Consumer

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

The road ahead for Weight Watchers and Oprah Winfrey may be an even tougher trek than everyone realized. 

The stock price has fallen 46 percent only 21 days into the new year. Sure, markets are a mess, with the overwhelming majority of the S&P 500 Index in the red right now. But most stocks down as much as Weight Watchers are in the energy sector, where severe losses are to be expected given falling oil prices.

Erasing Oprah's Gains
Shares of Weight Watchers got a boost at the end of last year because she took a stake and became the face of the company. But that excitement is fading.
Source: Bloomberg

That's not a bucket the $800 million company should be in just as it embarks on a mission to revitalize its brand, with help from Oprah. Her partnership took its shares from less than $7 apiece in October to over $26. But on Thursday, they were back down to $12.38 in early trading. 

Competition in this industry is fierce, though a large part of Weight Watchers' trouble may be its own fault. A couple of weeks ago, I wrote about the entrance of Fitbit, Jawbone and other wearable fitness devices that many people are using to lose weight or get healthier. It's a new type of competitor that Weight Watchers historically hasn't had to worry about. These devices make tracking your movement sort of a fun game (How many of you have taken an extra lap around your apartment to get to the 10,000-step mark right before bed?). And some of these apps, which come free with the devices, can monitor your calorie burn and allow you to record your food habits. It's a nice ecosystem that would be smart for the fitness tracker companies to build out further. And it raises the question, why do you need Weight Watchers? 

Oprah also compares Weight Watchers to a game because it involves counting points instead of calories. But truth be told, the points process is just as much work as counting calories, so for people always on the go, that can feel like a stressful time commitment. The program can come across as a bit overwhelming at first because it has so many offerings: online food tracker, meetings, personal coaching, some of their branded food you can buy while other meals you have to make on your own. It's almost too much, and that lack of simplicity may be hurting it. 

That brings me to Jenny Craig, Nutrisystem and Slim-Fast. The difference with these programs is that instead of trying to be everything and target every type of weight-loss-seeker, they are relatively simple. And central to Jenny Craig and Nutrisystem especially is that they provide you what you eat and the appropriate portions -- there's very little for the member to have to worry about in that sense. 

While Nutrisystem is public (market cap was $543 million Wednesday), the other two aren't, so little is known about their sales and profit. But I got to speak with Jenny Craig-Curves CEO Monty Sharma this week, and one thing's clear: In addition  to the fitness-tracker trend, these other nutrition-based weight-loss programs that require less effort on the user's part also present competition for Weight Watchers.

Jenny Craig, too, had been a struggling business under food conglomerate Nestle, which sold it to North Castle Partners in 2013 for an undisclosed price. The Greenwich, Connecticut-based private-equity firm also owns Curves, the women's gym. In his turnaround of Jenny Craig, which is still in the works, Sharma is trying to convey the message that it's essentially the opposite of a do-it-yourself program. And he seems to know exactly the type of user they're targeting in people who have tried and failed to lose weight on their own. I'm not sure I can say the same for Weight Watchers at this point, when it has so many mini-programs within its program.

Bearish Bets Surge
Strong demand to short Weight Watchers has made borrowing the stock very costly. Markit assigns it a score of 8, with 10 being the most expensive. Almost all members of the S&P 500 have a score below 4.
Source: Markit, Bloomberg

Jenny Craig's narrower focus may leave it with a smaller market, but as a private company that may not be as big of a concern. Unfortunately for Weight Watchers, its turnaround is being done in the public eye, in front of investors who may be expecting more. So far, they are showing doubt that it will work. 

If the first half of the year doesn't show progress, Weight Watchers might have to start thinking about simplifying its program and not trying to be all things to all people. One thing it hasn't been lately is a winning investment, except maybe for Oprah. Her stake isn't in the red...yet. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. That's not to say Fitbit doesn't have its own issues. The company has had a less-than-spectacular stock market debut. It closed at $17.79 a share yesterday, down from its June IPO price of $20. 

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net