Aug. 8, 2023
Second quarter 2023 revenue decreased 34.7% to $296.2 million from $453.3 million for the second quarter of 2022, primarily driven by a decrease in the number of active earning OPTAVIA Coaches and the decline in the productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach was $5,578, compared to $6,667 for the second quarter last year, a decline of 16.3%, driven by continued pressure on customer acquisition, partially offset by the price increase implemented in November 2022. The total number of active earning OPTAVIA Coaches decreased 21.9% to 53,100 compared to 68,000 for the second quarter of 2022.
Gross profit decreased 34.5% to $210.7 million from $321.7 million for the second quarter of 2022.
The company expects third quarter 2023 revenue to be in the range of $220 million to $240 million .
Medifast came out with quarterly earnings of $2.77 per share, beating the Zacks Consensus Estimate of $1.44 per share.
“We are ahead of our Fuel for the Future plan with key initiatives aimed at driving efficiency and cost reduction, which helped to mitigate the impact of continued economic headwinds on our revenues during the quarter,” said Dan Chard, Chairman & Chief Executive Officer of Medifast. “In addition, we have made significant progress advancing our broader health and wellness agenda with the recent launch of our new OPTAVIA ACTIVETM line of products, which marks an inflection point for Medifast as we target new areas of growth and more than triple our total addressable market. We also have pilot programs underway to assess potential growth opportunities related to medically-supported weight loss that leverage the strength of our business model.”
Medifast To Enter Sports Nutrition Market
Medifast in late July unveiled a new product line, OPTAVIA ACTIVE. The line includes premium exercise supplements and protein powders, OPTAVIA ACTIVE Essential Amino Acid (EAAs) Blend and OPTAVIA ACTIVE Whey Protein, with other products expected to be rolled out next year. Both are designed to help new and existing customers of all fitness levels optimize their motion habits. OPTAVIA ACTIVE marks an inflection point for the company, as it targets new customer segments and triples its total addressable market by entering the sports nutrition category – a $30 billion market.
Conference Call Information
Management reported that new customer acquisition has been challenging and that comparisons to last year’s peak results explains part of the large revenue declines vs. Q2 2022. Competition from the GLP-1 drugs and changes in social media algorithms also played a part. The company has pulled out of the Hong Kong and Singapore markets. Gross margin for the quarter was 71% and the firm has $147 million of cash on hand, with no debt.
Management also reported that it is looking at the Hispanic market for future growth, as well as entry into the medical weight loss market and GLP-1 drugs. It is investigating strategic partnerships with telehealth providers. Like WW, it feels that it’s core program is well suited to be coupled with Rx medications.
Marketdata Commentary
Looks like the diet business is rough for all commercial players this year. Revenues were down 34% from last year’s quarter and the number of active coaches plummeted 22%. Based on half-year revenues, it looks like sales will come in at about $1.1 billion this year, versus the nearly $1.6 billion in 2022. Why the decline? Most likely, it’s the competition from the obesity drugs Ozempic and Wegovy, with dieters clamoring for this protocol instead of commercial weight loss meal replacement programs.
What’s behind the 22% drop in coaches, we wonder? Coach count had been growing strongly for years.
Clearly, Medifast has seen the writing on the wall and is diversifying to find future growth. The entry into sports nutrition products makes sense, as does entry to the Hispanic dieter market (in the U.S. and Mexico). The entry into medical weight loss programs using Rx diet drugs will be more difficult. Yes, the company’s early roots were in medical programs offered by MDs, hospitals and clinics. But, the company today is different, with much more focus on direct to consumer and MLM channels. Wil the company’s current MLM coaches be able to handle giving advice for a medical program, or is it beyond their competence and comfort level? A major effort will have to made to train them. There’s a big difference between selling meal replacements and selling diet meds, and dealing with potential side effects, dosages, etc.