Weight Watchers (WTW)
Weight Watchers (WTW): Can Oprah Help the Stock Rebound?
By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
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Weight Watchers International (WTW) received a huge boost on the news that Oprah Winfrey had invested $43 million in the stock and will take a seat on the company’s board of directors and become a spokesperson. The news sent Weight Watchers’ stock price soaring 132% last week to 15.75.
Weight Watchers, founded in 1968 with headquarters in New York City, is 47% owned by Artal Holdings, a hedge fund managed by Invus Group and Raymond Debbane. The story of Weight Watchers is a long one, but going directly to what I see as problematic, Artal Holdings has pocketed $3.8 billion on the initial investment of $224 million it made back in 1999. Artal Holdings’ 30 million shares gained $200 million last week.
I am wondering why Oprah invested in Weight Watchers. In no way has Mr. Debbane acted illegally, but he has used the company as his fund’s piggy bank and left all other shareholders with huge losses.
From 2001 to 2012, Debbane sold millions of shares in five big Artal stock sales. His largest sale, in 2012, included $1.3 billion of stock that was purchased by Weight Watchers at 82 per share. Weight Watchers financed the purchase entirely from bank debt and the sale of corporate bonds. The $1.3 billion that the company paid Mr. Debbane’s hedge fund could have certainly been used in a much more constructive way to enhance shareholders’ value.
The huge addition to debt has caused Weight Watchers to spiral downhill since 2012. Sales dropped 6% in 2013, 14% in 2014, and an estimated 22% in 2015. Earnings per share plummeted from $4.23 in 2012 to an estimated $0.70 in 2015. Weight Watchers’ balance sheet is a wreck with a ton of debt rated in the “junk” category.
Weight Watchers stock dropped dramatically during the last four years.
Does Oprah know the ugly history of Weight Watchers? Can Oprah deal with Raymond Debbane, who controls 47% of the stock and is currently the chairman of the board of directors?
I don’t claim to have the answers to these and many other questions. However, Oprah stated, "Weight Watchers has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for. I believe in the program so much I decided to invest in the company and partner in its evolution."
Raymond Debbane, Chairman of the Board added, "Weight Watchers and Oprah Winfrey make a powerful combination. Oprah is a force of nature in connecting with people on a very personal level to live inspired lives. This partnership will accelerate our transformation and will meaningfully expand our ability to impact many millions of people worldwide."
I think Jim Chambers, president and CEO of Weight Watchers, provided the biggest clue to the company’s future when he stated, "We are expanding our purpose from focusing on weight loss alone to more broadly helping people lead a healthier, happier life." If Weight Watchers can reinvent itself, the sky is the limit.
In order for Weight Watchers to rebound, an aggressive marketing campaign will need to be launched with Oprah front and center, but with other celebrities joining her. Creative new ideas will need to be introduced to help people lead healthier and happier lives. Oprah has already developed a worldwide reputation for inspiring people to realize their full potential. She is America’s defacto life coach.
In my opinion, Weight Watchers’ potential is great, but the turn-around attempt will be costly. Oprah paid $43 million at $6.85 per share and has an option to buy another $20 million at $6.97 per share. She has committed to hold her stock for a minimum of two years. In addition, Weight Watchers will generate about $94 million from cash flow this year and $86 million next year. Oprah’s contributions and the company’s cash flow will go a long way toward kick-starting new marketing and new health-related programs. Last, but not least, debt will need to be restructured to cut interest expense and stretch the payment schedule.
My Conclusion: Weight Watchers will shed its past, and reinvent itself. Perhaps the company will even become a role model for the people it plans on helping! The process will take at least two years, but an investment at 16 or below could triple within two to three years.
Weight Watchers is highly speculative because of its current shaky financial position, so I advise making small purchases if you are interested in buying WTW stock. For more of Roy's sage advice, click here.
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You know the name, of course. The company has been around since 1963, working to help people lose weight by adopting healthy eating patterns. In the Weight Watchers (WTW) program, there are no forbidden foods. However, calories are watched closely, and a support network, either at meetings or through the online network, provides reinforcement for good habits. The original "Points" system was replaced by a "PointsPlus" plan late last year, and the impact on the firm's bottom line has been impressive.
The stock was recommended back on back on February 21 in Cabot Top Ten Trader, and here's what editor Michael Cintolo wrote.
"The company has always done good, steady business, but sales and earnings were relatively flat for the past few years, as subscription growth slowed to a crawl. However, the stock is now one of the strongest in the market because that flat period looks to have ended--sales and earnings perked up in the fourth quarter, but more important, management raised 2011 guidance in a huge way, as it now expects the bottom line to jump 40%. Why the growth? Much of it is from the firm's newly revamped website, which is generating accelerating growth in revenues (up 31% last quarter and 22% in the third quarter) and subscriptions; the top brass sees online subscriptions to weightwatchers.com growing 40% to 50% this year! In reaction to all of this, the stock catapulted to all-time highs on jaw-dropping volume. It's not a revolutionary new product, per se, but the company appears to have entered a new growth phase."
When Mike wrote that, the stock was trading at 65. Today it's at 83, up 28%.
And what's new since February is that the company has reported excellent first quarter results, with revenues up 30% to $503 million and earnings up 72% to $1.00 per share.
Technically, the stock looks good, having kissed its 50-day moving average (now at 71) just after the earnings release and then broken out to a new high. So, you could just buy today. Alternatively--and more wisely--you could take a trial subscription to Cabot Top Ten Trader to get on board something a little fresher. Cabot Top Ten Trader is published every Monday, and it's the best source of ideas for investors in strong stocks.
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
|Weight Watchers International, Inc.
11 Madison Avenue, 17th Floor
New York, NewYork 10010
|Index Membership: N/A
Industry: Personal Services
Full Time Employees: 26,000
5/16/11 How about Weight Watchers (WTW)?