Weight Watchers (NYSE:WTW) itself is on a diet, it seems. The company, which should be poised to benefit from the perception that most of us are fatties, served up a warning of lower annual earnings last night. It should come as no surprise to anyone that the company is blaming the shortfall on extreme low-carb dieting, as well as a new, unstructured "do-it-yourself" approach on the same.
Excluding certain items, net income came in 20.5% higher at $48.7 million, or $0.47 per share, a figure that met analysts' estimates. However, if you include charges related to early debt retirement and an accounting change, profits were down 9.6%. Revenues increased nearly 12%, due to strength overseas that made up for lagging meeting attendance here in the U.S.
What's really got investors is that Weight Watchers slimmed down its full-year 2004 guidance to $1.70 to $1.80 per share. The consensus estimate previously called for earnings of $1.93 per share; the company had said it expected earnings of $1.90 to $2.00 before.
The climate for Weight Watchers has changed a lot since the last time we weighed in on it. In its conference call (courtesy of CCBN StreetEvents), the company said that while it believes "extreme" low-carb, high-fat dieting is peaking, that with the recent addition of so many low-carb foods to grocery shelves everywhere, lots of people are now taking an unstructured approach to dieting, only thinking about cutting carbs.
These people think that by eating these items that food companies have been releasing (or maybe even relabeling as low-carb) without paying attention to fat and calories, they will lose weight. Based on that assumption, the company believes that when they find they're still tipping the scales, they will return to the Weight Watchers way of life.
Months ago, I thought the low-carb trend (in particular Atkins) was a force to be reckoned with. Recently, though, I would have to say that I agree with this and other companies, who believe that its influence -- at least as something that you can define as a craze -- is peaking. (However, I'm quite sure that the diet itself -- which is by no means new -- is here to stay, for those who conscientiously follow its regime.)
Lots of health pundits say that the real key to losing weight is simply reducing calorie intake and exercising, plain and simple, and right now, that's Weight Watchers' company line. (Low-carb dieting is also perceived as a vehicle to take the easy way out -- Don Crotty examinedBally Total Fitness' (NYSE:BFT) recently flagging membership, which might be a case in point.) The desire for a magic bullet is all too human.
If you buy into Weight Watchers' idea that soon most people will find "low-carb" weight loss unsustainable or even nonexistent, then today's possibly just a temporary setback, especially given the health ramifications of being overweight. However, even with an 8% dip in stock price in recent trading, Weight Watchers is still trading at 20 times forward earnings. Today, anyway, Weight Watchers shares don't sound too tempting.
Are you a low-carb dieter? The trend is big enough that we have a whole discussion board dedicated to it here at the Fool: Low Carb Way of Life.
Alyce Lomax does not own shares of any of the companies mentioned.
