What happened

Shares of WW International (WW -3.11%), the company formerly known as Weight Watchers, were moving higher today after it posted better-than-expected fourth-quarter results. Though revenue actually fell due to pandemic-related headwinds, low expectations helped lift the stock.

Shares were up 11% as of 2:38 p.m. EST.

A man with a tape measure wrapped around his waist.

Image source: WW International.

So what

Total subscribers rose 4% in the quarter to 4.4 million, an all-time high, and digital subscribers were up 24% to 3.7 million as demand has shifted to online channels because of the pandemic. With fewer studio members, revenue declined 3% in the period to $323.4 million, but that easily beat estimates of $312.3 million.

Adjusted gross margin in the quarter jumped from 52.7% to 61.2% due to cost discipline and the shift in sales mix to the digital channel, and adjusted operating income increased from $65.9 million to $67.3 million. On the bottom line, adjusted earnings per share slipped from $0.42 to $0.39, which was ahead of the consensus of $0.32. 

CEO Mindy Grossman said, "I am incredibly proud of what WW achieved in 2020. By delivering an engaging, holistic member experience through an innovative digital platform, we drove membership growth, maintained all-time high member retention, expanded our e-commerce presence and capabilities, and reinforced WW's position as a tech-enabled, human-centric weight loss and wellness leader."

Now what

Looking to 2021 guidance, management said it was lapping a difficult comp in the beginning of the year due to the pandemic as January is generally the strongest month in the weight loss/wellness industry, but the company expected to grow starting in the second quarter. It said on the earnings call it aimed to meet or exceed revenue and adjusted operating income from 2020 this year. For the first quarter, it called for revenue to decline in the mid- to high teens.

WW shares have been volatile in recent years, spiking when Oprah Winfrey took a stake in the company but plunging after its rebranding was poorly received. At this point, the digital business does seem to be gaining traction, and this will be a high-margin business as it scales. But prospective investors may want to see a couple of quarters of clean comps after the pandemic before taking the plunge .