Weight Watchers takes hit from Atkins

Diet products company blames popular low-carb diets for its weak 1Q and lowers full-year forecasts.

May 12, 2004: 11:47 AM EDT

http://money.cnn.com/2004/05/12/new..._watchers.reut/

NEW YORK (Reuters) - Shares of Weight Watchers International Inc. tumbled Wednesday after the company said first-quarter earnings fell, and blamed the low-carbohydrate diet craze in the United States for a lower full-year forecast.

Since last spring, high-protein, low-carbohydrate diets like Atkins and South Beach have marked one of the biggest U.S. eating trends. About 17 percent of Americans have said they've tried the Atkins diet, while 4 percent are on it now, according to a recent survey by market research firm NPD Group.

Weight Watchers (WTW: down $2.77 to $34.97, Research, Estimates) stock fell as much as 9 percent on the report.

The diet products and services company, which uses a reduced-calorie "points" system that does not forbid certain foods, has since seen membership at its U.S. weight loss centers wane.

"In America, we did not see that balance of media presentation (as in Europe). Extreme diets were not being questioned but actively supported, so it's not surprising that many people took them up," Chief Executive Linda Huett said on a conference call.

First-quarter weakness

The Woodbury, N.Y.-based company, citing an accounting charge from consolidating its Weightwatchers.com unit and early debt retirement, said net income in the first quarter dropped to $36.8 million, or 35 cents per share, from $40.6 million, or 38 cents per share, a year earlier.

Excluding charges, net income rose to $48.7 million, or 47 cents per share -- in line with Wall Street expectations, the company said.

Net revenue rose to $281.4 million from $251.5 million a year ago as worldwide attendance increased 10.4 percent.

But the lower-than-expected U.S. weight loss center attendance, which increased slightly to 9.9 million from 8.9 million a year earlier, spurred the company to cut its 2004 outlook to a range of $1.70 to $1.80 per share, excluding charges.

Analysts had expected the company to post 2004 per share earnings of $1.93, according to Reuters Research.

Huett said that the Atkins diet "has peaked," but the growing popularity of new low- and no-carb food products -- part of "self-styled" eating regimens -- poses another obstacle. Sales of Weight Watchers' own line of branded food products have taken a hit.

"We knew there was going to be a glut of low-carbohydrate products in the beginning of the year, but we probably saw it with a lot more intensity than any of us expected," Huett said. "There's a mistaken belief that all you have to do is eat low-carb food to lose weight."