Feb. 15 (Bloomberg) — Weight Watchers International Inc.'s disappointing profit forecast provided further evidence that new mobile applications and bracelets that track calories are hurting traditional diet companies.
Weight Watchers, endorsed by celebrities like Jessica Simpson, reported its fourth straight quarterly sales decline after the close on Feb. 13 as fewer people attended meetings and bought its products. The company also projected earnings that trailed analysts' estimates, sending the stock plunging 28 percent to $22.10 yesterday, the worst one-day drop since its initial public offering more than 12 years ago.
The five-decade-old company — founded as a home business by a housewife in Queens — is struggling to adjust to the Internet era. While Weight Watchers has a strong brand name and reputation as a diet that works, it now has to compete against free alternatives online, said Kurt Frederick, a Los Angeles- based analyst at Wedbush Securities Inc. That's hurt the company both on the Internet and off. Weight Watchers' website saw its online users decline 6.7 percent last quarter.
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"They haven't been able to figure out a way to market their product to show why you should be paying for theirs," Frederick, who rates the shares hold, said in an interview. "These apps came in and basically took a huge chunk of the diet space so now everybody has to fight for what's left."
GNC slumps
Shares of Weight Watchers lost 37 percent in 2013, while the Standard & Poor's 500 Index gained 30 percent.
Other providers of health products are also feeling the pinch. GNC Holdings Inc., a retailer of nutritional supplements, slumped 15 percent yesterday, its biggest one-day drop since its IPO in 2011. The Pittsburgh-based retailer projected full-year profit that trailed analysts' estimates. Chief Executive Officer Joe Fortunato said in a statement Feb. 13 that the company faced a "challenging retail environment."
Profit at Weight Watchers this year will be as much as $1.60 a share, the New York-based company said in a statement Feb. 13. Analysts projected $2.73, the average of seven estimates compiled by Bloomberg.
Revenue declined 11 percent to $366.1 million in the fourth quarter as Weight Watchers had fewer active members and didn't recruit as many people. Internet revenue fell 5.2 percent to $111.4 million.
"The commercial weight loss category continued to be impacted by increasing consumer trial of activity monitors and free apps," the company said.
IPhone apps
Traditional diet and nutrition companies face competition from new software and hardware. IPhone apps and accessories make it easier for dieters to track their health and exercise. So far, Weight Watchers hasn't come up with a compelling response to those products, Frederick said.
Weight Watchers is using Simpson to tout its new two-week Simple Start program, which gives clients a list of food to eat and has a mobile app. For users who want access to meetings and online tools, the company charges $32.95 for the first month's pass.
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