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GNC is IPO Star Of 2011

Brendon Smialowski | AFP | Getty Images

When GNC hit the market in April, it had its fair share of critics. Apollo, its former owner, unsuccessfully tried to take it public twice. Even more recently, the company failed to complete a prospective merger deal with Chinese buyer Bright Food.

The company had $1 billion in debt and it was competing in the tremendously competitive vitamin and supplement space, which seemingly had shrinking margins.

But GNC has emerged as the top IPOin a year where six percent less money was raised than 2010. Of the 125 deals priced in the US in 2011, GNC is the top performer through the close on December 27, gaining almost 83% from its IPO filing price of $16 on April 1.

GNC narrowly edged data security company Imperva , who was up 82 percent on the year. More well-known names like LinkedIn (up 39.7%), Dunkin Brands (up 31%), Zillow (up 17.2%) and Groupon (up 15.3%).

So why did GNC do so well?

Because it embraced all of its challenges and came out on top. The first thing GNC did right was changing its marketing. Long a favorite of muscle builders, GNC made the smart move by pushing that hard core product to the back and gearing its advertising towards women (including ESPN’s Jenn Brown) and dedicating more of its stores to boomers.

Many were also concerned about GNC’s margins. GNC doesn’t make much money off the brands owned by others and there were plenty of people I spoke to who thought that brand loyalty in the vitamin space was hard to come by (consumers just bought the cheapest stuff they could get their hands on). But GNC grew its own brands like Mega Men, Ultra Mega and Pro Performance and the company had a very successful launch of its new Beyond Raw sports nutrition line. More than half (about 56 percent) of the products now in their stores are owned and produced by GNC. About 80 percent of its business is in vitamins, minerals, herbs, supplements and sports nutrition products.

Not only has GNC excelled at making its own products, it did well producing vitamins and supplements for third party vendors like Rite Aid , Sam’s Club and Drugstore.com. To address online competition, it bought one of the biggest players in the marketplace, LuckyVitamin.com, for $21 million. LuckyVitamin.com currently offers over 30,000 SKU’s. Proving the power of the brand, GNC.com sales have risen between 30 and 40 percent this fiscal year.

And lastly, the grew sales occasions and had larger transactions with their customers. That’s led to increasing its impressive streak of consecutive quarters of same store sales growth to 25 in the midst of a tough economy.

Not surprisingly, stores continue to grow. GNC has 7,567 stores worldwide, with 76 percent of those stores in the US alone. They’ve grown by 125 units in the US this year and 140 units internationally.

The one exposure point for GNC seems to be its $900 million-plus debt load. But, last month, Moody’s cited the company’s health by upgrading GNC’s debt ratings.

Questions? Comments? SportsBiz@cnbc.com

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RAD
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WMT
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Z
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DUNKIN
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GNC HOLD
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GROUPON
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IMPERVA
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LINKEDIN
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