Weight Watchers: Becoming More About Health Than Vanity

by Jason Jenkins, Investment U Research
Tuesday, December 13, 2011

This New Year’s many people will embark on the annual tradition of trying to change things they don’t like about themselves. Many people will want to shed a few extra pounds to look more like someone in magazine…Or even just a co-worker or neighbor.

And Weight Watchers (NYSE: WTW) has built an empire on this inherent desire of people to improve their looks.

Admittedly, when you see the before and after pictures of its clients in ads, the final product looks a little glamorous.

The Growing International Obesity Problem

But it’s not that the rest of the world wants to be glamorous… and the following statistics can show you why Weight Watchers could easily become a world-wide healthcare and wellness necessity:

Being overweight or obese is the fifth leading risk for global deaths.

At least 2.8 million adults die each year as a result of being overweight or obese.
Forty-four percent of the diabetes burden, 23 percent of the ischemic heart disease burden and up to 41 percent of certain cancer burdens are attributable to being overweight or obese.

And the numbers become even scarier when you talk about children globally:In 2010, around 43 million children under five were overweight.

Once considered a high-income country problem, being overweight or obese is now on the rise in low- and middle-income countries, particularly in urban settings.
Close to 35 million overweight children are living in developing countries and eight million in developed countries.

And right here at home in the United States, obesity has grown by leaps and bounds. Presently, 34 percent of adults are obese. Over 17 percent of children and adolescents are overweight or obese.

Where Weight Watchers Comes In…

Weight Watchers is the world’s largest provider of commercial weight loss services, focusing on education and group support through its company-owned and franchise operations.

It holds over 45,000 meetings each week, where members receive group support and learn about healthy nutrition patterns, behavior modification and physical activity. WeightWatchers.com is the company’s subscription-based online weight management program and is the leading internet-based weight management provider in the world.

And all this is led Weight Watchers’ third-quarter results, which were very solid – ahead of analyst expectations and consensus. Management again raised its full-year earnings per share forecast roughly three percent. Third-quarter revenue came in at $428 million, up 30 percent year over year.

Some of that uptick can be attributed to brand-building efforts.

Even with the dysfunction in Europe and its attempts at fiscal austerity measures, the reported drop in meeting revenue and attendance were relatively not that bad – a drop of 10 and 15 percent, respectively. North America and internet sales growth remained solid in the quarter, up 23 percent and 68 percent.

Weight Watcher’s Initiatives

And here’s how Weight Watchers is attempting to take advantage of this business opportunity:

Employer-Relationship Building: Employers now see the advantages of being proactive with employee healthcare and wellness. Future business-to-business relationships will allow Weight Watchers to team up with employers to promote its products. It also plans to adapt its IT system to the reporting needs of employers. This approach should create a huge sales opportunity.
Expanding its Distribution Network: Weight Watchers is partnering with Merck (NYSE: MRK) to bring its products and services directly to doctors and healthcare professionals. A pilot outreach program of this sort began earlier this year. The results are highly promising, as doctors are viewed as a reliable source of health information.

Weight Watchers looks like a promising play as it grows it business and deals with an increasingly compelling global obesity problem.

Good Investing,

Jason Jenkins

Article by Investment U