Consumer-goods marketer Blyth (UNKNOWN:BTH.DL), owner of weight-loss upstart ViSalus, has been in the doghouse lately, sitting near a 52-week low due to poor results in its weight-loss unit. Despite a large potential customer base of overweight people worldwide, the industry has had difficulty generating growth lately, with data provider Marketdata Enterprises estimating that industry sales rose only 1.7% in 2012. However, Blyth caught a bid in late October from a proposed combination with marketing-services provider CVSL, indicating that some people see incremental value in Blyth's businesses. So, should small investors bet on this small cap or should they focus their attention on Weight watchers International (NASDAQ:WW) and Medifast (NYSE:MED) instead?
What's the value?
Blyth has bet big on the weight-loss segment, paying roughly $120 million through a series of transactions to gain majority control of ViSalus. That move looked prescient last year, as solid top-line growth at ViSalus propelled Blyth to more than $1 billion in total sales for FY 2012. The linchpin for the sales momentum was the company's Body by Vi 90 Day Challenge, which attracted customers and propelled sales of its related product lines, chiefly its Vi-Shape shakes and Vi-Pak energy supplements.
In FY 2013, though, it has been a different story for Blyth, with a double-digit sales decline, led by a 42% drop for its weight-loss segment. The chief cause of the poor performance was a steep decline in the weight-loss unit's promoter network, the primary sales channel for its product lines. Unfortunately, Blyth's other units, focused on the home accessories and catalog areas, weren't able to pick up the slack, reporting continued operating losses in the current period.
Of course, other weight-loss marketers are also going through their own growing pains, most notably industry leader Weight Watchers International(NASDAQ:WW). The company pioneered the weight-loss space more than 50 years ago with its trademark group meetings and behavior modification philosophy, gradually leveraging its brand into related areas, including food publications and food-licensing deals. However, the rise of the Internet has led to both opportunities and challenges, generally improving Weight Watchers' cost structure but reducing its ability to effect change through face-to-face interactions.
In FY 2013, Weight Watchers' sales have been lackluster, due to a 5.1% overall top-line decrease that was caused by double-digit declines in both its global meeting attendance level and the volume of related product sales. Even the company's growth engine, its online business, has seemed to hit a proverbial wall, reporting a 5.3% decrease in subscribers for the period. However, in an ironic twist, the lower attendance has led to better segment profitability, as remaining customers are more geared to the company's philosophy and are more likely to be active purchasers of products.
Looking for optimal distribution
Given the risks of relying on any one product-distribution channel, investors looking at the weight-loss space should likely focus on providers that have diversified their distribution channels, like Medifast(NYSE:MED). The company seems to have its bases covered in that regard, with its traditional direct-selling unit of roughly 12,000 health coaches being supplemented by a growing online division and a network of physical weight-loss centers.
In FY 2013, Medifast's multi-channel approach has allowed it to generate an overall top-line increase, up 2.2%, as a result of continued growth in its health- coach network and a solid per-coach productivity level. While sales in its weight-center unit slipped during the period, the physical locations remain a core sales channel for Medifast and provide a competitive advantage for the company versus its competitors. More importantly, Medifast's diversified operating strategy has led to higher operating profitability, providing the funds for product development and a further expansion of its network.
The bottom line
Blyth is an interesting story, especially given management's fairly high level of share ownership, but it is risky given the current negative trend in its promoter base. In addition, the company's fortunes are hurt by the lack of clinical research backing up the effectiveness of its products, a source of differentiation for both Weight Watchers and Medifast. As such, investors should take a pass on Blyth and stick with the provider that is following a diversified plan to greater value for shareholders, Medifast.