Shares of Weight Watchers International (WTW 19.69, -9.88, -33.4%), or "WW" as it is now wants to be known as, are crashing today in the wake of the wellness company's fourth quarter earnings report. The fourth quarter results weren't the real problem, although they were a bit of a problem with revenues of $330.4 million falling shy of analysts' average expectation.
The real problem was the company's dour guidance for fiscal 2019. Specifically, the company said it expects revenues to be ~$1.4 billion and EPS to be between $1.25 and $1.50. The midpoint of the EPS guidance is roughly 60% below analysts' average expectation before the report.
WW acknowledged that it had a "soft start to 2019," as its Winter Campaign did not recruit as expected, and that it expects member recruitment for 2019 to be below 2018 levels. Consequently, revenue and earnings will be lower in 2019.
Many companies have issued earnings warnings for FY19 and haven't seen the material losses WW is seeing after its guidance. Why is the stock crashing, then, like it is:
- The FY19 guidance was so far below the consensus estimates that it has increased investor angst over the idea that WW is going to have to play catch up to its market in 2019 with aggressive marketing.
- The inability to gain the traction it was looking for with its Winter Campaign has fostered worries about increased competition and a loss of market share that might not be made up easily.
- The disappointing guidance has fueled a rash of downgrades from analysts and has presumably stoked institutional selling interest. WW has already traded more than 10x its average volume.
- Prior to the Q4 report, shares of WTW had fallen 72% from their June 2018 all-time-high, suggesting investors were already concerned about the company finding lasting success with its effort to re-brand itself as a wellness company and not just a weight loss company. The dour guidance has compounded those concerns.
At the midpoint of the updated FY19 guidance, and accounting for today's decline, WW trades at 14.4x estimated earnings. That's a seemingly attractive P/E multiple at first blush, but clearly, all isn't well for this wellness company. It has some making up to do with future operating results to demonstrate it is a value and not a value trap.