Weight Watchers: Gaining Traction, Not out of the Woods

Weight Watchers International (WTW) has surged today after the company beat earnings forecasts and raised its guidance of the year.

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Shares of Weight Watchers have gained 23% to $24.36 at 11:27 a.m., while NutriSystem (NTRI) has gained 2.4% to $15.36 and Medifast (MED) has dropped 1.6% to $31.15.

Weight Watchers reported a profit of 31 cents a share, easily besting the Street Consensus for 9 cents.

Credit Suisse analysts Glen Santangelo and Jeffrey Bailin explain why Weight Watcher’s shares have put on a few pounds:

The predominant message on [last] evening's conference call is that recruitment trends have shown some incremental stabilization and are no longer getting worse. This trend change combined with continued vigilance on the cost side has given management the confidence to raise its full year outlook $0.125 at the midpoint, to a new range of $1.45-$1.70. We note this compares favorably to the current FactSet consensus of $1.40. Cash flow of $83M in the quarter was solid, which should help alleviate some concerns on the upcoming ~$300M debt payment due in 2016. With expectations very low heading into the quarter (as exhibited by high short interest), we expect these results will give the shares a boost in tomorrow's trading. While the
company is far from out of the woods in the intensifying competitive landscape, we are somewhat encouraged that the initial steps management is taking to redefine the offering are gaining some traction.

Shares of Weight Watchers were down 40% this year at yesterday’s close, while NutriSystem had fallen 7.7% and Medifast had gained 21%.