Sima Sistani, CEO, WW International, August 16, 2023.
Scott Mlyn | CNBC
WeightWatchers CEO Sima Sistani has sent an internal memo to employees trying to reassure them that the monetary place of the corporate is stable and its new scientific enterprise associated to the specter of GLP-1 weight reduction medication is rising quicker than anticipated.
The memo, shared with CNBC, comes after heavy promoting in WW shares that has seen the stock market worth of the enduring weight reduction firm fall to underneath $150 million amid considerations in regards to the firm’s debt load and its core weight reduction enterprise development prospects at a time of latest blockbuster medication like Novo Nordisk‘s Ozempic and Wegovy, and Eli Lilly‘s Zepbound.
In the memo, Sistani informed employees she needed “to take a moment to address some of the breathless media coverage.”
While the information on Feb. 28, concurrent with its earnings, that Oprah Winfrey was planning to leave the company’s board and donate all of her shares within the firm to a museum’s endowment had led to a 20%-plus drop on earnings day, shares stabilized later that week. But since then WW shares have suffered heavy promoting, dropping to a brand new 52-week low on Thursday. Over the previous one-month interval, shares are down 58 %. The stock, due to its debt load and quick curiosity, as nicely as the overall nervousness in regards to the influence of the brand new weight reduction medication, is topic to heightened volatility.
Concerns in regards to the firm’s important debt load have made new headlines in latest weeks, nonetheless, the difficulty will not be a brand new one and far of the debt will not be due for years.
“These headlines are often just speculation,” Sistani wrote to employees. “We have strong liquidity and are not in a cash crunch. We have very attractive, long-term debt agreements, with no maturities due until 2028 and 2029.”
Guggenheim Partners analysts wrote in a notice on Thursday that they’re “unconcerned” about WW’s capacity to service its debt, which incorporates roughly $945 million excellent on a non-amortizing time period mortgage that matures in April of 2028, and $500 million of notes due in April of 2029.
The firm ended 2023 with roughly $109 million in money, in accordance to Guggenheim.
At its present market cap, the close to $1.5 billion in debt is roughly 10 instances the publicly traded worth of the corporate’s fairness.
“Despite the high leverage, we believe WW will have no problem covering interest payments on the debt, and will ultimately be in a much better position to recapitalize the company in 2-3 years after the Clinical business scales. Moreover, we think any worries about a recapitalization or default this year are overblown,” the Guggenheim analysts wrote.
Guggenheim maintains a purchase ranking on the shares and $12 worth goal. WW shares closed at $1.87 on Thursday.
Last yr, WW acquired Sequence, since rebranded as WeightWatchers Clinic, as a method to confront the specter of the GLP-1 medication to its legacy enterprise by being able to join sufferers with clinicians who can prescribe the medication and mix the medication with a broader weight-loss program. The FDA mandates the medication be used at the side of broader weight-loss food regimen and train strategies.
Sistani mentioned within the notice to employees that because it reported on Feb. 28 and offered steering for the yr, its GLP-1 associated clinicals enterprise has grown rapidly. “In fact, we are on track to beat our Q1 guidance for Clinic subscribers,” she wrote.
While any quicker development for the clinicals enterprise is a plus, a number of analysts who cowl the stock have informed CNBC that the core weight-loss administration enterprise has to develop for buyers to flip bullish on the stock, given the scale of the legacy enterprise relative to the brand new clinicals effort.
“WW is in a tough spot,” mentioned one analyst consulted after the internal memo was shared, however who couldn’t remark for attribution due to considerations about honest disclosure of the fabric info. “Sequence [the clinicals business now named WeightWatchers Clinic] should be the future. That’s the GLP-1 playbook, but at this point it’s still very small. If they are talking about upside to that small business in and of itself, it’s not meaningful. The bigger issue is the legacy business continues to suffer and the company is overly levered.”
When WW reported outcomes on Feb. 28, the corporate mentioned it had ended This fall with 3.8 million subscribers, together with 67,000 for scientific subscriptions, however its guidance for the full year 2024 was complete subscriber development within the vary of three.8 million to 4.0 million, together with between 140,000 and 160,000 subscribers to WeightWatchers Clinic.
“Turning around and totally transforming a business is not for the faint of heart!” Sistani wrote to employees. “As we stay focused on delivering for our members, the stock price will take care of itself,” she said. “I know clickbait stories and their predictable, albeit temporary, market impact don’t feel great. But take pride, because we will prove the naysayers wrong.”
Oprah Winfrey mentioned in her assertion asserting her intentions to go away the WW board this upcoming May and donate all of her shares to the National Museum of African American History and Culture that she would proceed to work with the corporate to de-stigmatize weight problems and deal with weight reduction as administration of a power situation (Oprah informed People she began utilizing weight reduction medication in December). Next Monday, Winfrey is scheduled to seem in a nationwide primetime weight-loss particular on ABC.
Guggenheim mentioned in its notice on Thursday “we would not be surprised if the special contains positive commentary about pairing GLP-1 drug therapies along with a clinically-guided behavior modification program.” It famous that WW was amongst firms from the load loss trade concerned within the TV occasion.
Sistani was named to the inaugural CNBC Changemakers checklist, revealed in February.