Shares of Weight Watchers International Inc.WTW rallied 11.8% to close at $14.04 on Mar 3, following the company's regulatory filing, which notified the deal with Oprah Winfrey and her endorsement of the brand bought more than 1 billion media impressions.
According to Bloomberg, "Each impression represents a time that a viewer was exposed to a mention of Weight Watchers."
Weight Watchers signed a strategic partnership with Oprah Winfrey in October, last year. The agreement allowed the company to use her name, image, likeness for promoting its products. As part of the deal, Oprah Winfrey got 6.4 million shares of the company for $43.2 million and has the right to buy another 3.5 million shares at $6.97.
Although the free publicity is of utmost importance for Weight Watchers given its dismal conditions, the deal is yet to prove accretive toward subscriber growth. In the recently concluded fourth quarter of 2015, active subscriber count declined 4.8% on a year-over-year basis.
Meanwhile, revenues plunged 20.9% on a year-over-year basis to $259.2 million. Weight Watchers reported adjusted loss of 3 cents per share, compared with adjusted earnings of 9 cents per share in the year-ago quarter and Zacks Consensus Estimate of earnings of 2 cents.
At the end of full-year 2015, Weight Watchers had approximately 1.4 million active online subscribers (down 13.3% from 2014) and 1.0 million active subscribers (down 16.7% from 2014) on its monthly commitment plans.
Moreover, full-year 2016 guidance failed to impress. Weight Watchers expects revenues to increase in the low single-digits range due to positive recruitment and stable retention. The company started 2016 with a lower starting active base, which is expected to hurt revenues by roughly $20 million and earnings by 14 cents per share.
Furthermore, an unfavorable foreign exchange rate is expected to hurt revenues in 2016 by about $16 million. For full-year 2016, adjusted earnings are expected in the band of 70 cents-$1.00. The projection includes a 2-cent negative impact from unfavorable foreign exchange.
Nevertheless, we believe the partnership with Oprah Winfrey will help in reducing marketing expense for full-year 2016, which management expects to remain flat on a year-over-year basis. Notably, marketing expenses, as a percentage of revenues, declined 40 bps on a year-over-year basis in full-year 2015.
Zacks Rank & Key Picks
Currently, Weight Watchers carries a Zacks Rank #3 (Hold).
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