Can Weight Watchers Stop Losing Big?

Weight Watchers posted disappointing fourth-quarter results. Can the company recover and compete with Herbalife?

Feb 18, 2014 at 12:27PM

Weight Watchers (NYSE:WTW) reported fourth-quarter and full-year earnings last Thursday evening and its shares fell nearly 20% after hours. The quarter wasn't expected to deliver strong numbers because it covers the holiday season. However, the company's service-as-product model saw key metrics slipping while competitor Herbalife (NYSE:HLF) has pulled ahead. How can Weight Watchers fix its losing problem? 

The company reported fourth-quarter revenue of $366.1 million, which beat the analyst consensus of $358 million but represented a year-over-year drop of 11%. The earnings per share of $0.54 that the company reported fell short of the forecast for $0.61. The outlook for 2014 doesn't inspire optimism, as Herbalife guided for EPS of $1.30-$1.60. 

Weight Watchers' membership metrics weakened last year as customers turned to free online calorie-counting services or fad diets. Winning back those customers might prove an impossible task.   

How bad was 2013 for Weight Watchers? 

Membership continues to erode  
Weight Watchers depends on member attendance and adherence for its livelihood because the service is the product. The company has very few tangible products to sell beyond some meal replacement bars and kitchen scales. Thus, it needs people to attend meetings and sign up for online subscriptions. 

There are a few key metrics that help measure the sales of the service: membership count and the number of weeks of the service that were purchased. Weight Watchers Key Metrics

Source: Company filings.

Attendance has lost the most steam since 2011, which has pulled down meeting-paid weeks. Online-paid weeks had a strong showing through 2012 and the first half of the next year before fading. 

The most concerning part of this graph is that the first quarters -- also known as the post-holiday diet rush -- don't show significant spikes upward. So even short-term, resolution-inspired dieters aren't turning to Weight Watchers in large numbers. 

How can Weight Watchers gain -- and keep -- members? 
The company runs highly visible advertising campaigns with celebrity spokespeople, so i'ts not as if people forgot that Weight Watchers exists. For whatever reason, dieters seem to have steered away from the in-person meeting model.

That leaves the online plans as the most important focus. However, with the online-only plans costing $18.95 a month after a nearly $30 signup fee, Weight Watchers needs to convince customers that its service offers benefits not available from free calorie-counting sites and apps. The company needs to put forward the changes it's made to remain modern -- such as the mobile app that includes a barcode scanner for easy food tracking.

However, it's going to remain a tough sell as the diet market stays saturated. 

Benefits of having products 
Weight Watchers has a limited number of meal replacement products and kitchen accessories available at meetings and through its online operations. The branded frozen meals in the grocery store aisle were licensed out to H.J. Heinz of Berkshire Hathaway royalty-free after Weight Watchers was spun off from the company in 1999. These products are a revenue source for Heinz, not Weight Watchers.

Having more physical products for sale could benefit Weight Watchers. Competitor Herbalife posted third-quarter product volume growth of 13% with revenue and EPS at $1.2 billion and $1.41, respectively.  Herbalife sells nutritional products primarily focused around shakes that are sold through a multilevel-marketing model. The company is also the target of Bill Ackman's one-man war. Ackman considers Herbalife a pyramid scheme and has called for the government to shut the company down. 

Herbalife will report fourth-quarter earnings on Feb. 18 and analysts expect $1.3 billion in revenue and EPS of $1.28. 

Foolish final thoughts
Weight Watchers has a tough task in trying to sell a service that users can similarly reproduce for free. The online option has proven more successful in recent years and should serve as the company's focus in the future.    

Want to fatten your bottom line? 
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his 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.

Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and Weight Watchers International and has the following options: long January 2015 $50 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers