Weight Watchers (WTW) earnings beat Q2 views, but revenue fell short as subscriber growth slowed despite an expanding roster of celebrity support.
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Estimates: Wall Street expects Weight Watchers earnings to swell 34% to 90 cents a share, according to Zacks Investment Research. Revenue is seen ballooning 20% to $412 million.
Results: EPS of $1.01 on revenue of $409.7 million. Service revenue grew 19.2% on a constant-currency basis, while product sales and other revenue rose 10%. That's down from Q1 gains of 21.3% and 12.6%, respectively.
Total subscribers at the end of the quarter were up 27.6% year-over-year to 4.5 million, down from Q1's gain of 4.6 million. Q2 meeting subscribers grew 11.1% and online subscribers of 38.8%.
Those rates are slower than Q1's respective gains of 28.6%, 13.4% and 39%. The slower in-meeting subscriber growth rate also missed B. Riley FBR analyst Kara Anderson's estimate of 13%, though online growth topped her view of 35%.
Total paid weeks climbed 27%, about flat vs. Q1.
Outlook: Full-year EPS is now seen at $3.10-$3.25, up from a prior view of $3.00-$3.20, and further above consensus estimates of $2.91.
Stock: Weight Watchers was down 3.5% late. The company's shares closed up 0.7% at 92.21 on the stock market today, finishing just below its 50-day line, a key technical benchmark. If Weight Watchers stock rebounds strongly from its 50-day/10-week line, it could offer a new buy area for existing holders. Shares also have been consolidating for several weeks and could form a base with a traditional entry point. Its stock price is up 108% so far in 2018.
While users' waistlines have been shrinking, Weight Watchers revenue have been expanding. The firm has enjoyed accelerating sales growth for the past five quarters. Reflecting strong fundamentals, the stock currently has a very good, but not ideal, IBD Composite Rating of 94.
B. Riley FBR senior analyst Kara Anderson believes Hollywood director Kevin Smith's embrace of Weight Watchers has given the stock a popular culture boost.
"Following Kevin Smith's heart attack in February he became a brand ambassador, and shortly thereafter began chronicling his wellness journey," Anderson said in a pre-earnings research note. "Smith's 2.7 million Facebook followers and 1.3 million Instagram followers have seen him shed more than 40 pounds, with him attributing his success to Weight Watchers and the program's ability to make it easy for him to lose and maintain his weight."
She believes the addition of new brand ambassadors including Smith, chef Eric Greenspan, French singer Hélène Ségara, and DJ Khaled have helped the company reach a new, diverse demographic. This adds to the star power offered by its biggest endorser, Oprah Winfrey.
Weight Watchers Promotes Wellness
Innovative services and products to target holistic wellness — rather than mere weight loss — have also been cited as reasons for Weight Watchers success.
"Consumers are looking at healthy lifestyles, mental well-being," Morningstar analyst R.J. Hottovy said. "Once upon a time, weight management was all about what you ate. Now any activity can be translated into Weight Watchers points."
Technology has been critical to the transition. Using fitness tracking devices, Weight Watchers members can earn FitPoints for activities such as walking, cleaning or dancing. FitPoints are then traded for SmartPoints, which determine a member's daily diet allowances. The program aims to shift the focus from calorie counting to eating leaner proteins, fruits and vegetables. Members can track points right on their wrists.
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The post Here's Why Weight Watchers Investors Suddenly Have A Lighter Wallet appeared first on Investor's Business Daily.
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