NutriSystem Sheds Pounds ... and Profits
Mar 6th 2012 7:05PM
Updated Mar 6th 2012 7:06PM
Someone better tell NutriSystem's (NAS: NTRI) newest ambassador, Janet Jackson, that the company just suffered yet another earnings malfunction.
Neither Dan Marino, Terry Bradshaw, nor Marie Osmond has the star power needed to turn this misguided ship around. Last night, NutriSystem reported its fourth-quarter results and provided its forecast for the first quarter and ... let's just say that pounds weren't the only thing being shed.
For the quarter, NutriSystem lost $0.04 on a 24% drop in sales, to $66.9 million. Overall, sales topped estimates slightly but the loss was $0.02 more than Wall Street had expected. The wheels really came off the grocery cart when the company forecasted a first-quarter loss ranging from $0.05 to $0.10 while the Street was looking for a profit of $0.10.
The company stated that it would need to spend more on marketing and advertising in order to draw more clients to its business. This is something I've said again... and again... and again, but NutriSystem is terrible when it comes to client retention. The average client stays with the company only 10 to 11 weeks. With numbers like that, it's no wonder that NutriSystem needs to change up its game plan every few months in order to draw new clientele.
This is a trend that has persisted throughout the weight-loss sector recently. Weight Watchers International (NYS: WTW) on Valentine's Day posted lackluster fourth-quarter results that saw total sales fall shy of Wall Street's estimates. The company also cautioned in its 2012 forecast that overall growth would be challenging due to Europe. Similarly, Medifast (NYS: MED) is transitioning through a CEO change and has a lot of ground to make up after missing estimates in three of the past four quarters.
Supplemental-health companies have had mixed performances as well. Vitacost.com (NAS: VITC) produced a large and unexpected loss in its most recent quarter while Herbalife (NYS: HLF) has thus far surpassed the Street's expectations. I personally don't see enough separation between Herbalife's business and NutriSystem's, but Herbalife has proven it is much, much better at retaining customers.
NutriSystem is betting the boat in 2012 on an aggressive marketing campaign and a new line of in-store grocery products designed to boost sales and product awareness. Perhaps if customers see the name more frequently, they'll be more apt to stick with the service? It's a novel idea, but it seems like an uphill battle that NutriSystem has fought before, and lost every time. Shedding profits like its customers want to shed pounds, this company looks like it could be a bumpy ride for shareholders.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He has the metabolism of a kid. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always trims the fat.
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