Weight Watchers shares lose most of last year's 'Oprah effect'

Weight Watchers stock has gone on a diet.

The shares have lost 55 percent of their value since peaking in the fall following billionaire Oprah Winfrey's partnership with the weight-loss company. The stock was down more than 1 percent Wednesday, following a nearly 5 percent drop on Tuesday.

"To a certain extent, people's expectations got a little bit ahead of themselves on how fast this business would turn around," said Alex Fuhrman, who covers the stock for Craig-Hallum Capital. "We still have yet to get any real post-Oprah results."

Weight Watchers is set to report first-quarter results after markets close Wednesday. Analysts are watching the March quarter closely since it covers the period when most consumers make their New Year's resolutions.

Approximately 40 percent of the company's new recruit business comes in the first quarter every year, and about half of that happens in January.

"We'll get our first sense of how much impact there really was (with the 'Oprah effect') in the first quarter," said Fuhrman. "A lot of the weakness in the stock … was unrealistic expectations."

Weight Watchers declined to comment for this report.

Winfrey and Weight Watchers announced a partnership on Oct. 19, instantly doubling the company's share price. Under the deal, Winfrey acquired a 10 percent stake in the company with an option to buy 5 percent more, joined the board of directors and was named an adviser.

Even with the stock's weakness since hitting a 52-week high in late November, Winfrey has done just fine: Her initial investment of $43 million is now worth more than $80 million. Though the company's stock is down almost 44 percent year to date, it's still higher than it was before Oprah joined the company.

For the first quarter, analysts are projecting Weight Watchers will post a wider loss of 18 cents per share, according to consensus estimates, compared with a loss of 9 cents a year ago. The company earlier guided analysts to a per-share loss in the range of 20 cents. The Street forecasts a revenue decline of 4 percent.

With Winfrey, Weight Watchers has sought to reinvigorate the struggling weight-loss brand and stem declining revenue trends. The company has used celebrity representatives in the past, such as Jennifer Hudson and Jessica Simpson, and seen short-term improvement in recruitment.

In February, Weight Watchers reported fourth-quarter results that disappointed, although the December quarter is usually not seen as big for actual recruitment activity. Still, Weight Watchers CEO Jim Chambers in discussing the fourth-quarter performance during the company's conference call in February said it was "the first time since 2011 we had positive year-over-year global recruitments."

"Certainly, Oprah opens up a lot of credibility and adds some new potential marketing synergies with all her different media properties," said Morningstar analyst R.J. Hottovy. "But at the same time, I am not sure how well that works with that kind of younger audience."

Founded in the 1960s, Weight Watchers is facing more competition than ever in the $65 billion weight-loss business. Numerous calorie-counting mobile apps have become available, as well as wearable fitness devices that track calories and weight. Some have suggested the Weight Watchers brand and interest in classroom weight-loss meetings may be fading, too, as millennials and even some baby boomers look to technology and more mobility.

"A lot of the problems that led to the company's softening fundamentals over the last couple of years haven't gone away," said Hottovy. "Part of that was Weight Watchers' former management team; the current team has done a good job addressing the changes in the industry. It's still tough to make these changes take place overnight."

Hottovy pointed to Weight Watchers' technology investments, including online classes and a smartphone app, as well as adding the Winfrey partnership. "Still, there's a lot of competitive pressures" facing the company, said the Morningstar analyst, who characterized the stock as "pretty well fairly valued at this point."

Weight-loss programs such as Weight Watchers and Jenny Craig have struggled to reach the younger market. Weight Watchers' core demographic is seen as older than 50.

"Millennials are a little bit more engaged or willing to try new things," said Kate McCarthy, a senior analyst at Forrester Research. She said Forrester's research "shows that most users have more than one health-related app on whatever device they use."

Fuhrman, who has a buy rating on Weight Watchers stock, said the digital health tools and free weight-loss apps are changing the industry, though he's not convinced they will eat into Weight Watcher's market share on a longer-term basis.

Several of the weight-loss apps available today are free to download, including My Diet Coach, WeightDrop, Lose It and Weight Watchers Mobile. Some feature trial offers at no charge then look to sell users premium services for an extra fee.

Giving away apps for free "has really been a powerful force for sort of disrupting some of these traditional companies," said Charles Teague, founder and CEO of the Lose It app, which was introduced in 2008. He said the app is now up to 25 million users nationwide and recently expanded internationally. "We have hundreds of thousands of premium users," he said.