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Weight-Loss Firms Put on New Customers After Thin 2009

As Americans' bottom line improves, weight-loss companies are hoping more of them will spend money doing the same for their waist lines.

It's certainly a large market: a whopping two-thirds of Americans are either overweight or obese, according to the National Center for Health Statistics.

AP

Given that potential, the industry's three big players—which have markedly different business models—are looking to take a bigger bite out of an extremely fragmented, yet lucrative market.

Weight Watchers International with 3 percent of the $55 billion dollar global market, is the industry bellwether. Sixty percent of its revenue is from meeting fees.

In an industry rife with false claims, WWI has made a name for itself by educating consumers, and giving them the tools they need to battle the bulge. “When we think about growth for our company, we think about it in that sense,” says WTW President and CEO, David Kirchhoff.

The company, which has posted 13 percent annualized since 2002, is looking at modest growth going forward, says Moody’s analyst Lenny Ajzenman, but is benefiting from customers switching from in-person meetings to its more profitable online service.

In the 12 months through Feb. 2, the company's stock was up 30 percent—matching the performance of the S&P 500.

The other two major players with shares that trade, NutriSystem and Medifast , are up 60 percent and 135 percent, respectively, over the same one-year period.

NutriSystem, whose revenue comes from the sale of prepackaged, portion-controlled meals. has broadened its reach with newly-established relationships with discount chains such as Walmart , Costco , and Walgreens .

“This is a whole new way to expose consumers to the brand. There’s a lot of potential there that has yet to be realized," says Mitchell Pinheiro, an analyst at Janney Montgomery.

Pinhero says the news distribution shouldincrease NutriSystem’s revenues and earnings in fiscal year 2010. The company anounces fourth-quarter results Feb. 24.

NutriSystem is also banking on a new growth engine: NutriSystem D—a weight loss meal plan targeted to the 24 million Americans who suffer from diabetes.

“It's a game changer, and if it gets medically endorsed by the community, it’ll be even more of a need-based buy,” says Pinheiro.

The move looks initially promising. The program has grown from about 5 percent of NutriSystem's revenue to a double-digit level.

Medifast is the smallest of the three players, but its stock has been on a tear, despite questions about the sales and marketing practiuces of its direct selling unit, “Take Shape for Life.” (Medifast has denied any wrongdoing and a special commiitee it created to investigate the matter concluded in early January that any alllegations about fraud were false.)

Investors seemed to agree. Shares surged a week ago when Medifast said fourth-quarter warnings would exceed analysts' consensus forecast. (Results are due out in mid-March.)

The company plans to open ten new weight control centers to handle its growing business.

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