Will Weight Watchers Deliver a Healthy Fourth Quarter?

Weight-loss company Weight Watchers International (NYSE: WTW  ) will report fourth-quarter and full-year results on Feb. 13. The last earnings report was disappointing enough to result in a dividend suspension, and this report won't include the temporary boost from post-holiday dieters. Will Weight Watchers have another rough week?

Weight Watchers operates a subscription diet plan that includes optional in-person meetings and the company also sells branded food products in stores. The company competes against a wide range of healthy food goods on those store shelves while also going up against Nutrisystem  (NASDAQ: NTRI  ) and beleaguered multi-level marketing brand Herbalife (NYSE: HLF  ) .

What should investors watch for in the fourth-quarter report?   

Estimates to beat 
Analysts estimate revenue of $358 million for the quarter and $1.7 billion for the year. EPS is expected to come in at $0.61 and $3.87, respectively. Weight Watchers has met or beat on both metrics for the past five quarters.  The company's own full-year forecast included EPS between $3.85-$3.95. 

Analysts and investors will compare the results to last year's period when Weight Watchers reported $408 million in quarterly revenue with EPS of $0.96 and $1.8 billion for the year with EPS of $4.16. Meeting full-year analyst estimates would represent year-over-year drops of 6% for revenue and 7% for EPS.

Meeting attendance and subscriber count 
Weight Watchers doesn't make much off the food products sold in stores. Most of its revenue comes through subscriptions to its lifestyle program which includes online features and optional in-person meetings. Weight Watchers has to maintain growth in membership to sustain its business.  

In the third quarter, online subscribers were down over 5% after posting a mere 1% increase in the prior quarter. Meeting attendance was down nearly 15%. Weight Watchers also had an additional problem; the customers who subscribed also stayed for less time. Average meeting paid weeks were down 11% while only paid weeks dropped 3%.

Checking the membership numbers and the comparative length of member commitments offers a quick and easy look at how Weight Watchers did for the quarter. 

Competitor comparison 
Nutrisystem has an advantage over Weight Watchers because its money comes from the sale of products. The company operates a subscription meal delivery service with prices starting around $230 for a month's supply. Last year, Nutrisystem branched out into retail with quick-start kits sold in Wal-Mart

Nutrisystem's shares popped 12% following the third quarter report in October, which featured 5% revenue growth. Analysts expect Nutrisystem's fourth quarter to include revenue of $124.68 million and EPS of $0.14.

Another weight-loss company focusing on products is Herbalife, but this company comes with more controversy. Herbalife recently revealed that its fourth quarter EPS came in between $1.26-$1.30, which prompted Bill Ackman to set up a website furthering his accusations that Herbalife is a pyramid scheme that the government should shut down. Herbalife's products are distributed through a multi-level marketing structure that does create an inherent instability. The company has to worry about selling products and hope that its sellers don't stage a mass defection. 

Foolish final thoughts 
Weight Watchers will likely continue to struggle in the fourth quarter due to both the year's established trend and because the holiday season isn't the most popular time for starting a diet program. The company's also at a disadvantage because of an over-reliance on product-less subscription plans, more complicated to manage than moving products off the shelves. 

1 company to fatten your bottom line!
Companies that cater to dieting may help you lose weight, but will they help in transforming your bottom line? Here's one company that can! It happens to be the Motley Fool's chief investment officer's No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2014, at 12:07 PM, bowler59 wrote:

    Correction: Weight Watchers Intl. does NOT sell food products in supermarkets. That business is owned by H.J. Heinz. WW does sell some small amount of meal replacements (bars, shakes) at its meetings, along with points counters, scales, cookbooks, etc. WW Intl. is solely focused on SERVICES (i.e. meetings and WeightWatchers.com subscription service). J. LaRosa, Research Director and 25 year weight loss market analyst at Marketdata Enterprises.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2836871, ~/Articles/ArticleHandler.aspx, 10/24/2014 1:13:03 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement