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Why Weight Watchers stock is plunging

·Anchor, Editor-at-Large
·2 min read
In this article:
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WW International (WW) — parent company of Weight Watchers — saw its stock plunge 26% in pre-market trading on Wednesday as investors fretted about slowing subscriber growth inside a quarter that shocked everyone. 

Total subscribers ended the second quarter at 4.9 million, down 1.9% from the prior year. Subscribers dropped in two of WW's four geographic regions, most worryingly North American with a 1.6% decline. Constant currency subscription sales fell 10.4% from a year ago. 

WW International CEO Mindy Grossman told analysts on a conference call the pandemic is having different effects on the company's business relative to plan. 

"When we spoke to you in May, we believed that as the world reopened, the timing of which would vary by geography, consumers would be increasingly inspired to restart their health and wellness journeys creating a demand lift outside of our typical seasonal cadence and positively impacting the entire category. However, the strong digital year-over-year growth momentum in Q1 slowed in the second quarter as we cycled against strong digital performance in 2020. Therefore our results did not meet our revenue and operating income expectations," explained Grossman.

NEW YORK, USA - JUNE 19: Mindy Grossman, President & Chief Executive Officer, Weight Watchers speaks at Forbes Women's Summit 2018 in New York, United States on June 19, 2018. (Photo by Mohammed Elshamy/Anadolu Agency/Getty Images)
NEW YORK, USA - JUNE 19: Mindy Grossman, President & Chief Executive Officer, Weight Watchers speaks at Forbes Women's Summit 2018 in New York, United States on June 19, 2018. (Photo by Mohammed Elshamy/Anadolu Agency/Getty Images)

Grossman added, "While people are acknowledging their need for re-committing to weight loss and wellness our recent consumer research shows that at the moment they're also asking for a pause to enjoy social reconnection."

With both traffic and search under pressure, this sentiment shift appears to be across the Weight Loss and Wellness category.

Here is how WW International performed compared to Wall Street estimates for the second quarter:

  • Net Sales: $311.4 million vs. $336.4 million

  • Adjusted Diluted EPS: $0.48 vs. $0.66

  • Full Year 2021 Outlook: $1.10 to $1.25, which includes costs for early debt retirement and restructuring. Consensus was looking for $2.08 a share.

Analysts seemed generally stunned by the quarter and outlook. Most are now taking a wait-and-see view on the stock until the business stabilizes. 

"We are pausing our thesis to reassess. Q2 member counts were in range, but the lowered outlook has shaken our confidence in revenue cadence and near-term momentum. With guide for growth no longer supporting counter-seasonality, we pull back assumptions for members and push out our model by 12 months," said Jefferies analyst Stephane Wissink.

Wissink downgraded her rating on WW International to Hold from Buy.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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