Weight Watchers (WTW 79.82, -12.39, -13.44%)
trades lower today after the company maintained its 2018 end-of-period
subscriber expectations, and “only” met market expectations for second quarter
Despite beating market expectations for second quarter profit, WTW’s sales weren’t up to snuff. Q2 earnings per share (EPS) came in at $1.01 while revenue growth of 19.9% to $409.7 mln failed to satisfy heightened expectations.
Additionally, WTW saw waning End of Period subscribers in Q2 on a quarter/quarter basis. The company finished the prior three months with 4.5 mln subscribers, down 2.2% from last quarter’s 4.6 mln subs. When comparing the prior year’s subscribers, the company grew customers about 28%.
The heightened expectations were perhaps a product of WTW’s impressive Q1 report from early May wherein management also raised the company’s FY18 EPS outlook. Even though WTW raised the EPS outlook again today, some are scrutinizing why the company’s subscriber forecast didn’t also get a boost.
To that point WTW upped its FY18 EPS guidance to $3.10-3.25, up from the previous $3.00-3.20, due in part to operating strength of the company's business and expected continued global momentum through the year.
Management also left its FY18 revenue outlook alone, reiterating expectations for FY18 revenue to be slightly north of $1.55 bln, despite the recent strengthening of the U.S. dollar.
On the conference call which followed earnings last night, management provided a little more color on the remainder of FY18. Importantly, based on continued year/year recruitment growth and current retention, WTW anticipates exiting 2018 with approximately 4 mln End Of Period Subscribers, up 800,000 or about 25% from where the company ended 2017. This guidance was unchanged from previous levels.
Further, given the nature of the company’s subscription business model, management anticipates this higher level of subscribers when entering 2019 would alone translate into an EPS tailwind of approximately $0.50 in 2019. However, this $0.50 positive EPS impact is independent of any member recruitment assumptions for 2019, effectively assuming flat recruitment year/year.
After toying with its 50-day simple moving average yesterday (92.60), shares of WTW fall under that level on Tuesday as some investors appear content to take a piece off here with shares up nearly 108% YTD into the print. The stock found support at $78 this morning, and now trades 13.6% lower vs 15.4% at today’s worst levels.
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