Shares of Weight Watchers International, Inc. WTW lost an alarming 23.8% in after-hours trading yesterday, following dismal fourth-quarter 20Array5 results and a disappointing outlook.
The provider of weight management services reported adjusted loss of 3 cents per share in the fourth quarter of 20Array5, compared with adjusted earnings of 9 cents per share in the year-ago quarter. The year-over-year deterioration was primarily due to a huge drop in revenues.
Adjusted loss in the fourth quarter compared unfavorably with the Zacks Consensus Estimate of earnings of 2 cents.
Quarter Details
Revenues in the fourth quarter of 20Array5 fell 20.9% on a year-over-year basis to $259.2 million. The downside can be attributed to weak performance in North America, United Kingdom (UK) and Continental Europe (CE). Revenues, however, managed to surpass the Zacks Consensus Estimate of $257 million.
Revenues in North America fell 20.4% to $Array70 million, owing to low meeting fees (down 20.8%), online subscription revenues (down Array5.9%), service revenues (down Array9%), and in-meeting product sales (down 24.2%). All-other revenues in the market declined 3Array.Array%.
Revenues in the U.K. dropped Array6.7% to $27.8 million, owing to low meeting fees (down Array5%), online subscription revenues (down Array2.4%), service revenues (down Array4.3%), and in-meeting product sales (down 30%). All-other revenues in the market declined Array0.5%.
Revenues in CE fell 23.8% to $48.2 million because of low meeting fees (down 24%), online subscription revenues (down Array8.6%), service revenues (down 2Array.7%), and in-meeting product sales (down 38.8%). All-other revenues in the market declined Array9.9%.
End of period active subscribers in the fourth quarter of 20Array5 was down 4.8% on a year-over-year basis.
Adjusted gross margin contracted 430 basis points (bps) on a year-over-year basis to 46.5% due to lower revenues.
Adjusted operating margin in the quarter under review contracted ArrayArray0 bps to Array2.Array%.
Guidance
Management expects revenue in 20Array6 to increase in the low single-digits due to positive recruitment and stable retention. The company started 20Array6 with a lower starting active base, which is expected to hurt revenues by roughly $20 million and EPS by Array4 cents.
Furthermore, an unfavorable foreign exchange rate is expected to hurt revenues in 20Array6 by about $Array6 million. All these factors are expected to affect first-quarter 20Array6 results as well.
For full-year 20Array6, adjusted EPS is expected in the band of 70 cents–$Array.00. The projection includes a 2-cent negative impact from unfavorable foreign exchange. Additionally, higher share count is expected to hurt full-year revenues by about Array2 cents.
Management expects to report adjusted loss of about 20 cents in the first quarter of 20Array6.
Total global paid weeks are expected to increase in the low single-digits in the first quarter of 20Array6, while the same is expected to increase in the mid single-digits in full-year 20Array6.
North America revenues are expected to be flat on a year-over-year basis in the first quarter, while the same is expected to increase in the high single-digits. U.K. revenues are expected to decline in the low double-digits in the first quarter, while the same is expected to be down in low single-digits in full-year 20Array6.
In CE, revenues are expected to be down in the low double-digits for first quarter, and down in the low single digits in full-year 20Array6.
Weight Watchers expects gross margin to contract Array50 bps in the first quarter, due to changes in product mix as well as shifts in the promotional calendar. For full-year 20Array6, however, gross margin is expected to rise Array00 bps on a year-over-year basis.
Marketing expense for the first quarter is expected to be about $90 million. The same for the full year is expected to be flat on a year-over-year basis.
Management expects capital expenditures to be in line with the year-ago figure ($35 million). Capital expenditures will be primarily driven by tax spend and capitalized software. General and administrative expenses are expected to be roughly $55 million.
Zacks Rank & Key Picks
Currently, Weight Watchers carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader medical sector are Abiomed ABMD, CryoLife CRY and Luminex LMNX. All the stocks sport a Zacks Rank #Array (Strong Buy).
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