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Credit Suisse bullish on GNC

BY CSA STAFF

NEW YORK — Credit Suisse on Wednesday initiated coverage of General Nutrition Centers, the specialty retailer of supplement and nutritional products and partner with Rite Aid in a store-within-a-store program across more than 1,000 drug store locations.

Credit Suisse characterized the GNC stock with an “outperform” rating and a $24 price target, noting that the retailers evolution into multichannel retailing along with a strong management team bodes well for the future of the specialty retailer. The fact that GNC is part of the vitamins/supplements industry — projected to grow 6% over the next five years — doesn’t hurt, either.

“Since [Joe] Fortunato’s ascension, the company-owned domestic store base has grown 10% while net income has quintupled,” Credit Suisse research analyst Gary Balter said. Fortunato assumed the GNC CEO position in 2005. “Annual square footage growth will likely be in the 3% to 4% range for domestic stores, which, when combined with our expectation of low single-digit same-store sales growth, equates to high single-digit top-line growth.”

GNC, however, is not without risk. The product mix still skews heavily against diet aids and sports nutrition, and any disparaging news around one of those products could prove devastating. In the fall of 2002, for example, when criticism around the diet aid ephedra was at its height, GNC (then owned by Royal Numico) same-store sales dropped an estimated 7% across its entire store base. Numico reported a $1.45 billion loss that fall.

That loss prompted Numico to sell GNC to Apollo Management in 2003 for $750 million, a deep discount to the $1.8 billion Numico originally paid to acquire GNC. Apollo again sold GNC to Ares Management in 2007 to the tune of $1.7 billion, an indication that the specialty retailer had successfully recovered its corporate value. Rite Aid also could become a negative factor, Balter noted. “Although GNC has predetermined volume and expansion agreements with Rite Aid, the drug store chain has a high debt load and is relatively poorly positioned in the segment,” he wrote. “Rite Aid accounted for 3.5% of GNC’s total sales in 2010. In a worst case scenario in which all of that revenue is eliminated, we estimate GNC’s EPS hit may be 10 cents (assuming a 25% contribution EBIT margin).”

And retail mall traffic may become a risk given that GNC operates approximately 1,000 mall locations, Balter added. “During the economic downturn, mall stores were hit harder than non-mall stores due to declining mall traffic. We view inflation/deflation as a minor threat, as the company has proven adept at managing the business in volatile pricing environments.”

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Drugstore.com announces expiration of HSR waiting period for WAG deal

BY CSA STAFF

BELLEVUE, Wash. Drugstore.com on Tuesday announced the expiration of the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the proposed merger by which the company would be acquired by Walgreens in a cash transaction.

The deal previously was announced on March 24.

Accordingly, the merger closing condition with respect to the expiration or termination of the waiting period under the HSR Act has been satisfied. Completion of the merger remains subject to satisfaction or waiver of certain other conditions, including approval by the stockholders of Drugstore.com.

The parties continue to expect the transaction to close in June 2011.

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Toys ‘R’ Us to install North America’s largest rooftop solar power system

BY CSA STAFF

Wayne, N.J. – Toys "R" Us is installing the largest rooftop solar power installation in North America at its distribution center in Flanders, N.J. Staging for the system is currently underway and construction will conclude this summer. Upon completion, the 5.38 megawatt on-site solar array will occupy 869,294 sq. ft. It is estimated to generate 72% of the electrical needs for the Toys "R" Us facility, which is the largest of the chain’s 10 DCs and covers over 1.5 million sq. ft., in addition to the roof, which spans 32 acres.

Constellation Energy will build, own and maintain the system. Toys "R" Us will purchase the electricity generated by the system from Constellation Energy through a 20-year power purchase agreement.

The Toys “R” Us solar power installation will cover nearly 70% of the distribution center’s 1,281,000-sq-ft. roof and will consist of more than 37,000 ultra lightweight Uni-Solar brand photovoltaic solar panels, manufactured by United Solar, a subsidiary of Energy Conversion Devices.

Depending on weather conditions, the system is expected to produce approximately 6,362,000 kilowatt-hours of electricity each year. Generating the same amount of electricity using non-renewable sources would result in the release of an estimated 4,387 metric tons of carbon dioxide, the equivalent emissions from 860 passenger vehicles or that of the electricity used to power 532 homes annually.

The solar power system is comprised of thin-film photovoltaic panels that are flexible, lightweight, durable and maintain performance, even in sub-optimal lighting conditions. In addition, the non-ballasted, non-penetrating and removable racking system allows access to the roof and prevents debris build-up and maintenance issues.

Beyond the solar project in Flanders, N.J., the company is making a number of sustainable upgrades to its existing stores around the country and incorporating renewable and energy efficient features into its new locations. In January 2010, a rooftop solar power system was installed at the Babies "R" Us in North Brunswick, N.J., through a partnership with the developer. It currently provides approximately 67% of the electricity needs for the location.

This spring, another rooftop solar system at the "R" Superstore in Secaucus, N.J., will be installed in partnership with Hartz Solar, a subsidiary Hartz Mountain Industries. It is estimated to generate 33% of electricity for the location.

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