Why Weight Watchers Shares Couldn't Keep the Weight Off

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: Shares of Weight Watchers (NYSE: WTW  ) were looking good today, gaining as much as 10%. But, like most diets, the change didn't hold, and the stock finished up just 1.3%.

So what: The weight-loss specialist said earnings per share improved from $0.74 a year ago, to $0.87 in Q1 this year, but the results were a bit misleading as the number of shares outstanding was greatly reduced by a self-tender offer last year. Net income in the quarter actually fell 10.7%, to $48.8 million. Revenue in the quarter was down 3.3%, to $486.9 million. CEO David Kirchoff explained, "The winter diet season proved to be challenging," and blamed "a weak consumer backdrop," as well as increased competition, for the poor results. Still, he expressed optimism about cost-cutting programs, new advertising campaigns, and product innovation. Weight Watchers also updated full-year guidance to a range of $3.60-$3.90.

Now what: This was certainly a bizarre report, as the results topped reported estimates, but the numbers seem distorted due to the self-tender offer. Either way, investors look like they came to their senses later in the day, as a 3% drop in revenue, and 10% drop in net income would rarely warrant such a spike in share price. I'd wait for consistent revenue gains before becoming a believer in Weight Watchers.

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