more than a year after the abrupt exit of former CEO Michael Archbold amid falling revenue and a strategic review that included the debt load and a potential sale of the company. Martindale failed to arrest the revenue decline, and this year’s first quarter included a $200 million net loss.
As cash on hand dwindled, GNC warned it might face bankruptcy unless it found a way to pay hundreds of millions of dollars in debt due in May. Management has been in talks with lenders about a refinancing that would extend maturity dates and buy time for a turnaround.
The bankruptcy plan calls for a commitment from certain term loan lenders who agreed to provide GNC with $100 million of new money structured as a debtor-in-possession loan, and an additional $30 million from various changes to the company’s existing credit agreement, according to the statement. With the increased liquidity and cash flow from ongoing operations, GNC said it will meet its “go forward financial commitments” as it works through the process.
The company has struggled in recent years, clawing its way out of difficulty in February 2018 when it refinanced its loans and lined up a $300 million investment from Harbin.
Most of GNC’s outlets are in malls and strip shopping centers, forcing them to contend with the same declines in foot traffic that have affected other retailers. Sales at brick-and-mortar stores have fallen further amid stay-at-home orders and the wariness of some to venture out in public.
Over the past year, GNC started to reduce its store count, while investing in its online and omnichannel presence, the company said. As part of the bankruptcy restructuring, GNC will seek to speed up closures of at least 800 to 1,200 stores.
“This acceleration will allow GNC to invest in the appropriate areas to evolve for the future, better positioning the company to meet current and future consumer demand around the world,” the company said.
The chain sells health and nutrition products worldwide, including vitamins, supplements, minerals, herbs, sports nutrition, diet and energy supplements. It has about 5,200 retail locations throughout the U.S., including around 1,600 Rite Aid store-within-a-store locations, as well as operations in about 50 international markets.
GNC traces its roots to 1935 when David Shakarian opened a health-food shop selling yogurt and sandwiches in Pittsburgh. The chain rode a wave of interest in nutrition, eventually expanding to over 9,000 outlets. It employed about 12,400 people at year-end.
The company said it expects to file in a Canadian court seeking to have the U.S. proceeding designated to cover assets there.