Weight Watchers Q3 Profit Declines, But Results Beat View; Suspends Dividend

(RTTNews) - Shares of Weight Watchers International, Inc. (WTW) tumbled more than 15 percent in extended trades Wednesday after the weight management services provider said it expects fourth-quarter revenues to be down low double digits due to continuing negative recruitment trends, and added that 2014 will be a very challenging year. The company also suspended its quarterly cash dividend.

Meanwhile, the company's third-quarter earnings and revenues declined from the year-ago quarter, but both beat analysts' expectations. The company also raised its earnings outlook for fiscal 2013.

The New York-based company reported third-quarter net income of $60.3 million or $1.07 per share, down from $67.4 million or $1.20 per share in the prior year period.

On average, seven analysts polled by Thomson Reuters expected the company to earn $0.84 per share for the quarter. Analysts' estimate typically exclude special items. The company noted that progress on cost cutting allowed it to exceed its third-quarter profit expectations.

Revenues for the quarter declined 9 percent to $393.9 million from $430.6 million in the prior-year period. Analysts had a consensus revenue estimate of $386.50 million.

Operating margin for the quarter improved 100 basis points to 31.6 percent, benefiting from the company's cost savings initiatives.

The company's total paid weeks or global engagement, decreased 6.6 percent over last year, with meeting paid weeks declining 11.2 percent. Online paid weeks were down 2.6 percent. Total attendance also dropped 15.5 percent from last year.

Internet revenues at WeightWatchers.com grew 1.0 percent, or 0.9 percent on a constant currency basis, while online paid weeks declined 2.6 percent and active online subscribers were down 5.3 percent.

Meeting revenues for the North American meetings business or NACO were down 13.7 percent or 13.4 percent on a constant currency basis, driven by lower enrollment volumes. Meeting paid weeks and attendance decreased 10.7 percent and 14.7 percent, respectively.

International meeting revenues decreased 10.7 percent or 11.1 percent on a constant currency basis, primarily driven by lower revenues in the UK.

Looking ahead, the company expects fourth-quarter revenues to be down low double digits given its continuing negative recruitment trends. The company added that 2014 will be a very challenging year, while it is working aggressively on both near-term commercial activities and longer-term strategic initiatives.

At the same time, the company raised its full-year 2013 earnings guidance to a range of $3.85 to $3.95 per share from the prior range of $3.55 to $3.70 per share. Analysts expect the company to earn $3.64 for the year.

This revised earnings guidance range excludes the one-time, second-quarter charge of $0.24 per share related to the early extinguishment of debt associated with the company's April 2013 debt refinancing.

Weight Watchers also said it has suspended its quarterly cash dividend. The company currently intends to use the related annual cash savings of about $39.0 million, based on the number of shares outstanding as of the end of the third quarter 2013, to preserve financial flexibility while also funding the company's strategic growth initiatives and building cash for future debt repayments.

Subsequent to quarter end, Weight Watchers announced the appointment of two members to the executive team - Lesya Lysyj as president of North America and Dan Crowe as chief technology officer.

WTW closed Wednesday's regular trading session at $39.92, up $0.40 or 1.01 percent on a volume of 2.11 million shares. However, in after-hours, the stock declined $6.08 or 15.23 percent to $33.84.