Monday, February 28, 2011

Investopedia: Can NutriSystem Find A Healthy Size?

With the FDA seemingly adamant about approving new weight loss drugs, it would seem to be better days for Weight Watchers (NYSE:WTW) and NutriSystem (Nasdaq:NTRI). Although it is anybody's guess as to how much competition would have come from Vivus (Nasdaq:VVUS), Arena (Nasdaq:ARNA) or Orexigen (Nasdaq:OREX) (or may still come, if these companies can appease the FDA), these two companies represent the only concentrated plays on weight loss and obesity. 

Unfortunately, dismal guidance from NutriSystem has this stock on the ropes for the time being.  

A Sour End to 2010  
The problems at NutriSystem start right at the top. The company reported that revenue fell 17% in the fourth quarter; analysts were expecting a down year-on-year comparison, but more on the order of 5%. Surprisingly, the company nevertheless posted solid improvements in gross margin, adjusted EBITDA, and operating profit - the latter of which clearly benefited from a lower marketing spend in the quarter.  

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