Aug. 7, 2014... For the second quarter ended June 30, 2014, Medifast net revenue decreased 17% to $80.9 million from net revenue of $97.1 million in the second quarter of 2013. Revenue in the direct sales channel, Take Shape for Life, decreased 12% to $54.1 million in Q2 of 2014 compared to $61.4 million in the same period last year. The decrease in revenue for Take Shape for Life was driven by a decline in the number of health coaches along with lower revenue per health coach. The company ended Q2 with approximately 10,800 active health coaches and the average revenue per health coach per month was $1,566 compared to $1,692 in the Q2 of 2013.
The company's Medifast Direct channel revenue decreased 29% to $15.2 million, compared to $21.5 million in the second quarter of 2013. New customer acquisition has been challenging as the Company works to balance marketing investment and media mix to effectively drive customer conversion. Spending efficiency in the quarter was strong and the company will invest additional dollars into marketing throughout the remainder of the year, as compared to the second half of 2013, while continuing to focus on efficient management of those investments.
In Q2, the Medifast Weight Control Centers and Wholesale Physicians channel revenue decreased 18% to $11.6 million, compared to $14.2 million in the same period last year. The company remained focused on profitability improvement by creating operational efficiencies, optimizing staffing levels, and managing expenses. As of June 30, 2014 Medifast had 51 corporate-owned and 73 franchise centers.
The company expects third quarter 2014 net revenue to be in the range of approximately $75 to $78 million. Earnings per diluted share are expected to be in the range of $0.35 to $0.37. For fiscal year 2014, the company now expects full year revenue to be in the range of $320 to $330 million and full year earnings per diluted share in the range of $1.80 to $1.85.
In a conference call on Aug. 7, management reported seeing continued softness in consumer spending, but see improvement coming during the second half of the year, spurred by new food products, a new sleep improvement kit, and e-commerce improvements related to their website. A new position was added: VP of Direct Response, and a new ad agency will be used in Q3. 24 of the medical clinics were transitioned to franchises in June and the new "Fit for 4" program met with success. Gross profit margin was 74.6% of sales, down slightly. New maintenance products are coming out in November, and the firm plans to spend 40% more on marketing in the second half of this year. The firm also just launched some new virtual coaching videos.
Medifast has been one of the few public weight loss companies that has seemed to avoid substantial revenue declines the past 1-2 years, as Weight Watchers and NutriSystem floundered. However, the weak economy has finally caught up with them, proving too much to overcome despite strong cost controls, new products, and good performance by its roughly 11,000 Take Shape For Life MLM distributors. It sounds like there are some good new products and services coming in the 2nd half of the year, but the key issue seems to be retention and growth in the number of health coaches--which has been stuck at the 10,800 level for a few years now. Earnings/compensation could be the main issue here, and that again is dependent on the economy. If the economy doesn't improve, the coaches" clients will not buy more product.