Weight Watchers (NYSE:WTW) reported its first-quarter 2016 results earlier this month. The weight loss specialist’s year-over-year revenue dipped 4.7%, while its adjusted earnings loss widened to $0.17 per share. However, results beat analysts’ estimates, with key metrics suggesting the company’s turnaround is on target. Management, in fact, raised full-year earnings guidance to $0.80 to $1.05 per share. 

Weight Watchers’ stock has been on a roller-coaster ride. It’s down 41% in 2016, though up 86% for the one-year period through May 17, thanks to a huge boost in October after Oprah Winfrey bought a 10% equity stake in the company. The former talk show guru has taken on an active role in the company.

Earnings results only tell part of the story, with much color revealed during management’s analyst conference call. Here are seven key things from the call you should know:

1. Main growth drivers: Oprah and "Beyond the Scale" program

From CEO Jim Chambers’ remarks:

The [better-than-expected] Q1 financial results we're reporting today are largely a reflection of the recruitment trends [due to] our partnership [with] Oprah and the successful launch of our new Beyond the Scale program.

The launch of Beyond the Scale has been amplified by Oprah's involvement with our Company, particularly in the United States, Canada and Australia. Our winter TV campaign in the US and several other markets highlighted Oprah's Come Join Me invitation, which brought waves of renewed interest in our brand. In addition, Oprah's been engaged with her fellow members … sharing her experiences through mega conference calls, e-mails, and by posting on Connect.

Oprah

Oprah Winfrey. Image source: Weight Watchers.

Management believes the Oprah-Beyond the Scale program duo will continue to drive results. Beyond the Scale is the company’s new program that launched globally in December. It has a more holistic bent than its traditional program, and involves increased use of personalized tools. While the stock did get ahead of itself after Oprah bought a chunk in October, key metrics beyond the headline numbers suggest that her involvement has already made a difference. While she doesn’t reach millions through her talk show outlet anymore, she still has a huge following. Moreover, she’s fought a public battle with weight loss and believes in Weight Watchers, which many likely find compelling.

2. Oprah is getting involved in programming 

From Chambers’ remarks:

Our aspiration can be delivered if we … create living and breathing relationships within and beyond the meeting room. We're working with Oprah within this framework on a range of initiatives that we believe will enhance the Weight Watchers experience, and could translate into extending the average length of stay of our members, which due to our high margin business model would deliver substantial economic benefits.

While Oprah’s a great asset on the promotional side, she can perhaps make an equally significant contribution on the programming side. She’s a shrewd businessperson with a good grasp of human nature. She’s also been in the same weight loss struggle trenches as Weight Watchers’ target market.

3. Key leading indicators are moving in the right direction

From Chambers’ remarks:

In Q1, for the first time since 2012, we delivered positive growth across key volume indicators including recruitments, end-of-period subscribers and attendance, which will drive revenue and profitability growth going forward. As a result, we are raising our guidance for the year.

Results for key metrics: 

  • Subscribers worldwide: 3.1 million, a 5% year-over-year increase.
  • Meeting subscribers: 1.3 million, up 8%.
  • Online subscribed: 1.8 million, up 3%.
  • Total paid weeks: up 2%, with meetings up 3% and online up 1%.

Given the nature of a subscription business model, there’s lag between these end-of-quarter key metrics making a full impact on the company’s reported revenue and earnings results. Key metrics moving in the right direction suggest that future financial results will notably improve.

4. Expect top and bottom line growth starting in Q2

From Chambers’ remarks:

Given the lag in our subscription business model between member recruits and their full revenue and profit realization, we expect that we will report both top-line and bottom-line year-over-year growth beginning with our second quarter and continuing through the remainder of the year.

This lag issue was previously addressed. This quote was included so investors know the upswing in revenue and earnings growth suggested by the uptick in Q1 key metrics is expected to occur in Q2.

5. Why Europe didn’t perform as well as North America

From Chambers’ remarks:

[A]rraying the markets by their level of awareness is critical and correlates with how well they are doing. … And particularly in, I will say France and Germany and UK, we have some opportunities to refine our marketing message and focus more directly on the fact that we have a new program and what the benefits of the program [are].

Chambers attributed the less positive results in its U.K. and Continental Europe segments to two reasons: less exposure to its newer marketing campaigns (which sometimes start in North America), and consumers not finding the messages as compelling. The latter makes sense because of the relative difference in Oprah’s popularity in North American vs. Europe, as well as possibly some cultural differences. The company acknowledges that in several countries it particularly needs to tweak its message and focus more on the concrete benefits of its new program, versus a more holistic approach that has been effective in North America.

6. Using tech and social media to drive results

From Chambers’ remarks:

[W]e launched Connect, a social media platform embedded in our app, where in a uniquely positive space members provide encouragement, share experiences and results and ideas about how they are living the program. Connect has been a home run with nearly 500,000 members actively participating on the platform since launch. In the US alone, each day members connect with more than 9000 posts, 40,000 comments and 200,000 likes.

Weight Watchers has been upping its use of technology to reach potential new members and help retain existing ones -- a big positive since social media and other tech tools are a relatively inexpensive way to reach a huge audience.

7. Healthcare channel is a long-term focus

From CFO Nick Hotchkin’s remarks, "[We] expect the healthcare business in total this year to grow from about $56 million in 2015 to about $62 million or $63 million this year."

From Chamber’s remarks:

[Pursuing] health plans as a channel [is] clearly a focus of ours. And we have really enjoyed the Humana relationship … [W]e are beginning to connect in other ways with some other players in the healthcare ecosystem. 

Weight Watchers inked a deal with Humana Inc. in Feb. 2015, which provides Humana members in qualified employer-sponsored health insurance plans with free or discounted access to Weight Watchers' offerings. The takeaways on the healthcare channel: 

  • Weight Watchers plans to remain nimble in an environment that continues to change.
  • It views this channel as a long-term opportunity that could eventually become quite large, but it’s conservatively only factoring in modest growth into its overall growth projections. 

 

Beth McKenna 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.