Through The Fly's Eyes: NutriSystem

from Louis Jacobs of Theflyonthewall.com


NutriSystem Lowers Guidance, And Stock Plunges

Leading dietary system provider, NutriSystem (NTRI), lowered its third quarter guidance, which sent its shares plummeting. The company said it expected its third quarter revenue to be $188M, much lower than its earlier guidance of $200M-$208M. Analysts had expected the company to post revenue of $207M for the third quarter. The stock is down more than 33% to $31.59, and is now less than half of its 52-week high of $76.20.

NutriSystem blamed declining new customers for its lowered guidance. Increased competition from GlaxoSmithKline’s (GSK) new diet drug Alli, which costs $49 a month compared to NutriSystem’s $250 monthly price tag.

Earlier, major banks had divergent ratings for NutriSystem’s stock. Broadpoint was bullish, upgrading it to Strong Buy from Buy. Citigroup was less optimistic, on the other hand, Citi cut NutriSystem’s share price to $81 from its previous $90 target. Lazard also downgraded the diet giant’s stock to “Hold” from “Buy."

And while the company’s stock declined on lackluster sales, NutriSystem’s CEO Michael Hagan announced that the company would boost its stock buyback plan by $100M. Also, the company had already obtained $200M through an unsecured credit facility, potentially expandable to $300M.

Regardless of the buyback, analysts were not too pleased. BB&T analyst Laura Richardson concluded that Alli hurt potential sales. Canaccord Adams analyst Scott Van Winkle cut his price target to $42 from $74, saying that the business model is broken.

Fly Analysis: With increased competition from new diet drugs and other companies like eDiet (DIET), it’s no surprise that NutriSystem lowered guidance for its third quarter. And it’s quite possible that disappointing results might continue for some time to come.