Weight Watchers: From Oprah to Home Shopping

08/11/2017 2:56 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In October 2015 Oprah Winfrey began collaborating with weight control specialist Weight Watchers (WTW), and made a $43 million investment in the ailing company, asserts growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

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Shares soared on expectations that she would pull in thousands of new customers to attend meetings (52% of revenue), buy digital subscriptions (29% of revenue) and purchase weight loss and other products (19% of revenue).

Enthusiasm faded when quarterly revenue growth only picked up into the mid-single digits in late 2016. But the recent release of second quarter 2017 results suggests the company has done more than just team up with the queen of daytime TV to build its business.

In April of this year, Weight Watchers hired Mindy Grossman, who, as the previous CEO of Home Shopping Network (HSNI), was largely responsible for turning that company into a $4 billion direct-to-consumer content and commerce leader.

Weight Watchers has also honed its focus on consumer insights and has a new technology platform and refreshed meeting experiences to aid in that effort.

The result is that Q2 revenue was up 10% to $342 million (topping estimates by $10 million) and EPS of $0.67 was up by 46% (and beat analyst’s figures by $0.16).

Adding to the bull case is a 20% increase in subscribers, to 3.5 million, including a 17% increase in online subscribers (to 2.1 million). Those results, along with a boost to forward guidance, were good enough to silence the naysayers and drive a wave of new money into the stock.

WTW was struggling until Oprah stepped into the picture in 2015; within a couple of months, the stock moved from $7 to $28. The rally faded in 2016 and shares bounced around in the $9.5 to $14 range for most of the year.

They gained momentum in 2017, starting with a jump to $19 following Q4 results in late February.  The results showed WTW was back on track and money flowed in.

The shares walked steadily higher along their 25-day line before a shake to the 50-day line last week. Earnings have catapulted shares to fresh highs so try to buy on dips.

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