Weight Watchers International: Skin and bones

If only Weight Watchers clients could lose extra pounds as quickly as the company has shed equity value. In 2012 Weight Watchers shares traded at $75, and they have since lost 90 per cent of their value. Its problem is one that confronts many face-to-face consumer services: the rise of smartphone apps and wearables that, to some extent, have replaced Weight Watchers meetings and counselling. Management may have a plan to help the company remain relevant in a do-it-yourself world. Yet the weight of $2bn of debt is not easily overcome.

The weight management market is estimated to be worth $60bn, but Weight Watchers thinks of itself more as a lifestyle or social network rather than simply a diet. Members pay either $43 per month to attend weekly group meetings, or $19 per month for online tools to track calorie consumption. In 2012, Weight Watchers had a total of 3.5m subscribers. By the end of 2014 that had fallen to 2.5m. Meanwhile, the 2015 consensus revenue estimate of $1.2bn is a third lower than 2012.

Hopes were high that 2015 would be the year that subscriber growth would again appear. But on the fourth-quarter earnings call, Weight Watchers said its January trend (crucial because it is post-holidays) was weaker than in 2014, which itself was disappointing. A new marketing campaign did not catch on; nor did new one-on-one coaching and 24/7 online chat products.

While the company has been trying to reignite member growth, its anaemic performance and outlook are leading to questions about liquidity. Weight Watchers is already buying back, at a discount, part of a $300m term loan due next year. The bigger credit challenge that looms is a $2bn term loan due in 2020 now trading around 50 cents on the dollar (the company's equity value is $400m). To preserve cash it will slash $100m of operating costs, or a fifth of the total. But as every dieter knows, losing weight while staying healthy and energetic is a difficult balance to strike.

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