That’s not to say 2013 has been easy or even good for Nutrisystem. Second-quarter revenue fell nearly 22%, and earnings slumped 29%, from 31 cents per share in Q2 2012 to 22 cents this time around. The decline in earnings for last quarter is just the latest in a long string of shrinking profits. Ditto for sales, which have fallen every year from 2007’s peak of $776 million, down to last year’s $397 million. This year’s top line is again projected to be weaker.
So what, pray tell, could spark a 66% rebound in a stock that’s clearly fighting a severe uphill battle? Simple: Glimmers of hope for a turnaround.
One of the bigger glimmers is its newest major distribution channel … Walmart (WMT). The partnership started in April with around 2,000 Walmart stores putting Nutrisystem’s 5-day ‘Jumpstart’ kit on their shelves. As of last month, that relationship was expanded to nearly double the number of Walmart locales.
The biggest factor of all, however, is new CEO Dawn Zier, who took the helm in November and is largely credited with getting the Nutrisysytem brand into Walmart’s merchandise mix. She’s got the chops to do more, too, not because of her expertise in food-marketing, but because of her experience in consumer marketing; she oversaw the marketing of Readers Digest for several years, getting measurable traction for the struggling print magazine before it withered away into the fog of the digital age. Translation: She knows how to sell a relatively mundane product to the masses, like using the right celebrity endorsements (e.g. Melissa Joan Hart).
The Winner Is …
Given the comparative performance of the two stocks, it would be easy to call WTW an oversold equity ripe for a bounce and deem NTRI an overbought name that’s ready to pull back. But, in the case of Weight Watchers vs. Nutrisystem, the results each stock has seen of late are deserved. And more of the same (respectively) could be in store.
Despite how clear Weight Watchers’ problems are — free competing apps and waning interest in attending meetings — there’s still no real plan to overcome them. Conversely, Nutrisystem has yet to fully reach the full potential of its relationship with Walmart, and Dawn Zier has just gotten started as CEO.
Throw in the fact that Nutrisystem has no long-term debt to nag at its growth for years, and NTRI is hands-down the diet plan name to own — even with a somewhat frothy forward-looking P/E of 26.
The turnaround has just begun.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.