Weight Watchers Stock Provides a Pullback Opportunity

Weight management products and services provider Weight Watchers International NYSE: WW stock was pummeled on its Q2 2021 earnings results. While results were admittedly underwhelming, the guidance shocked investors as shares collapsed. The Company admits that consumer habits are reverting back towards seasonal norms after being elevated by pandemic tailwinds. The Company bolstered its digital offerings during the pandemic and should gain from the reopening trend fueled by COVID vaccinations. The Company has a plan they will discuss shortly to optimize performance in the second half of the year for growth in 2022. Meanwhile, the guidance was very conservative and digital revenue is expected to grow 10%. The bar has been set very low for the next quarter which is causing shares to continue selling off. Prudent investors looking for exposure in the weight management segment can watch for opportunistic pullbacks in shares of Weight Watchers in anticipation of a turnaround.

Q2 FY 2021 Earnings Release

On Aug. 10, 2021, Weight Watchers released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported GAAP earnings-per-share (EPS) profit of $0.12 excluding non-recurring items versus consensus analyst estimates for $0.67, a (-$0.55) miss. Revenues fell (-6.7%) year-over-year (YoY) to $311.4 million, falling short of consensus analyst estimates for $338.09 million. Digital subscribers grew 6% YoY. Weight Watchers CEO Mindy Grossman commented, “We ended the quarter with 4.9 million subscribers, including 4.1 million Digital subscribers -- an all-time second quarter-end high and up 6% year-over-year, but below our expectations. The strong Digital year-over-year growth momentum in Q1 slowed in the second quarter as we cycled against strong Digital performance in 2020,” said Mindy Grossman, the Company’s President and CEO. “We continue to see strong member retention trends, momentum in Digital 360, and expansion of adjusted gross margins. We have a comprehensive plan to optimize performance in the second half of the year and position us well for growth in 2022. We are excited to launch our new food program innovation later this year, making weight loss and wellness even more simple, livable, efficacious and sustainable, which we are confident will drive year-over-year growth in member recruitment.”

Lowered Guidance

The Company issued full year 2021 GAAP EPS to range between $1.10 to $1.25 compared to $2.11 consensus analyst estimates. The Company sees full-year 2021 revenues coming in between $1.30 billion compared to $1.39 billion analyst estimates. Amy O’Keefe, the Company’s CFO, said, “Subscriber trends in Q2 followed a more typical seasonal pattern than we expected, and our guidance reflects this trend. Our gross margin performance remains strong and reflective of the ongoing benefits of our flexible, subscription-based digital model.”

Conference Call Takeaways

CEO Grossman set the tone, “…the strong digital year-over-year growth momentum in Q1 slowed in the second quarter as we cycled against strong digital performance in 2020. Therefore, our results did not meet our revenue and operating income expectations.

While people are acknowledging their need for re-committing to weight loss and wellness our recent consumer research shows that at the moment, they're also asking for a pause to enjoy social reconnection. With both traffic and search under pressure, this sentiment shift appears to be across the Weight Loss and Wellness category. Our updated financial outlook reflects our revised expectations for full-year subscribers' revenue and operating income. Since we cannot assume that sentiment will snap back in our favor during the post Labor Day back-to-school season, which historically has been a reset moment.” The call was downbeat with moments of optimism, “In summary, over the past 12 months, our global teams accelerated our digital transformation and successfully drove our business forward through innovation, creativity and focus, all while navigating an uncertain and dynamic environment. Moving forward, we have a comprehensive plan to optimize performance in the second half and position WW for growth in 2022 and beyond. I will speak more about our go-forward plans including our upcoming 2022 program innovation and marketing plans shortly.”

WW Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for WW stock. The weekly rifle chart collapsed on the Q2 2021 earnings release as shares peaked around the $33.08 Fibonacci (fib) level before the plunge. The weekly rifle chart has a downtrend with a falling 5-period MA at $29.17 with lower weekly Bollinger Bands (BBs) at $21.60. The weekly market structure low (MSL) buy triggered initially triggered on the breakout through $27.50. The breakdown under $35.14 triggered a weekly market structure high (MSH) sell signal. The weekly stochastic mini inverse pup oscillation is falling towards the 20-band. The daily rifle chart gapped down on the earnings plummet. The daily 5-period MA is falling at $26.91 with lower daily BBs at $22.98. The daily stochastic abruptly crossed down for an oscillation towards the 20-band as well. Prudent investors can monitor for opportunistic pullback price levels at the $22.44 fib, $20.99 fib, $19.96, $17.59 fib, and the $16.41 fib. Upside trajectories range from $27.69 fib up to the $38.56 fib level.