Weight Watchers International, Inc. (WTW) stock is tanking today, as are the hopes of investors who thought Oprah Winfrey could somehow right the ship.
Friday’s 27% drop comes in stark contrast to the jubilee in WTW stock sparked on Oct. 19, 2015, when Oprah Winfrey announced she had purchased a 10% stake in the company. That, and news that she would help with advertising and marketing and act as the company spokeswoman sent WTW shares on a 300% run through the end of November.
However, even before Friday’s plunge, shares had tumbled more than 40% from their December highs as optimism about the deal waned.
Now, a terrible earnings report is creating even more carnage for Weight Watchers.
Weight Watchers Earnings Go Sour
Fourth-quarter revenues of $259.2 million did beat expectations for $257 million, but the figure represented a drop from $327.8 million in the year-ago quarter, marking the company’s 12th consecutive quarter of revenue declines. WTW earnings also declined, from $11.3 million to $4.4 milliion. A $13.6 million transaction fee associated with Winfrey’s new role with the company created an adjusted loss of 3 cents per share, which missed estimates for a 2-cent gain.
So, was Oprah worth the money?
In the third quarter, prior to Oprah’s involvement in Weight Watchers, subscribers fell 12.7%. But, even with Oprah’s WTW commercials, the company saw another 4.8% of subscribers walk out the door during the fourth quarter. Furthermore, total paid weeks — a key metric for subscription businesses — fell 16.8%.
The sales and earnings figures are troubling, but subscriber exodus is by far the most important figure investors need to be watching. And the fact that a rock-star celebrity Oprah Winfrey couldn’t turn those member numbers positive also highlights how deeply flawed the company is, and how difficult the environment is.
The Pain in WTW Stock Won’t Stop
The health world has turned high-tech, with Fitbit Inc (FIT) bands, Under Armour Inc (UA) HealthBox training devices and smartphone apps carrying the flag. Thus, it’s not hard to see why individuals are having a hard time justifying paying for Weight Watchers’ programs, and why WTW stock has been in long-term decline.
A couple of years ago, a study showed that Weight Watchers cost an average of $377 per year and produces and average loss of just 5 pounds. Why not pay $100 for a Fitbit device — or better yet, nothing for a health app or two — with the reasonable expectation that they can help you achieve at least the same modest result, if not more?
To combat this, Weight Watchers rolled out its Beyond the Scale/SmartPoints initiative in December. The banner, “A New Approach,” tells you everything that’s wrong here. WTW is essentially admitting that the old way wasn’t working anymore — now it’s up to you to trust that Weight Watchers will lead you the right way going forward.
Moreover, an industry that has bred countless video exercise programs and weight-loss fads has lost its appeal; “dieting” is no longer considered fashionable. Instead, people care more now about being healthy, rather than simply skinny. But Weight Watchers is battling an image issue in that it’s still thought to be in the “dieting” category.
The Oprah “get” was an exciting headline, and heck, maybe she’ll be enough to eventually turn Weight Watchers around. But the business of being healthy seems to have left Weight Watchers behind — and that spells doom for WTW.
As of this writing, Matt Thalman was long UA. Follow him on Twitter at @mthalman5513.
