Numbers have always been a Weight Watchers International(NASDAQ:WTW)standard of measurement.
And on that front, the weight loss and lifestyle company has seen its shares gain as much as 170% in the days after Oprah Winfrey announced a five-year partnership and major ownership stake in the company. Based on that enthusiastic market response, management might finally have the boost it needs to stem years of declining sales and membership.
A full transcript follows the video.
Vincent Shen: We talked about Yum! Brands jumping 4% on the news that they'd be spinning off the China business, whereas Weight Watchers has jumped well over 100% in a day and a half of trading.
Dylan Lewis: That's insane! I don't know if I've ever seen anything like it.
Shen: It all has to do with one pretty powerful celebrity, as you can see: Oprah Winfrey. Before the market opened yesterday, she announced that she would be taking a 10% stake in Weight Watchers -- basically, purchasing about 6.4 million shares for $43 million. This is part of a partnership that she's forming with the company lasting five years where they get to use her for their marketing and in all of their promotional materials.
They describe her role as three parts: She'll be a member herself. She's talked about how Weight Watchers has helped her maintain her lifestyle. She's also a board member and advisor, and lastly, as part owner as she takes on that stake.
Lewis: Very interesting stuff. This jump is positive, no doubt. It's great to have someone that can be the face of the company, especially someone who's using the product as a spokesperson. A lot of the rally that we're seeing is gaining back on huge losses that had been experienced earlier in the year. Can you talk a bit about what's been charging that?
Shen: Sure. You definitely got that right. The stock's down 70% year-to-date, and the slide hasn't just been a recent thing. The shares peaked in May 2011 at $85, they've fallen over 95% since then, and this really has a lot to do with the rising popularity of mobile devices like smartphones and wearables, surprisingly enough.
The idea being that now you have all these new, technology-driven resources for weight loss, for general wellness, tracking your diet, tracking your exercise, and that's attracting a lot of people. So Weight Watchers has struggled on the technological front to hold onto their memberships and their revenues have suffered as a result.
Full year 2014 revenue has fallen 20% from its 2011 levels, and the company has just seen several years of consistently declining sales overall. Before this announcement was made and the stock traded up -- astoundingly so, 105% yesterday, I think it's up another 30% today -- the stock itself was valued at about 10 times its expected 2015 earnings.
The thing is, for the next five years or so, analysts were forecasting earnings to decline anywhere from 15% to 20% annually for that period. You definitely have a very down beaten stock, where management has instituted things like cost cuts, changing up its management team itself. It's had a hard time competing with this onslaught of new technology and new options that people have when it comes to weight loss.
Lewis: One the one hand, there's tons of competition from mobile tech and wearable integrated products. Things like Jawbone, Fitbit, and things like that. No doubt it's eating into market share. But weight loss isn't exactly something that will be going away. It's a major trend. I think people are becoming more health conscious and there's definitely a place for a player like this.
How impactful do you think Oprah might be with her involvement in the company? Is this something that is irrational over exuberance by the market? Is there any justification for this stock raising as much as it has?
Shen: The market is obviously really enthusiastic about this. Incredibly so. Like you mentioned, I haven't really seen a stock go on a bull run like this just from a singular endorsement from a celebrity before. I think the power here is that Oprah has a very strong track record where she's proven her ability to make certain products, books, or even people extremely successful.
There are multiple people who were part of her show when it was still running, who now have their own shows. The books she recommends immediately shoot up to the top of the bestseller list. Products she recommends sell out. I think one of her products, the owner didn't see any success until Oprah mentioned it, and I think it turned her into a billionaire herself.
Lewis: Yeah, it just takes off like that.
Lewis: It's really astounding how successful books become once they're on her "Book of the Month" club.
Shen: In this case, I don't think that Oprah is going to be able to solve all the company's woes, and it's not going to completely shift the competitive environment as it stands now; but where the company can benefit is first, a huge wave of increased interest, just from the stock run. Also, just from the positive publicity it's getting.
Oprah and a lot of her fans hit the demographic that Weight Watchers wants. How far Weight Watchers can leverage, how far the company can leverage this partnership and this recent success -- at least with its stock price -- is really up to them. I know they're going to at least expand into much more of an overall wellness company, rather than just focusing on weight loss, as they already have begun to do.
This might be the kick they need as they have access to her huge fan base.
Lewis: It's almost like a platform play for them, really. They're getting access to this established person with this devout following, and this ready-made market of people ready to follow pretty much anything she recommends.
Shen: It hasn't taken long. If you go to their website now, she's already on there with a pretty catchy slogan. It basically says "I'm ready. Are you ready to join me?" I'm very curious to see if the enthusiasm that investors have had for Weight Watchers shares in this past day and a half will actually amount to real bottom line and top line growth.
Lewis: It will be fun to watch. Thank you for your time, Vincent.
Shen: Thanks, Dylan.