How to Play the Health-Conscious Consumer
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You can play the health-conscious consumer trend in many different ways. Investing in Weight Watchers (NYSE: WTW) might not be the best option.
Weight Watchers is facing an uphill battle due to changing industry trends. In short, it’s difficult to compete with free. This doesn’t mean Weight Watchers is down for the count, but it’s going to need one heck of a corner man and pep talk if it wants to have any chance of seeing sustainable organic growth going forward. Luckily, a better option might exist, which we will get to soon.
Free is better
If you’re going to use a monthly service, would you rather pay $18.95 per month or $0 per month? If you’re human, then you will choose the latter. That's the problem for Weight Watchers. With free apps like MyFitnessPal available, there’s little reason for people to use Weight Watchers.
Weight Watchers's revenue has consistently improved over the past three years, but the pace has slowed considerably. The same can be said for the bottom line.
The one thing Weight Watchers has going for it is its name. Weight Watchers has been around for more than 50 years, and it has become a household name. However, younger consumers see Weight Watchers as a service that their parents and/or grandparents use (or used). Weight Watchers might want to get on board with industry trends and/or do something that will attract younger consumers.
Weight Watchers has stated that revenue is expected to decline by more than 10% in the second half of the year, and that revenue from meetings will likely be even worse. The majority of the company’s net sales (approximately 60%) comes from meetings. Therefore, this is a major negative.
Recruiting members has become increasingly difficult, and the company’s aggressive marketing campaign in the spring wasn’t enough to increase demand. Furthermore, the company’s website, weightwatchers.com, has seen significant declines over the past three months. According to Alexa.com, pageviews-per-user declined 23.06%, time-on-site has dropped 23%, and the bounce rate (only one pageview per visit) jumped 24%. Online traffic has consistently declined throughout the year. However, Internet sales are only about 15% of net sales.
All this bad news led to a CEO change. David Kirchoff is out after six years, and former President and COO, James Chambers, is in. With a changing industry, a slowly fading brand, and a weak consumer, Chambers has his work cut out for him. Perhaps a better investment option exists.
If you’re looking for a better investment option, then you might want to pass on Nutrisystem (NASDAQ: NTRI). If Weight Watchers looks as though its slowly falling, Nutrisystem is driving off a cliff.
Revenue has consistently declined over the past two years, the company reported a loss in 2012, two of the last four quarters have been losses, net margin is just 0.95% (versus 13.35% for Weight Watchers), and the stock is trading at 110 times earnings (versus 9 times earnings for Weight Watchers).
Nutrisystem recently raised its net income expectations for the year, and the company just beat second-quarter expectations, but keep in mind that this had a lot to do with reduced costs, and that revenue dropped 22%. Upper management is simply stripping the company as much as possible, spreading its employees too thin, and, according to anonymous employee reviews on Glassdoor.com, putting its investors before its customers. This may lead to stock appreciation in the near term, but it’s not a long-term solution, and it may eventually lead to a collapse.
Like Weight Watchers, Nutrisystem has seen reduced online traffic, which is likely due to the availability of free apps and other gadgets for health-conscious consumers. Over the past three months for nutrisystem.com, pageviews-per-user declined 36.06%, time-on-site plunged 37%, and the bounce rate skyrocketed 67%.
We have established that Nutrisystem isn’t likely to be a better long-term investment option than Weight Watchers, but there is a potential savior, which goes by the name of Nike (NYSE: NKE).
Nike is best known for its footwear and apparel, but please understand that great management teams can read industry trends and know how to increase brand exposure and revenue streams by staying ahead of the curve. In this case, Nike offers its Nike+ Fuelband. It does come at a cost of $149, but it’s a one-time fee, and it caters to health-conscious consumers in a different way, by monitoring their every step.
The Nike+ Fuelband measures your everyday activity, and it indicates if you’re moving enough. It tracks how many calories you have burned, how many steps you have taken, and more. You can where the Nike+ Fuelband while playing basketball, running, dancing, and more. At the end of the workout, you will know if you worked hard. And if you don’t want to guesstimate, you can set goals. To customize your settings, you need to download Nike+ Connect software, which will allow your computer and Nike+ Fuelband to communicate. Through a mobile app, you can also communicate and compete with friends, which will keep you motivated.
The Nike+ Fuelband comes in three sizes: 5.79 inches, 6.77 inches, and 7.76 inches. It also comes with a USB cable and charging station. Additionally, it’s water-resistant and Bluetooth-enabled.
This isn’t just about Nike+ Fuelband; it’s about sticking with a well-run company that never stops innovating, and understands consumer habits. Nike+ Fuelband is just the beginning. Nike will continue to design and sell products that cater to the health-conscious consumer. And with a stellar balance sheet, immense marketing capability, international exposure, and superb brand recognition, it’s likely to make a better long-term investment than Weight Watchers or Nutrisystem.
If you want slow and steady long-term success, then Nike is likely to be your best option. Even if the stock gets hammered due to a market fall, it will simply present an opportunity to buy more. As far as Nutrisystem is concerned, it might make a good speculative trade, but it’s difficult to find catalysts for sustainable organic growth. Weight Watchers falls somewhere in the middle. It seems to have a better chance at turning things around than Nutrisystem, but it would still be a risky bet.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!