Weight Watchers is launching a new program on Nov. 11, but shares sink 16% after revenue miss

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WW International Inc., formerly Weight Watchers, has a new program coming Monday that it thinks will spark interest among new and existing clients.

But on Wednesday, shares plummeted 16% after the wellness company reported third-quarter revenue that missed expectations.

WW WW, -16.25% total revenue was $348.6 million for the quarter, down from $365.8 million last year and below the FactSet guidance for $353.0 million. A big factor are subscriptions, with the lower cost digital subscription more popular than the higher-priced “studio” subscription that gives clients access to a WW location.

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“Returning the studio business to growth is an important part of our strategy,” said Nicholas Hotchkin, chief financial officer, on the earnings call, according to a FactSet transcript. “Intense focus on the business has led to consistently improving trends since the start of the year, and we expect year-over-year studio recruitment to turn positive in Q4. Despite these actions, the studio business continues to be a drag on our revenue metrics given the price of a studio subscription is twice that of a digital subscription.”

WW is expecting a few things to help drive revenue in the coming months. Product sales that have been down for the yea are expected to turn positive in the fourth quarter due to new merchandise and “improving studio attendance trends,” Hotchkin said.

The company has a lot riding on the new program. Details about the program will come with the launch on Nov. 11.

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“Next week, we will be launching our new program – our most customized yet – which we believe will have broad appeal among current, returning and first-time members,” said Chief Executive Mindy Grossman in a statement.

WW is guiding for revenue of “at least” $1.4 billion and raising its earnings guidance to between $1.63 and $1.75. The FactSet consensus is for revenue of $1.4 billion and EPS of $1.72.

“Weight Watchers remains confident it can achieve the 50% incremental margins that the business has historically seen,” wrote UBS analysts led by Michael Lasser. “Yet questions remain as to how much improvement is possible next year.”

UBS rates WW stock neutral with a $38 price target.

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WW stock has lost 36.7% over the past year while the S&P 500 index SPX, -0.14% is up 11.5% for the period.

“The path for the stock from here will depend on the reception to the new program launch, the sustainability of the top line beyond the launch, and the contribution margin heading into 2020,” UBS said.