WW CEO on earnings beat: People are 'reappraising' their health during COVID-19

Brian Sozzi
·Editor-at-Large
·2 min read

Investors aren’t sure what to make of WW International’s (WW) third quarter earnings moments after the release on Thursday.

Shares of the company — better known as Weight Watchers — initially rose 1% in after-hours trading as adjusted earnings beat estimates by 6 cents. But the stock then quickly dropped 5% as investors digested a revenue miss. About 30 minutes before the company’s earnings call, the stock is lower by 1%.

What the market may be missing, says WW CEO Mindy Grossman in an interview with Yahoo Finance, is the company’s ongoing pivot to be a digital first business. That model shift — which reflects Grossman’s efforts to close underperforming physical studios and boost digital health and wellness services such as with Zoom — is driving higher margins.

It’s also flat out working — WW’s total subscribers rose 5% in the quarter to a third quarter ended 4.7 million record. Digital subscribers alone surged 23.5% from a year ago.

“We will be reinforcing that,” Grossman says when asked if investors understand the shift in strategy and how it’s changing the financial makeup of the company.

Here’s how WW International performed compared to Wall Street estimates as compiled by Bloomberg:

  • Net sales: $320.7 million versus estimates for $325.6 million

  • Diluted EPS: $0.69 versus estimates for $0.63

Grossman tells Yahoo Finance the subscriber strength is more than people being stuck at home for months and now searching for ways to shed their pandemic pounds.

WW International CEO Mindy Grossman participates in the Yahoo Finance All Markets Summit at Union West on Thursday, Oct. 10, 2019, in New York. (Photo by Evan Agostini/Invision/AP)
WW International CEO Mindy Grossman participates in the Yahoo Finance All Markets Summit at Union West on Thursday, Oct. 10, 2019, in New York. (Photo by Evan Agostini/Invision/AP)

“I think people are really doing a reappraisal of their health overall,” Grossman says. To that end, Grossman disclosed the company will soon launch different membership tiers as a way to grow its subscriber base further. Another initiative soon to launch is dubbed My WW Plus, which taps into artificial intelligence to help people make better food choices.

In other words, more layers to the WW digital story that could chip away at the bear case on the stock.

Wrote Guggenheim analyst Vikram Kesavabhotia ahead of the results, “While we appreciate the ongoing risks around the business model, we would suggest that some of the recent news flow in the industry and from WW has largely gone underappreciated in the shares.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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