Weight management service provider Weight Watchers International Inc.WTW is scheduled to release second-quarter 2016 results on Aug 4. In the last quarter, the company had posted a loss of 17 cents per share, better than the Zacks Consensus Estimate of a loss of 18 cents.
Let's see how things are shaping up for this announcement.
Factors at Play
Weight Watchers believes that its improved cost structure will drive significant earnings growth in the near term.
WEIGHT WATCHERS Price and EPS Surprise
Total end of period subscribers is expected to be up in the mid to high single-digits on a year-over-year basis in the second quarter of 2016. Additionally, total global paid weeks are expected to be up in the mid single-digits with meetings outperforming online in the second quarter of 2016.
North America revenues are anticipated to be up in the high single-digits for the second quarter, while U.K. revenues are likely to be down in the low double-digit range.
Continental Europe revenues are expected to decrease in the mid single-digit range.
Weight Watchers expects gross margin expansion of 125 basis points (bps) in the second quarter of 2016. Marketing expenditures are expected to increase by $5 million year over year to $45 million.
Moreover, the high-profile partnership with Oprah Winfrey has boosted the stock and attracted new members. We believe this ground-breaking collaboration will drive the company's top line considerably.
Meanwhile, the partnership with Solera Health will allow Weight Watchers to leverage payer reimbursement for diabetes prevention programs and encourage referrals by healthcare providers.
Our proven model does not conclusively show that Weight Watchers is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP : Weight Watchers has an earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 48 cents per share.
Zacks Rank : Weight Watchers carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company's 0.00% ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Nektar Therapeutics NKTR , with earnings ESP of +50% and a Zacks Rank #1.
CytRx Corporation CYTR , with earnings ESP of +15% and a Zacks Rank #2.
Zoetis Inc ZTS , with earnings ESP of +2.27% and a Zacks Rank #2.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.