Nutrisystem Earnings Bulk Up the Weight-Loss Space

Nutrisystem's (NASDAQ: NTRI  ) strong earnings report surged share prices to its two-year high on the news of continued growth beating consensus estimates.

With third-quarter $0.15 earnings per share and $85.4 million in revenue, it is unsurprising that Nutrisystem stock is up 125% in the past six months. Estimates projected $0.13 earnings per share and $82.7 million in revenue..

The weight management company is primarily known for its home delivery meal plans, but it has a robust arsenal of mobile apps, counseling, tools and trackers, a community of experts, and other affiliated weight management support.

It has made significant partnerships with retailers Target and Walmart, assisting the 5% growth in revenue this quarter and providing potential future gains in retail distribution. It has also sought out more direct consumer marketing and digital and e-commerce opportunities.

As holidays creep in, so do expanding waistlines, and the new year could bring in increased revenues for Nutrisystem as well as competing weight-loss companies Weight Watchers (NYSE: WTW  ) and Medifast (NYSE: MED  ) .

Nonetheless, analysts are cautious of possible yo-yo earnings. Nutrisystem's third-quarter numbers are impressive, but they come after a five-year history of struggling revenue. Nonetheless, this marks the fourth consecutive quarter where Nutrisystem has topped expectations.

With strong numbers, debt-free balance books, and smooth operations, competitors are the biggest obstacle for Nutrisystem.

NTRI Chart

NTRI data by YCharts.

Weight Watchers is another major player in weight loss, basing its model around a subscription model where customers purchase meal and fitness plans and subsequently join the community of other Weight Watchers members. However, given a diet plan that focuses largely on tracking calories, it has been has been struggling with the proliferation of free applications that function largely the same way as its program.

Giants such as Nike and Apple both offer a suite of fitness and calorie-tracking apps and gadgets and enjoy a considerable advantage in branding. Nike+ Fuelband was launched in January 2012 and syncs with the iPhone to track physical activities and also integrate into social networking. Both iOS and Android stores have an abundance of free fitness and calorie tracking apps, all of which serve largely the same function as Weight Watchers does. Weight Watchers has already developed apps of its own, but limits them to paying members.

Nutrisystem is less affected by these battles in the mobile arena. Its products can be sold separately and are not tied to the rigid structure of paid membership that Weight Watchers is. While it is a weight-loss program, it can also function as a simple meal preparation service, selling specialized meal plans for diabetics and others in retail "5-day weight loss" kits.

While smaller than its competitors with a market cap of only $337.56 million, Medifast has a more diverse plan for revenue. It sells food products for dieters, maintains brick and mortar weight control centers, and also has a personal coaching unit of individuals who work with dieters to lose weight and in turn collect commission on sale of the company's food products. The coaching program, "Take Shape for Life," accounts for a majority of the company's revenue. With less of a dependence on tracking or mobile applications, the smaller company may fare the best of the three as mobile technology expands.

Bottom line
Nutrisystem continues to be a strong dividend-producing performer in the weight loss space with a solid and flexible business model and pristine books. Weight Watchers, while the largest of the three, is plagued by an archaic business model that is quickly threatened by giants such as Nike and Apple who have easily entered the fitness and calorie tracking space that Weight Watchers relies on. Lesser-known Medifast takes a different approach to sales, mobilizing independent contractors to push its products and seems to be succeeding thusfar with that model.

Both Nutrisystem and Medifast should fare well as diet season begins after the holidays, with Nutrisystem enjoying its new retail partnerships and Medifast capitalizing on the encouragement of its personal "coaches." Meanwhile, Weight Watchers may need to seriously reevaluate its business model or risk whittling away.

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  • Report this Comment On November 01, 2013, at 11:42 AM, rmumm wrote:

    Huh i looked at the p&L and it showed a big ;loss not a gain. Also listened to call and ntri projects a minuscule revenue gain of 1-5% and another loss next quarter. Surprising is big projections for sales and earnings at Wal-Mart and Target, strange as suppliers to these discounters must survive on the most minuscule margins in the industry. So selling at 175 earnings which with the next quarter projection will raise to 215 times, and after the discounters wreak havoc on earrings we could be buying this for a whopping 350 times earning, back up the truck anyone?

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