Heavy going at Weight Watchers

Dieters prefer weight loss to wellness. That is the ugly truth for Weight Watchers International, the US diet adviser that once soared with the help of its celebrity investor and client Oprah Winfrey.

The company rebranded as WW in 2018 to sell itself not just as a place to shed kilos, but also provide “an ecosystem of wellness solutions”. But on Tuesday, the company’s fourth-quarter results and 2019 forecast served as an admission that the rebrand has not yet worked and the core strategy of getting previous customers to return after the December holiday is failing.

The company went so far as to blame the current “keto” diet rage. Weight Watchers shares fell more than a third on Wednesday and are down 80% since July 2018.

Like all subscription businesses, Weight Watchers wants to maximise new clients while simultaneously minimising churn. Theoretically, customers will leave happily if they lose weight. But any dieter will tell you that kilos have a stubborn way of coming back.

In the first quarters of 2016-2018, Weight Watchers subscribers jumped an average of 37%. About 85% of subscribers remained enrolled at the end of 2018. But the company said subscriber growth at the end of the current first quarter will be up by less than a fifth.

The financial consequences of such disappointing operating leverage is sharp. First-quarter revenue is forecast to be down by a tenth. Marketing spend will jump by a fifth. Higher expenses and lower revenue will devastate profitability. The company is highly levered so its debt to earnings before interest, tax, depreciation and amortisation ratio will now jump above four times. That is a troubling level for a business whose viability is in question.

The Weight Watchers collapse is a reminder of the power of brand and consumer inertia. Broad-based wellness is a consumer trend but one the Weight Watchers target market is not quite ready for. /London, Feb 28