Weight Watchers 47% profit fall

Weight Watchers announced a 47% fall in profits to $30.8 million in 2013, the biggest decline on record, sending shares down by 25% during trading on Friday.

The company says it is planning to resize.

The dramatic growth in the availability and usage of diet apps has hit hard at the core business of Weight Watchers.

The company announced revenues of $336.1 million for Q4 2013, an 11% drop compared to Q4 2012, its fourth successive quarterly revenue decline. Total paid weeks were down 8.5%. Earnings per share were $0.54.

Jim Chambers, Weight Watchers’ chief executive, said:

“In Q4, we performed in line with our expectations. While we are confident that we are on the right track to execute a successful transformation, 2014 will be a very challenging year.”

Weight Watchers has nothing compelling enough yet

Weight Watchers, which is based in New York, is said by analysts to be fighting a losing battle against free smartphones apps and calorie-tracking gadgets. iPhone applications and accessories, for example, make it much easier for people on diets to track their food consumption, exercise and health. So far Weight Watchers has not been able to come up with something compelling enough to bring people back.

Yesterday, the company announced that it expects earnings to be 50% lower in 2014, due to falling revenues and higher spending on products aimed at boosting Weight Watchers’ business.

In a conference call yesterday, Chambers said he and his team do not like the company’s performance so far this year “…and we are working hard right now to improve it. Our plans for the 2015 product innovation and healthcare initiative are on the right track.”

A range of strategies being considered

Weight Watchers has been considering a range of strategies to stem the decline in membership and revenue. Executives have looked into whether they should make it easier for people to sign up, offer more personalized programs for losing weight, and making deals with health insurance providers to subsidize memberships.

Yesterday the company said it has made progress with its strategies, but warned that some of them will involve much higher spending in 2014, which will offset the company’s current cost-cutting plans.

Chief Financial Officer Nick Hotchkin said:

“While reducing costs is a necessary building block of our transformation, by itself, it would be insufficient. That is why we are investing in support of product innovation particularly for the winter diet season 2015 and healthcare.”

In an interview with Wall Street Journal, John Faucher, a JPMorgan analyst, said “Management are moving forward and trying to turn this ship around, but that will take time. It will take time to determine when/if the company will return to growth. We see no reason to turn more positive at this time.”

Weight Watchers app versus good free apps

If there is good stuff around free of charge, and you want to compete and charge people money, your product needs to be clearly superior and more effective.

Weight Watchers is using singer Jessica Simpson to promote its 2-week Simple Start program. Clients get a list of foods to eat and a mobile app. If you want access to meetings and online tools you have to pay $32.95 for the first month’s pass.

Many wonder whether most clients might just go for the app and the list of foods and skip the paying part.

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