So Much For NutriSystem As a Growth Stock

"Another two weeks of NutriSystem meals free." So goes the commercial that keeps running throughout the day on CNBC.

And that pretty much says it all and should have been the ultimate heads up: If there was every any doubt, the hyper-growth days for the diet company are officially over. That was underscored today with the announcement that third quarter sales, earnings and new-customer count will be well below expectations.

Management blamed "short-term" competitive pressures, but that gets to the heart of the reason NutriSystem as a growth story and stock is done: There are simply no barriers to entry in a business with local, regional and national competitors of all shapes, sizes and colors. Commercials featuring Dan Marino and Don Shula can only get the company so far, as it tries to lure more men in a business that traditionally has not been male-centric.

Not that any of this should be news to readers of this space, where the company's growth prospects were first questioned in a December 13 column. Among the issues were the relatively weak so-called "reactivation" rate, as customers didn't return after a short course of dieting. The stock tumbled, then regained momentum throughout much of this year after the company waffled back and forth on first quarter guidance in a way that smacked of gaming the market.

Wall Street ignored the gaming, and continued to bid up the stock until the second quarter, when earnings and guidance for third quarter customer additions were below expectations. But don't worry: NutriSystem has announced a stock repurchase program, secured a $200 million line of credit and may even make acquisitions "to offer consumers a wider variety of complementary health and wellness products.In other words, what it was it is no longer.

Next growth stock, please?

The beat goes on....

Comments

[User 111236:]

I don't understand your statement "growth story is over for NTRI". Is it that all Americans are now slim and healthy and nobody needs to lose weight anymore? Your another statement about the low barrier for local businesses to enter this market, any names? How many have proven that their food is better than Nutrisytem? NTRI has been around since 35 years and there are many satisfied customers and they bring more customers. How many companies offer diabetic and vegetarian foods? As a vegetarian there are not many options available outside and if you get prepackaged healthy food which can also make you lose weight then where is the problem?

In your December column, you said people lost weight thats why they didn't reactivate. Now is that good or bad?? One person lose weight and tell 10 buddies and now NTRI has 10 more customers.

Now their new customer growth rate is slowing by mere 7% over the last year due to this new drug Alli. Alli got too much hype and marketing dollars so people thought why not try this if you just have to take pills. As with all the weight loss drug its going to slow down as slowly people realize that they have to limit their fat intake to only 15g otherwise they can soil their underpants. I don't see how anybody can continue taking this pill.

With PE of less than 10, I don't see how any analyst would downgrade this stock. It seems people out there know more than analysts. Most of times analysts react to short term blip and change their ratings instead of seeing the whole picture. You can see one analyst change from buy to Strong buy and then back to buy in a course of 3 days. Go figure..

2007 Oct 05 02:08 PM