Weight Watchers (NYSE:WTW) CEO Mindy Grossman just gave investors something to be excited about. A new focus on “Wellness That Works” could be just the thing to regain some of WTW stock momentum lost in recent weeks.
The diet brand’s new focus could not have come a minute too soon. WTW shares are down 22% in the last three months after hitting an all-time high of $105.73 in June. The S&P 500 index is up 5.3% in the same period.
“We are committed to always being the best weight management program on the planet, but now we’re putting our decades of knowledge and expertise in behavioral science to work for an even greater mission,” Grossman said. “We are becoming the world’s partner in wellness,” she said
Wellness Over Diet
Oprah Winfrey, who serves on the board, and still owns still owns 11% of the outstanding WTW stock, is naturally excited about the company’s transition from diet brand to wellness leader. It might seem like PR spin to some, but if the company is going to continue to grow — and, taking the WTW share price along for the ride — it’s got to win over more customers than just those looking to lose weight.
“People really need a partner to help them get healthy” Grossman told CNBC . “It’s very important that we can do that for all people so not only will you be able to have a weight focus if you want, you’ll be able to have a healthy habits focus and get all of the support on how you want to live your healthiest life.”
This transition makes abundant business sense.
I love to eat, and while I’m not heavy at 5-feet-11 and 175 pounds, I could stand to shed a few, eat better and live a bit healthier. I think we all could, but there’s not a chance you could get me to live on Weight Watchers products because my ravenous appetite would need about six of those tiny meals to get anywhere near full.
However, teach me how to eat smaller portions of good-tasting food so that I’m not still hungry, and you might be able to convert me to a lover of frozen meals. Because you’re not going to do it by trying to get me to go on a diet.
The Next 900%
Weight Watchers stock is up more than 900% since Oprah first invested in the company in October 2015. As long as she remains a shareholder and on the board, I don’t think there’s any reason to be worried about this next phase of the company’s growth.
“Oprah has been an incredible partner,” Grossman told CNBC. “She has been involved in every part of the journey and we’re constantly looking at how we can continue that partnership to be able to touch as many people as possible.” There aren’t too many partnerships like this one. Grossman is smart enough to know that.
Weight Watcher’s second-quarter results ticked all the boxes: revenue up 18% on a constant currency basis to $410 million, gross margins were up 440 basis points to 59.7%, operating income was up 30% year-over-year on a constant currency basis to $128 million, and finally, the company lifted its FY2018 EPS guidance to $3.10-$3.25 a share, up from $3.00-$3.20 previously.
The fact is, the company’s Freestyle program is generating a lot of new subscribers — one million or 29% more subscribers year-over-year at the end of June — making the timing of its transition to WW a good one.
Bottom Line on Weight Watchers Stock
InvestorPlace’s Dana Blankenhorn recently had a lot of complimentary things to say about CEO Mindy Grossman. Although he wrote the article before the rebranding announcement, he was prescient.
“Grossman offered clients a more holistic approach than just eating, reformulating its packaged foods to get rid of sugar and artificial dyes, launching a meal kit called WW Healthy Kitchen, enhancing the tech program, and launching wellness festivals,” Dana wrote Sept. 12. “She has also focused on other aspects of wellness, like mental well-being, giving members points for doing physical activity that let them eat more.”
However, what I like most about his thoughts on the subject, is his belief in Mindy Grossman. I was a big fan of the company hiring her back in April 2017 and recommended investors buy WTW stock the following August. It’s up 78% since that call.
Dana believes, as do I, that a bet on Grossman, is a winning one. With her in the top job and Oprah on board, you couldn’t ask for a better one-two punch.
Weight Watchers is a buy at these prices.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.