Categories Analysis, Consumer, Markets

Weight Watchers stock plunges to yearly low

Weight Watchers International Inc. (WTW) stock plunged to a yearly low of $31.58 on Friday as a weak start to the company’s enrollment period led to brokerage firm JPMorgan to downgrade the rating to “neutral”. Investors are concerned about the penetration by the weight management services provider in the international markets.

Wall Street analysts covering the stock expect it to reach $90.92 in the next 52 weeks while recommending a “hold” rating. Meanwhile, market analysts believe the stock was hurt by the relative absence of Oprah Winfrey, who would play a lesser role from mid-December. The company was seeking to add brand ambassadors due to its rebranding process. This has hurt subscriber growth, which has eased for two consecutive quarters.

Weight Watchers has tied up actress Kate Hudson and pop icon Robbie Williams as its new brand ambassadors and in its upcoming ad campaign, they would appear alongside Winfrey. The company believes that the concerns about Winfrey seem to be inflated despite concerns surrounding the slowing subscriber growth.

The company remained confident in its Winter marketing plans, its brand messaging and the continued strong appeal of WW Freestyle to drive recruitment growth. Weight Watchers believes it has the opportunity to expand revenues with revamped product portfolio, including WW Fresh and partnership with Blue Apron (APRN), and enhanced e-commerce capabilities.

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In the recent third quarter, the company benefited from the continued momentum in its business, with strong growth in subscribers and revenue driving the bottom line. Revenue grew 13% as subscribers increased on continued strong consumer response to WW Freestyle. In the process of rebranding itself as WW, the company launched its first loyalty and rewards program, WellnessWins. The true impact of the moves would be realized in 2019 and beyond.

For fiscal 2018, Weight Watchers has expected earnings in the range of $3.15 to $3.25 per share. This forecast reflects the company’s strong operating performance, as well as a lower tax rate. Analysts expect the company to report earnings of $0.63 per share on revenue of $348.82 million for the fourth quarter and a profit of $2.87 per share on revenue of $1.53 billion for the full year 2018.

Also, the company has ended the third quarter with 4.2 million subscribers globally and expects to end 2018 with up to 4 million subscribers, up from 3.2 million in 2017. This would lift 2019 EPS by about $0.50, before any benefit from new initiatives.

For 2019, revenue growth is expected to be fueled by higher recruitments, higher retention, product sales and partnerships, and the flow through from a much higher subscriber base. The company continues to make solid progress towards its three-year goal to lift revenues to more than $2 billion in 2020.

Shares of Weight Watchers opened lower on Friday and is trading in the red territory. The stock has fallen over 42% in the past year and over 47% in the past three months.

 

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