Medifast 1Q Profit Slips 37% As Expenses Rise
05/08/2012| 04:54pm US/Eastern
Medifast Inc.'s (>> Medifast, Inc.) first-quarter earnings fell 37% as expansion-related costs continued to weigh on the weight-loss program provider's bottom line.
Medifast, which makes diet meal plans and runs weight-management centers, said it expects current-quarter earnings of 37 cents to 41 cents a share, while analysts polled by Thomson Reuters expect 41 cents a share. Medifast forecast revenue between $90 million and $93 million, bracketing analysts' projection of $91 million.
Medifast has seen its revenue improve recently, but expenses related to the company's expansion of its weight control centers have put pressure on margins. The company competes with Weight Watchers International Inc. (WTW), Nestle SA's (NSRGY, NESN.VX) Jenny Craig Inc. and Nutrisystem Inc. (>> NutriSystem Inc.).
For the first quarter, Medifast reported a profit of $4 million, or 29 cents a share, down from $6.4 million, or 44 cents a share, a year earlier. Excluding unusual items, the company said earnings would have been 32 cents in the latest period. Revenue rose 20% to $88.9 million.
In March, Medifast forecast earnings of 36 cents to 38 cents a share on revenue between $86.5 million and $88.5 million.
Gross margin narrowed to 75.1% from 76.3%, primarily due to rising commodity and shipping costs.
Overhead costs jumped 30%, primarily due to costs related to the opening of new Medifast Weight Control centers.
The company's weight-control centers and wholesale physicians channel saw revenue grow 63%, while the larger direct-sales channel's revenue increased 12%. Medifast's direct-response marketing channel's revenue was up 19%.
Last week, Weight Watchers reported poor first-quarter results as membership thinned and marketing spending rose.
Shares slipped 12 cents to $17.75 in recent after-hours trading. Medifast shares are up 30% since the start of the year.
-By Anne Pallivathuckal and Nathalie Tadena, Dow Jones Newswires; 212-416-2736; firstname.lastname@example.org