What: Shares of Weight Watchers (NYSE:WTW) fell as much as 38% today after the company reported fourth-quarter financial results that were worse than the consensus analyst estimate and gave a very bleak outlook for the full year. By 3:30 p.m. the stock was down about 35% from the previous close.
So what: Weight Watchers reported fourth-quarter revenue of $328 million, down 10% from the year-ago quarter, and about $5 million lower than expectations. Adjusted EPS of $0.07 was in line with expectations. Before adjustments, and including the impact of restructuring and non-cash impairment charges, Weight Watchers' GAAP loss was $0.28.
Weight Watchers' guidance came in far below expectations. The company expects to earn between $0.40 and $0.70 per share in 2015. The average prediction from analysts for Weight Watchers 2015 EPS guidance was $1.43
Now what: Weight Watchers is a business in decline, with a successful turnaround only hopeful at this point. While the stock's cheap valuation seems to take this decline into consideration, there is clear pressure from trendy health apps, and a growing number of digital alternatives to the company's weight-management programs.
Further, GAAP profits won't come easy for Weight Watchers. The company noted in its 8-K filing for Q4 results that the costs associated with its plans to "resize its organization" are not included in its worse-than-expected 2015 guidance. While CEO Jim Chambers said in the earnings release that its "aggressive steps to right-size our cost structure" will eventually translate to a $100 million cost-savings initiative, he admitted that things are taking longer than expected: "While we still believe in our underlying strategies, I am disappointed that we are not yet where we hoped to be and our turnaround will take longer than we had anticipated."
I'd steer clear of Weight Watchers stock until I see signs of a durable business model and customer base.
Daniel Sparks has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.