When Oprah Winfrey bought a 10 percent stake in Weight Watchers International (WTW) last year, she brought star power to the beleaguered weight-loss services chain and helped boost its share price. However, "The Oprah Effect" hasn't dramatically benefited Weight Watchers' bottom line as much as Wall Street had hoped, at least not yet.
After the market closed on Thursday, Weight Watchers announced that during the quarter ended Jan. 2, it had a net loss of $11.3 million, or 18 cents per share. Expenses related to Winfrey's investment were among reasons cited for the dragged-down earnings. A year earlier, Weight Watchers showed a profit of $4.4 million, or 8 cents per share. Quarterly revenue slumped 21 percent to $259.2 million, fueled by double-digit declines in both its meetings and online businesses, a long-standing problem.
Excluding one-time costs, Weight Watchers lost 3 cents per share compared with analysts' expectations of a profit of 2 cents, although the revenue figure topped forecasts of $257.8 million. The New York-based company also estimated full-year profit of 70 cents to $1 per share. Analysts had expected 74 cents.
Not surprisingly, the disappointing earnings took pounds off Weight Watchers shares: They slumped on Friday by more than 29 percent, closing $4.54 lower at $11.01.
Some analysts, such as Morningstar's R.J. Hottovy, argue that's an overreaction. In a note to clients today, Hottovy noted "encouraging signs" such as the strong reaction to the company's "Beyond the Scale" program that Winfrey is marketing. He also has high hopes for offerings such Weight Watchers' SmartPoints, which emphasizes eating leaner proteins along with fruits and vegetables, its Fitbreak App and its Connect social media tool.
"We've consistently stated that 2016 will be a transitional year for Weight Watchers and that it will take time to build consumer awareness of recent platform changes," Hottovy wrote. "The market may have been looking for a more pronounced 'Oprah effect' in 2016, likely explaining today's pullback."
Winfrey, though, isn't going to feel much of a pinch from the company's volatile stock price. She has already realized a paper gain of nearly $75 million on her investment. According to Forbes, the former talk show queen has a net worth of $3.2 billion. She also has legions of fans around the world, some of whom are eager to lose weight.
Speaking at the company's earnings conference call, Weight Watchers CEO James Chambers noted that the company has seen an an "Oprah bump" in its meetings and online memberships, though not enough to offset overall declines. Indeed, in the fourth quarter Weight Watchers lost 4.8 percent of its members, ending the year at 2.4 million. Still, that was much better than the 12.7 percent decline during the previous quarter.
One of Weight Watchers' problems is that dieters now have so many options to keep them on the straight and narrow, especially with fitness apps and gadgets continuing to gain popularity. Survey data from Nielsen released last year found that 31 percent of Americans used calorie counters, 24 percent use fitness websites and 16 percent use watches with fitness-tracking capabilities.
Nonetheless, Weight Watchers still has a strong brand and appeals to dieters who need extra "hand-holding" from a coach or the camaraderie at meetings for support, according to Efraim Levy, an analyst with S&P Global Market Intelligence, who has a "hold" rating on the stock.
Weight Watchers CEO Chambers remains optimistic that the company will reverse four years of annual declines and return to recruitment and revenue growth. "The consumer response to our new program has been very positive, and our long term partnership with Oprah is off to a strong start," said Chambers. "We have returned our business to recruitment growth, which we expect to drive revenue and profitability growth in 2016."
Said S&P's Levy: "It is still a challenge, but Oprah gives them hope."