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Medifast Report Q3 Results

Nov. 5, 2014 — According to a press release: “Our team continued to manage the controllable aspects of our business and we are pleased these efforts enabled us to generate another quarter of earnings ahead of our expectations,” said Michael C. MacDonald, Medifast’s CEO. “While top line growth continues to be a challenge, we believe the strategic initiatives we have set in place will improve our ability to attract new clients and retain our current customers across Medifast’s multiple sales channels.

For the third quarter ended Sept. 30, 2014, Medifast net revenue fell 14% to $74 million from net revenue of $86.5 million in Q3 2013.  Revenue in the direct sales channel, Take Shape for Life, decreased 11% to $49.9 million compared to $56.2 million in the same period last year. The company ended Q3 with approximately 10,200 active health coaches and the average revenue per health coach per month was $1,504 vs. $1,532 in Q3 2013.

Medifast Direct channel revenue fell 22% to $13.4 million, vs. $17.2 million in Q3 2013.  New customer acquisition continues to be challenging.  MED will invest additional dollars in marketing in the Q4, vs. 2013.

The Medifast Weight Control Centers and Wholesale Physicians channel (medical clinics) revenue fell 20% to $10.6 million, vs. $13.2 million in the same period last year.

For fiscal year 2014, the company expects revenue to be in the range of $310 to $314 million (a 12% drop from 2013 revenue of $356 mill.) and earnings per diluted share in the range of $1.59 to $1.62.

Conference Call & Marketdata Commentary

Marketdata analysts listened to the firm’s conference call on Nov. 5. Management stated that hey will be adding 7 new products that don’t contain artificial ingredients. They are saving ad dollars for Q4, expecting that this investment will trickle into the all-important 1st quarter of 2015 with the new diet season. The firm launched a “virtual video support” initiative, to complement the information that its health coaches provide. The firm is still searching for a new president for the TSFL MLM division.

Management further stated that 11 medical clinics have closed since 2014 (Washington state and the Southeast) and 4 closed in 2014, ones that had just opened early this year. these were clinics that represented an expansion by an established owner. The expansion did not work out as planned. Management plans to simplify the infrastructure to make it easier for new and existing health coaches. MED plans to launch a “healthy living” maintenance plan Nov. 18. The company also hired a new ad agency, GKV.

By now it’s clear that MED is not immune to the weight loss market woes that have hit Weight Watchers and others. Their main growth engine, Take Shape for Life, is sputtering as it loses health coaches, and its medical clinics are not faring well either. Marketdata’s question is, why can’t the company attract or hold onto its health coaches? Is the bloom off the rose with MLM? Are distributors having trouble making decent money? Are they having trouble with the transition of medical clinics from company-owned units to franchises?

We wonder if that strategy was wise, considering that there is less control over franchisees, and establishing a unified image for the company. Franchisees vary in their operations and marketing skills, and some just don’t preform well. Maybe they are sending out mixed messages about the brand. It seems strange that while many new chains of medical weight loss clinics have sprung up around the country and others are growing, that MED’s clinics are struggling. Who are these clinics staffed by and are they competent? The ACA’s Preventative Health Benefit would seem to be a major plus for medical weight loss programs. Are MED’s clinics taking advantage of it? We’ll have to see what new programs/services/ads come out for the 2015 diet season, but some more detail about the coaches situation would be nice to have.

Detailed financials can be found here:


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