Nothing can help a stock like a celebrity endorsement. Whether it’s finding out Warren Buffett is purchasing stock in a new company or George Soros is increasing a position. News that Oprah Winfrey took a stake in Weight Watchers International, Inc. (NYSE:WTW) and became a spokesperson sent the stock soaring in late 2015. And news that Oprah has started to shed the pounds has, once again, sent shares of WTW stock soaring. So, should investors take a position in Weight Watchers or let Oprah take this journey on her own?
Weight Watchers Sheds 95% of Its Value
It’s one thing to be on a yo-yo diet, but it’s another thing for investors to hang tight as a stock rides a rollercoaster to penny stock territory. Trading near $80.00 per share in 2012, investors have seen the Weight Watchers share price shed 95% of its value, falling to a range near $4.00 per share last summer.
The Weight Watchers share price had been hurt by the growing popularity of wearable technologies like Fitbit and convenient health apps. Aside from the initial upfront payment to get on the Fitbit bandwagon, the devices provide free online tools. Weight Watchers, on the other hand, charged for its online food tracking, weekly meetings, and weigh-ins.
Since 2011, the company’s annual earnings have been in decline. After reporting disappointing financials for fiscal 2014, the company provided an outlook for the year that was well below Wall Street expectations. To help boost profits, Weight Watchers announced $100 million in cost-cutting initiatives. (Source: “Weight Watchers Announces Fourth Quarter And Full Year 2014 Results And Provides Full Year 2015 Guidance,” Weight Watchers International, February 26, 2015.)
None of which helped calm investor fears. The stock continued to sink lower and lower throughout the year.
Oprah Puts Weight Watchers on Wall Street’s Radar
On October 19, 2015, it was announced that Oprah Winfrey, through The Oprah Winfrey Network, paid around $43.2 million for a 10% stake in Weight Watchers. The weight-loss company also announced a five-year deal with the former talk show host. (Source: “Oprah Winfrey And Weight Watchers Join Forces In Groundbreaking Partnership,” Weight Watchers International, October 19, 2015.)
The company said it made changes to its overall strategy to better align itself with Winfrey’s message of living a healthy, happier life, and not just focusing on weight loss.
Before the announcement, Weight Watchers was trading near $6.90 per share. A few short days after the announcement, shares in Weight Watchers soared 188% to a high of $19.94. The announcement helped Winfrey pocket about $45.0 million on paper.
At the time, Oprah said she would use the company’s mobile app and work with a personal coach. At the time, Winfrey said, “I believe in the program so much I decided to invest in the company and partner in its evolution.”
This reminds me of the commercials from the mid-1980s, when Victor Kiam, after getting an electric Remington shaver from his wife, said, “I liked the shaver so much, I bought the company.” In addition to being the company’s president and CEO, he became its spokesperson and made the shavers and himself, household names.
But will the Oprah effect work?
Oprah Loses Weight—Investors Make Massive Gains
It remains to be seen whether or not Oprah will have the same impact on Weight Watchers stock. The company’s share price certainly isn’t traversing an admirable trend. In fact, since Winfrey joined, the company’s share price has formed a perfect bell-curve. Not the direction investors had hoped for.
And when Oprah does make front-page news, it seems like the Oprah effect is short-lived.
In late January, a new commercial starring Oprah aired where she announced she had lost 26 pounds on Weight Watchers. She also posted the ad online to her nearly 31 million Twitter followers. (Source: Twitter.com, last accessed January 28, 2016.)
Not surprisingly, Weight Watchers shares soared after the good news! On January 25, Weight Watchers stock closed at $11.12. By January 27, it hit an intra-day high of $14.59—for an admirable, short-term gain of 31%. But it’s still down 21.7% from where it was a year ago.
Good news for shareholders and bad news for those investors shorting an eye-watering 64.31% of shares. Though that also speaks volumes as to what most investors think about the company’s new marketing strategy.
Oprah is a great spokesperson and an inspiration to hundreds of millions of people around the world. But is it translating into strong sales?
Not just yet. In the third quarter, sales were down 20.8% at $273.3 million. Third-quarter earnings were $21.8 million, or $0.38 per share, versus $37.9 million, or $0.67 per share, in the third quarter of 2014. (Source: “Weight Watchers Announces Third Quarter 2015 Results,” Weight Watchers International Investor Relations, November 5, 2015.)
Granted, it was only announced well into the third quarter that Oprah had signed on as a spokesperson, so you can’t really look at the company’s third-quarter results to see what kind of impact she’s had. That will have to wait until late February, when I suspect Weight Watchers will announce its full-year results.
That said, the company did announce it was raising its 2015 full-year fiscal earnings guidance to between $0.64 and $0.74 per fully diluted share on an adjusted basis. In the first quarter of 2015, the company’s full-year fiscal 2015 earnings guidance was exceptionally wide, coming in between $0.40 and $0.70 per fully diluted share.
According to Weight Watchers, the future is looking brighter. But is it? Time will tell what kind of long-term impact Oprah will have on the company’s stock. I think most investors are going to take a wait-and-see approach.
And that might not be a bad idea.