Weight management products and services provider WW International, Inc. (WW - Get Rating) in New York City offers a range of nutritional, activity, behavioral, and lifestyle tools and approaches products and services. The company had benefited from the pandemic-induced fitness boom, boosting the demand for its subscription-based digital business. However, with the easing of COVID-19 restrictions, WW’s business has taken a hit, resulting in declining revenues. Furthermore, the competition in the fitness space is increasing, with several companies venturing into the digital fitness and related consultancy services space. WW stock has slumped 63.5% in price over the past year and 34.1% year-to-date to close the last trading session at $10.63.

In its last reported quarter, its end-of-period subscribers were down 5.8% versus the prior-year period, driven by declines in all major geographic markets, while its end-of-period digital subscribers decreased by 7.1%, and its end-of-period workshops + digital subscribers increased by 1% from the prior-year period. Its total paid weeks in the quarter were down 11.1% year-over-year. Also, its subscription revenues stood at $247.90 million, reflecting a 13.5% decline year-over-year. The company has been trying to attract customers through new ad campaigns and the launch of new programs, such as its new PersonalPoints Program to promote sustainable weight management and healthy living.

However, it remains to be seen how these business strategies will fare for the company. “While the launch of PersonalPoints in November lifted member recruitment compared to trailing trends, challenging category demand in Q4 pressured signups overall. This trend has continued so far in 2022, therefore, we are planning cautiously and controlling costs tightly in an uncertain demand environment,” said Amy O’Keefe, the Company’s CFO.

Here is what could shape WW’s performance in the near term:

Bleak Growth

WW’s revenue has declined at a 7.1% CAGR over the past three years, while its EBITDA has decreased at a 15.1% CAGR. over the same period. The company’s net income and EPS have declined at CAGRs of 33.1% and 33.2%, respectively, over the past three years. Also, its levered FCF has declined at a 13.7% CAGR over the same period.

For its fiscal fourth quarter, ended Jan.1, 2022, its net revenues declined 14.7% year-over-year to $275.80 million. Its gross profit came in at $168.90 million, indicating a decrease of 7.3% from the prior-year quarter. Its adjusted operating income declined 18.8% year-over-year to $54.60 million. And its net Income was $29.90 million compared to $12.60 million in the prior-year period, while its EPS came in at $0.42 compared to $0.18.

Unfavorable Analysts Estimates

The Street expects WW’s revenue to be $298.05 million for its fiscal quarter ended March 31, 2022, indicating a 10.4% decline year-over-year. Furthermore, its revenue is expected to decline 16.1% in the quarter ending June 30, 2022, and 7.5% in the current year. In addition, WW’s negative $0.29 EPS estimate for the about to be reported quarter, ended March 31, 2022, indicates a 45% decline year-over-year. Analysts expect its EPS to decrease 16.7% in the current quarter and 19.7% in the current year. Also, its EPS is expected to decline 6.7% per annum over the next five years.

Mixed Profitability

WW’s 61.18% gross profit margin is 68.4% higher than the 36.33% industry average, but its 5.52% net income margin is 16.6% lower than the 6.61% industry average. Also, its 0.20% Capex/Sales is 92.4% lower than the 2.65% industry average. The company’s 4.68% ROA is 23.4% lower than the industry average. However, its 12.47% ROTC is 55.3% higher than the industry average.

POWR Ratings Reflect Uncertain Prospects

WW has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Quality, which is consistent with its mixed profitability.

WW has a D grade for Growth. The company’s declining financials over the past few years justify this grade.

Among  the eight stocks in the Medical – Consumer Goods industry, WW is ranked #7.

Beyond what I have stated above, you can also view WW’s grades for Value, Sentiment, Momentum, and Stability here.

View the top-rated stocks in the Medical – Consumer Goods industry here.

Bottom Line

The changing demand dynamics of the fitness industry with the easing of pandemic  restrictions have been a significant headwind for WW. The stock has declined significantly in valuation and is currently trading at a discount to its peers. However, the company’s declining top line and analysts’ expectations of further decline are concerning. So, I think it could be wise to wait and see whether the company will be able to bolster growth with its revival strategies in the near term before investing in the stock.

How Does WW International, Inc. (WW) Stack Up Against its Peers?

While WW has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Nature’s Sunshine Products, Inc. (NATR - Get Rating) and USANA Health Sciences, Inc. (USNA - Get Rating) which have an A (Strong Buy) rating.

WW shares were unchanged in premarket trading Monday. Year-to-date, WW has declined -34.10%, versus a -7.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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