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Medifast Reports Q4 and Full Year 2016 Results

March 9, 2017 – “2016 was a year of strong execution reflecting our continued disciplined approach to effectively managing our business. We grew our revenue for the first time since 2013, increased our profitability year-over-year, and raised our quarterly dividend for 2017, all of which supported a strong return for shareholders in 2016,” said Daniel R. Chard, Medifast’s CEO.

For Q4 2016, Medifast net revenue from continuing operations increased 2% to $62.5 million from revenue of $61.3 million in Q4 2015.

Revenue in Take Shape For Life, was up 8% to $51.8 million in Q4 of 2016, compared to $48.0 million in the prior year. This is the fifth consecutive quarter of year-over-year growth.

The total number of active earning Health Coaches in Q4 was 12,500, compared to 11,900 in 2015. The average revenue per active earning Health Coach for the quarter was $4,158 as compared to $4,039 in Q4 of 2015.

The company’s Medifast Direct business unit revenue fell to $6.8 million, compared to $9.3 million in Q4 of 2015. Fourth quarter advertising spending for this business unit decreased to $1.6 million from $2.2 million in the fourth quarter of 2015.

Revenue in the Franchise Medifast Weight Control Centers business unit decreased modestly to $3.6 million from $3.7 million in the fourth quarter of last year. The decrease in revenue was primarily driven by fewer franchise centers in operation during the period. The company ended the quarter with 37 franchise centers and 19 reseller locations in operation vs. 61 franchise centers at the end of the same period last year.

For the fiscal year ended December 31, 2016, Medifast net revenue was $274.5 million as compared to net revenue of $272.8 million in 2015.  As a percentage of net revenue, Take Shape For Life represented approximately 81.0%, Medifast Direct represented 12.8%, Medifast Franchise Weight Control Centers represented 5.7%, and Medifast Wholesale Physicians represented 0.5%. Income from continuing operations for 2016 decreased $1.8 million to $17.8 million.

Cash, cash equivalents, and investment securities increased $9.7 million to $76.8 million as of December 31, 2016 compared to $67.1 million at December 31, 2015. The company remains free of interest bearing debt.

The company expects first quarter net revenue to be in the range of $69.0 million to $73.0 million. 2017 full year revenue is expected to be in the range of $290.0 million to $300 million.

One can find the complete press release and financial tables here:

https://ir.medifastnow.com/2017-03-09-Medifast-Inc-Announces-Fourth-Quarter-and-Full-Year-2016-Financial-Results

Marketdata Commentary

Medifast revenues were basically flat in 2016–only 0.7% growth, in stark contrast to the 18% gain by competitor NutriSystem. The company is constrained by its ability to constantly add new MLM health coaches. Direct sales to consumers account for less than 13% of sales, also in contrast to the model used by NutriSystem. The company does not spend much on advertising directly to consumers, and this hurts. In addition, the company is still not a household name in the diet market, and many consumers may wrongly  think that, by virtue of its name, the company is a medical or fasting type plan. This does not help either.

The company needs to devote some money and effort to branding, to better identify itself as a consumer weight loss plan. The firm’s reliance on MLM coaches may be holding it back from stronger growth as well, since there are literally millions of independent contractor/distributor MLMs in the U.S. already (incl. many working for Herbalife, NuSkin, AMWAY and others that sell diet products). Consumers may be jaded and shun MLM coaches, many of whom tend to be overly aggressive and pushy. It’s easier to just buy diet products online or direct, in grocery stores or via firms such as NutriSystem, without the sales pitch.

As reported in the conference call with management, the firm has added a new line of “Optivia” products, adding 27 SKUs. This is separate from its “classic” line.

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