Watch CBS News

Weight Watchers shares sag as slimming profits worry Wall St.

Shares of Weight Watchers (WTW) are getting pounded today after the pioneering weight loss company reported quarterly results that were far worse than expected as the company continues to lose ground to new rivals such as apps and fitness bands.

Weight Watchers was down $7.87, or 27 percent, to $22.70. The stock has plunged 49 percent over the past year and Wall Street analysts expect that it will plummet even further.

Net income for the three months ended Dec. 30, plunged 47 percent to $30.8 million, or 54 cents per share, compared with $58 million, or $1.03 per share, a year earlier. Revenue fell 11 percent to $366.1 million as attendance at Weight Watchers meetings plummeted 14 percent and its newer promotions were not able to offset the shortfall. The results were worse than the 61 cent profit and $358 million revenue forecast of Wall Street analysts.

Chief Executive Jim Chambers, who joined the company in August to turn it around, didn't offer investors any reason for optimism. The company suspended its dividend last year and plans to slash costs.

"The headwinds from free apps and activity monitors have only continued to intensify and are significantly impacting consumers," he told analysts during the company's earnings conference call. "And our marketing efforts in the early part of this year have been less effective than we had hoped, putting our top and bottom lines under greater pressure."

Weight Watchers expects 2014 to be challenging and forecasted per-share earnings for the year of $1.30 to $1.60, far below the $2.78 analysts had expected.

Meetings have been the cornerstone of the Weight Watchers program ever since the New York-based program was founded in 1963 and continues to be its biggest source of profit. Clients are given advice on diet and nutrition and are encouraged to meet the goals they have set for themselves. Though there are a plethora of studies attesting to the effectiveness of the program, participation has been declining for years.

Weight Watchers tried to counter these declines through its Simple Start promotion that featured television personality Jessica Simpson and aimed to ease dieters into its program over a two-week period. Customers took advantage of the program at a slower-than-expected rate which has forced the company to overhaul its marketing efforts.

Though Americans spend about $66 billion on diet and low calorie products, only about 1 in  10 rely on a formal program such as Weight Watchers to lose weight. Many are turning to apps such as My Fitness Pal, which has about 40 million users or activity bands that monitor a user's rate of physical exertion.

To counter these trends, Weight Watchers is trying to partner with corporations to get them to pay for its service as part of its corporate wellness programs, an area where the company plans to "expand aggressively."

"We are in discussion with a select number of health plans for launch of new or expanded benefit offering to their members for potentially as early as the 2015 benefit season," Chambers said.

Whether Weight Watchers can build up that business fast enough to allay investors' growing concerns about its viability remains to be seen.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.