WTW: Weight Watchers Has Lost Its Way

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Weight Watchers (NYSE: WTW) has fallen on hard times. Just a few years ago it had positioned itself as a global healthcare and wellness entity ready to tackle obesity and all the health complications that go along with it.

WEIGHTWATCHERS185Back in 2011, WTW had also announced initiatives to implement and expand relationships with employers as companies looked to be proactive with the overall wellness of their employees. It believed partnering with Merck & Co., Inc. (NYSE:MRK) would allow WTW to expand distribution channels directly to healthcare professionals.

But these high hopes of growth never materialized.

In fact, WTW stock has dropped 65% over the last year and its outlook for 2015 is less than half of what industry analysts expected. This isn’t just some seasonal fluctuation or across the board equity selloff — in 2011, WTW stock had reached highs of $85; now it’s less than $7.

What happened? Weight Watchers lost its vision and no one seems to know how to get it back.

What Made Weight Watchers so Good?

For 50 years, WTW’s primary competition had come from a plethora of fad diets. We all remember the Adkins diet, and a host of liquid diets that appeared on weekend and late night infomercials over the years.

Weight Watchers always prevailed over fads because its programs possessed a human factor. Dieters usually talk about how dieting can give you initial weight loss gains but over time they prove to be unsustainable — you end up adding back what you lost or even adding more weight.

WTW centered its programs around human contact and group support. It was also how they made the majority of its money. Meeting fees and in-meeting sales accounted for 62% of WTW revenue in 2013.

This was WTW’s bread and butter. However along the way, Weight Watchers lost sight of the need to revamp and re-envision its meeting and support programs. There are reports from users that the support groups became more like classroom settings and programs became too complicated.

I always heard of Weight Watchers classes as closer to Alcoholic Anonymous meetings than instructional health and wellness classrooms. Obesity can create emotional scars and bring up issues that some people may not want to deal with. It’s in this type of nurturing environment that users of the program would find benefit.

But, it seems that WTW has lost this value and “emotional support” is not something to easily quantify on financial statements.

Weight Watchers Lacks Vision

If you take a look at everything the company has said over the last year, there doesn’t seem to be a clear direction they see to “right the ship.” There is a belief at the company that one of its biggest competitors is the new market of free apps and fitness tracking devices and networks.

I’m not of the belief that WTW has to the capacity to compete with new technology — or if it even wants to. Under Armour (NYSE:UA) just spent more than $500 billion to secure a fitness network of more than 130 million users. Weight Watchers can’t do that.

There is also a question of how WTW will deal with its $2.3 billion in debt.

Weight Watchers is in serious trouble. It is essential that it re-brands itself and figures out how to monetize emotional support and encouragement. The problem is no one at WTW seems to know how to do it.

As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/wtw-weight-watchers-lost-way-health-apps/.

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