Weight Watchers Rebounds on Membership Growth

Shares of Weight Watchers International(NYSE: WTW) surged by as much as 16% on Thursday after the company posted mixed first-quarter earnings that revealed surprising membership growth. However, the stock gave up most of those gains during the day, and remains down more than 40% since the beginning of the year.

The key numbers

Weight Watchers’ revenue fell 5% annually to $306.9 million and missed estimates by $2 million. However, that was a notable improvement from the declines of around 20% which it had reported throughout 2015. Its net loss widened $0.07 from a year earlier to $0.17, which still beat expectations by a penny.

Global subscribers rose 5% annually to 3.6 million, with 11% subscriber growth in North America, which generates roughly two-thirds of its overall sales. The company attributes that uptick to the launch of its new holistic consumer program, Beyond the Scale, a new social media platform called Connect, and ongoing media promotions by Oprah Winfrey. However, the fact that memberships rose as revenue fell indicates that many users likely signed up for discounted offers.

Weight Watchers’ top and bottom line growth still trails far behind rival Nutrisystem(NASDAQ: NTRI), which posted 18% year-over-year sales growth last quarter. Adjusted earnings per share rose 30% to $0.13, which beat estimates by eight cents.

The road ahead

Analysts currently expect Weight Watchers’ revenue to rise 3% this year. While that would mark a return to growth, analysts expect Nutrisystem to keep outpacing its rival with 14% growth. Weight Watchers will also likely struggle to achieve profitability, since it will likely need to boost marketing expenses to maintain momentum for its new programs. Weight Watchers is doing better than expected for now, but investors shouldn’t consider this a turnaround stock until it demonstrates membership growth and revenue growth at the same time.

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Leo Sun has no position in any stocks mentioned.

Weight Watchers Rebounds on Membership Growth