Shares of Weight Watchers (WTW) were sinking 20% on Friday afternoon, on the back of its outlook and the departure of its CEO.
The weight loss company's second quarter itself was better than expected. Weight Watchers said it earned $64.9 million, or $1.15 a share, down from $77.5 million, or $1.36 a share, a year earlier. Excluding one-time charges related to debt refinancing, earnings were $1.39, ahead of the $1.11 analysts estimates.
Revenue fell 4.1% to $465.1 million, also ahead of the consensus of $460.4 million.
However, investors were spooked by the company's full year guidance, as it lowered earnings per share expectations to a range of $3.55 to $3.70, from $3.60 to $3.90 and below analysts' expectations for $3.70 a share.
In addition, Chief Executive David Kirchhoff resigned to pursue other opportunities. James Chambers, the current COO who joined the company at the start of the year, took over as CEO effective immediately.
Wedbush Securities analyst Kurt Frederick, maintained his Neutral rating on the stock but lowered his target price by $2 to $40. "Management anticipates entering 2014 with active meetings members down in the mid-teens y/y and online members down LSD to MSD, sharply below 2013 when it entered the year with 10% fewer meetings members and 15% more online members. Additionally, the company entered into a $1.5 billion interest rate swap to fix the interest rate on 60% of total debt, resulting in 2014 interest expense rising $14 million and total pre-tax earnings drag of $64 million ($0.70 per share). Given the significant headwind, we believe positive 2014 growth is unlikely. We would need to see improvement in membership, particularly within the online business, before becoming more bullish."
The shares are up less than 6% in the past year.
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