(* Preface: I am not a financial analyst and nothing in the article should be considered me giving advice. I do not own FitLife Brand stock or have any insider information. I simply am speaking about a passion category in CPG.)

As of you know, I tend to dive into the financials of many of the public CPG companies that are in nutritional supplements, food, and beverage spaces. I believe these financial reports give you a good sense of the pulse of the CPG industry over the last 3 or 12 months. Combined with trend analysis, it usually paints a strong picture of what is to come in the next 12-24 months. One of the lessor known public companies that I look at is called FitLife Brands. FitLife Brands is a portfolio of nutritional supplement brands which include:

  • Professional Muscular Development
  • iSatori
  • NDS
  • Metis Nutrition
  • Siren Labs
  • Biogenetix Labs
  • Core Active

Unless you are an avid GNC Franchise shopper, many of those names do not ring much of a bell. That is because they are mostly exclusive to GNC franchise locations (called Core FitLife in financials).

On April 17, 2018, FitLife Brands released their 2017 Annual Report. Highlights for the full year ended December 31, 2017 include:

  • Total revenue declined $7.5 million, or 29.7%, to $17.8 million from $25.3 million
  • Core FitLife revenue decreased 25.0% to $13.7 million from $18.3 million
  • iSatori revenue decreased 41.9% to $4.1 million from $7.1 million

The decline in Core FitLife was primarily attributable to several trends and developments with our largest customer (aka GNC) including reduced foot traffic and lower overall store count which in turn disrupted inventory replenishment and purchasing patterns. Revenue for the iSatori division for 2017 was $4.1 million versus $7.1 million for the prior year. The decline at iSatori was primarily attributable to fewer new product introductions (was re-branding and cutting non-performing products I believe) as well as the restructuring of its largest third-party distributor (aka Europa Sports Products). Despite those negative results, Dayton Judd, Interim CEO of FitLife Brands said, “We are already beginning to see benefits from the improving financial condition of our largest customer and look forward to continuing to work collaboratively with them in support of our mutual best interests. We remain committed to providing innovative, exclusive products to GNC franchisees. We are also exploring opportunities for growth in new channels.” (Note: I won’t cover the debt restructuring or other capitalization topics in this article.)

So how did I read that?

GNC’s overall revenue is down Year over Year in 2017 (My GNC YouTube video – https://www.youtube.com/watch?v=sQ7ySjgC5nM) and the 2018Q1 has started off the same way. The nutritional supplement category’s buyer behavior is very mature toward digital commerce. That means GNC will continue to have lower foot traffic and it will likely need to close more than the 200 locations that it announced in the latest earnings release (more on this topic from me soon…). The same store comps for franchises, which is where FitLife Brands are merchandised, were down almost 2% YoY in 2018Q1. This fact is not a good trend number for FitLife Brands and to compound that, franchise exclusive brands tend to be heavily given sales commissions for store associates to push in-store because of the high margins. That brick and mortar push sales model is dated and cannot be counted on for growth over the next 3-5 years. That strategy also usually doesn’t scale to digital and those brands get lost to more digitally savvy 3P sellers like Ghost Lifestyle or private-label GNC products on heavy discounts. Moreover, the comment about “exploring other channels” makes sense but these brands will need a major branding and marketing overhaul to compete in direct to consumer, Amazon, or additional FDMC accounts.

As for iSatori, the revenue numbers did not look good at all in 2017. They were growing fast during the heyday of BioGro but that product life cycle has passed and they did not have a proper product development pipeline that matched the current trends in space. They also went through a rebrand during the year but it wasn’t a huge leap so the sales shouldn’t have suffered materially if they planned adequately on the supply chain side of the business.

iSatori is the one brand in the portfolio that has a chance to succeed in the digital world. They had strong ties to many of the internet retailers but never adjusted to the changeover to owning the communication in the digital channel. That seems to be a major issue across many of the brands that started pre-social media scale of late 2000s. Taking a quick look at their Amazon, you can tell it’s definitely a work in progress with both an owned Seller account and a “come one come all” approach to 3P sellers on their listings. Additionally, the social media accounts lack engagement outside of posts about their sponsored athlete Brian Shaw. They also utilize it in a sporadic way with a lot of misalignment in positioning, messaging, and quality. Finally, the direct website seems to be built appropriately but I would guess the overall traffic is low due to the lack of social engagement and influencers.

So, what inferences can you pull from FitLife Brands Annual Report?

1.   This is a great example of old vs. new ways of nutritional supplement brand building and how 2018 and beyond will treat those old systems. No longer can you build brands on the backs of retailers and not communicate your brand’s story in a digital world.

2.   Diversification with your top customers, channels, and brand positioning is paramount in a portfolio.

3.   Push marketing without proper pull marketing will no longer work in 2018.

My advice to FitLife Brands is go raise some capital with the intent of acquiring a digital savvy brand with a good set of entrepreneurial partners or leadership team. Essentially make an acqui-hire and secure the talent for a bit of time to gain insights into correcting the path of your current brands and also starting new brands. I think that is the fastest way to turn this ship around and be able to sustain in a digital business landscape.