NEW YORK — A new report from Moody’s Investors Service expresses optimism about the near-term future of Weight Watchers International Inc. Growth in subscribers following Oprah Winfrey’s investment in the company and a partnership involving Apple Inc. and its Apple Watch platform were cited as two reasons for the optimism.
|Ed DeForest, vice president and senior credit officer with Moody's.|
“Weight Watchers’ began to turn around its troubled US business in October 2015, when Oprah Winfrey became the company’s chief US spokesman and invested $43 million of new cash equity for a 10 percent ownership stake, the right to buy another 5 percent and a seat on the board of directors,” said Ed DeForest, vice president and senior credit officer with Moody’s. “The company used the cash to invest in service offerings and promotional and advertising campaigns in early 2016, contributing to sharp improvement in US subscriber counts and paid weeks.
“Because the company’s financial results generally lag operating trends by about a year, we believe Weight Watchers will end 2017 with financial metrics that position it more solidly at its rating than has been the case during the past few years.”
During fiscal 2016, ended Dec. 31, 2016, Weight Watchers International recorded net income of $67.7 million, equal to $1.03 per share on the common stock, and an increase when compared with fiscal 2015 when the company earned $32.9 million, or $0.56 per share.
Sales for 2016 were $1,164.9 million and flat compared with 2015 when sales were $1,164.4 million.
This past December, Weight Watchers announced its partnership with Apple Inc. Through the endeavor, consumers who subscribe to a Weight Watchers OnlinePlus plan would receive an Apple Watch with the purchase. Through the Weight Watchers app, members would receive digital access to the company’s SmartPoints food plan, tailored activity goals, a personalized program, support from a trained coach and access to Connect, a Weight Watchers members-only community.
DeForest called Weight Watchers’ lack of mobility options a “key weakness,” but said, “Although we do not expect the (Apple) plan will lead to a material increase in subscribers or revenues in 2017, the premium-priced subscription bundle could broaden the company’s appeal to include a wealthy, mostly male, fitness-oriented demographic that has been abandoning Weight Watchers over the past five years, as well as younger subscribers.”
Despite the renewed optimism, DeForest said many challenges persist for Weight Watchers. Most notably, the performance of its United Kingdom and European businesses continues to lag. In addition, the company is challenged by competition. Direct competitors include Nutrisystem and Jenny Craig in the United States and Slimming World in the United Kingdom. Also cited as competitors were such gym membership companies as Life Time Fitness Inc., food companies like Atkins Nutritionals, and emerging healthy fast-food and quick-serve dining options.
“For Weight Watchers’ turnaround efforts to succeed, the company must grow every segment of its multi-faceted subscriber base,” DeForest said. “So far, the recovery has been heavily weighted toward digital subscribers in the US, with subscription gains centered around occasional users and new trial members. Therefore, we remain concerned that the successes of the 2016 and 2017 diet seasons may not be sustainable unless Weight Watchers can grow its meetings business in the US at a faster rate and show material growth in regions outside the US.”