In other words, there was nothing so “sudden” about the outburst of activity monitors and fitness applications in the market. Weight Watchers’ management was focusing on its traditional competitors, NutriSystem Inc. (NASDAQ:NTRI) and Medifast, remaining oblivious to the technological progression that was alongside materializing.
Talking about the traditional competitors, NutriSystem Inc. (NASDAQ:NTRI) uses a similar system as that of Weight Watchers International, Inc. (NYSE:WTW), selling monthly packages that include breakfast, lunch, dinner and desserts. It sells a weight management program separately. In the previous quarter, NutriSystem faced a revenue decline of 21.7% year on year, although earnings increased by 54.5%, pointing out that it is facing the same snags that are weighing the Weight Watchers down. The difference being drawn in here being that, NutriSystem Inc. (NASDAQ:NTRI)’s products and services are sold separately, making its business model more flexible than that of Weight Watchers. In addition to this, NutriSystem offers special programs strategized for diabetics.
On the other hand, Medifast, sells weight management food products like, pancakes and cookies, runs Medifast Weight Control Centres across the United States, and sells disease management products via its pharmaceutical spin off. So far in the tussle against technological advancements, of the three companies, Medifast has fared better, with an 8% and 48.7% growth in its year-on-year earnings and revenue, respectively.
Of unwise fundamentals
As we conclude, a peak into the fundamentals also reveals that the expectations for Weight Watchers are quite low compared to NutriSystem and Medifast.
Considering clean balance sheets and strong price performances over the past year, NutriSystem surprisingly emerges as the strongest fundamental pick of the three companies, the other two being Weight Watchers and Medifast. Although Weight Watchers maintains the most robust margins, it has a poor PEG ratio which points out negative earnings growth in the years to come.
The losses of Weight Watchers are only going to heap up as people become more involved in their fitness routines using FuelBand’s and other fitness applications. Weight Watchers would probably try to counter this, with free or tweaked-up versions of its mobile applications, but they will be too insignificant to bring back the lost members.
Therefore, there is no substantial reason to own Weight Watchers – It is just another company that got side tracked during the technological upsurge, and just like Hewlett-Packard and Best Buy, it must put its obsolete strategies under the microscope, bend over backward and make a headstrong reentry.
The article Too Much Weight Hard to Handle for Weight Watchers? originally appeared on Fool.com and is written by Ashley Sales.
Ashley Sales has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike and Weight Watchers International.
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