On Oct. 31, 2013, the company reported Q3 revenues of $393.9 million, down 8.5% on a constant currency basis versus the prior year period. “While progress on cost cutting has allowed us to exceed our Q3 profit expectations, we expect Q4 revenues to be down low double digits given our continuing negative recruitment trends,” commented Jim Chambers, the Company’s President and Chief Executive Officer.
Highlights:
– Q3 2013 total paid weeks were down 6.6% vs. last year. Online paid weeks declined 11.2% vs. 2012.
– Third quarter 2013 meeting revenues for the North American meetings business (NACO) were down 13.4% on a constant currency basis versus the prior year period driven by lower enrollment volumes.
– Third quarter 2013 International meeting revenues were down 11.1% on a constant currency basis versus the prior year period, primarily driven by lower revenues in the United Kingdom (UK). UK: Third quarter 2013 UK meeting revenues decreased 17.8% on a constant currency basis. Results were negatively impacted by a difficult competitive climate. Third quarter 2013 paid weeks declined 21.1%. Continental Europe: Third quarter 2013 Continental Europe (CE) meeting revenues decreased 5.4% on a constant currency basis versus the prior year period
– Third quarter 2013 Internet revenues grew 0.9% on a constant currency basis versus the prior year period. This growth in Internet revenues was a deceleration from the period-over-period increase of 6.6% experienced in Q2 2013. This deceleration was driven primarily by declining sign-ups in the US business as consumer trial in the category continued to be influenced by activity monitors and free apps.
– First nine months 2013 revenues decreased 5.0% on a constant currency basis versus the prior year period.
Commentary:
All in all, bad results across the board. Consequently, the company’s stock price was hammered, down 20% for the day, settling at $32.11. Management admitted that it has a lot of work to do, that it’s “one size fits all” approach is not working and more customization and personalization is needed. The problems run deeper than the competition for free apps and activity monitors. Progress has been made on cost controls, but the company admits being lax in keeping up with new technology and reaching customers in the early stages of their search for a weight loss program. More details to come on changes and 2014 program in a presentation next week.
Is a 5% decline in 9-month year to date revenues a disaster for a diet company in this consumer environment? No. Will the company be able to address its issues and engineer a turnaround? Not overnight. Will the company revamp its program and attract dieters for the upcoming 2014 diet season? We’ll see. Is the stock a good investment for long-term investors at $32-33 currently –absolutely. It just has to leverage its assets and competitive advantages better, and develop programs to serve the niche markets that represent the market’s future growth (i.e. men, Blacks, Hispanics, overweight adolescents, diabetics).