Shares of Weight Watchers International (WTW) surged in early trading after the company’s quarterly report beat expectations on both the top and bottom line. In addition to announcing an increase in subscribers, the weight management services provider again raised its fiscal year guidance. EARNINGS BEAT AND RAISE: After the market close on Monday, Weight Watchers reported third quarter earnings per share of 65c on revenue of $323.7M, handily beating analysts’ estimates of 51c and $319.4M, respectively. Weight Watchers said end of period subscribers were up 18.4% from last year to 3.4M, driven by growth in all major geographic markets. End of period meeting subscribers were up 10.6% and online subscribers at the end of the quarter were up 24.4% vs. last year, the company said. Total paid weeks were up 19.8% in Q3 vs. last year. The gains prompted the company to again raise its earnings per share view for fiscal year 2017. Weight Watchers now sees FY17 EPS of $1.77-$1.83, up from its prior view of $1.57-$1.67. In August, Weight Watchers raised its FY17 EPS view to $1.57-$1.67 from $1.40-$1.50. The company expects to end 2017 with over 400,000 more end of period subscribers than in year-end 2016, which will translate into an EPS tailwind of at least 30c in 2018. THE OPRAH EFFECT: Weight Watchers has been on a turnaround track since Oprah Winfrey took a stake in the company and agreed to become a company spokesperson in October 2015. The company said on its earnings conference call that Winfrey, a “strong advocate of our new program,” will play an “essential” role in its upcoming U.S. marketing campaign. WHAT’S NOTABLE: In addition to “the Oprah Effect,” CFO Nick Hotchkin said the company is retaining customers through technology investments and an improved weight loss program. Weight Watchers announced in late April that Mindy Grossman, CEO of HSN, Inc (HSNI), would join the company as president and CEO in July. Weight Watchers noted on its earnings call that in an independent study conducted in the U.K. and recently published in the British Medical Journal, researchers found “considerable” reductions in diabetes risk as well as an average weight loss of 22 pounds within a year of patients being referred to Weight Watchers. In September, Weight Watchers applied for a patent called “fresh smart portions delivered,” according to a filing with the USPTO. Others in the home meal delivery business include Blue Apron (APRN). ANALYST COMMENTARY: Craig-Hallum analyst Alex Fuhrman raised his price target for Weight Watchers to $70 from $50 following the company’s “strong” beat and raise report. The analyst told clients in a note that momentum is building in 2017 with the potential for significant upside to estimates in 2018. With the post New Year’s “diet season” quickly coming up, Fuhrman said future beats could be even bigger as the company carries a meaningful recruitment tailwind into 2018. PRICE ACTION: Weight Watchers shares touched a 52-week high and are up about 21% to $54.32 in morning trading.
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