February 25, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: NutriSystem (Nasdaq: NTRI ) dropped 31% in intraday trading today after issuing massively disappointing guidance for the current quarter and 2011.
So what: Fourth-quarter revenue declined 17% year over year as potential customers apparently chose thicker wallets over thinner waistlines. New Year's resolutions didn't help, with management describing its annual January promotion as "ineffective" because of "intense competitive activity and bargain-focused consumer behavior."
Now what: A major new product launched by a competitor in January is pressuring prices and profits. In response, management stated it is taking cost-cutting actions and, "We need new product offerings and new sales channels to re-energize top-line growth." EPS guidance of $0.40 to $0.50 for 2011 and a loss of $0.30 to $0.35 in the current quarter fell far short of consensus estimates of $1.30 and $0.31, respectively. At a forward P/E ratio of about 31 times, investors should stay on the sidelines pending evidence of a turnaround.
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