So Much For NutriSystem As a Growth Stock

Oct. 5.07 | About: Nutrisystem Inc (NTRI)

"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....