Oprah's Appeal Put to Test at Weight Watchers as Dieters Go Keto

(Bloomberg) -- Weight Watchers needs another Oprah rally, but the wellness market’s a lot different today than it was last time her star-power sent the shares soaring.

The weight-loss company’s stock took a beating Wednesday, dropping as much as 36 percent on a dismal profit forecast after it struggled to sign up customers during the key post-holiday dieting season. With a tough year ahead, it’s again tapping its second-largest shareholder, whose pitches helped the shares almost quadruple in 2017.

Oprah's Appeal Put to Test at Weight Watchers as Dieters Go Keto

Weight Watchers, which the company has rebranded as WW, said Winfrey will play a “central role” in a spring advertising campaign, as it tries to get its groove back. The question now is whether the first Oprah rally can be repeated.

Investors are trying to decide if the brand has a clear future in a changing wellness marketplace, or if it was simply a case of the world’s greatest brand influencer using her celebrity to temporarily stave off the decline of an old-school weight-loss company that doesn’t resonate as much outside core demographic: middle-aged female customers.

Fad Diets

While obesity continues to climb, giving Weight Watchers more and more potential customers, so does the prevalence of fad diets, like Keto and Whole 30, with information about how to lose weight free and easy to access.

The company had been leaning a bit less on Oprah in recent ads as it works to pivot away from strict weight loss and toward wellness. But with the stock getting hammered, it’s putting Oprah back in the spotlight.

“We spend a lot of time together and what you know about Oprah is that she is very discreet about what she wants to do and doesn’t want to do,” Chief Executive Officer Mindy Grossman said in an interview. “She’s very excited about our new trajectory. This is something that she wants to put herself against.”

Weight Watchers, which dates back to the 1960s with a weight-loss program built around points and group meetings, has been on a wild ride the past few years. Before Winfrey took a stake and agreed to pitch the brand in October 2015, the stock had languished below $7, as it struggled to attract new customers in a changing marketplace.

Online Model

The Weight Watchers model has changed in recent years alongside a shifting, increasingly plugged-in consumer. The company now offers subscribers an online program with at-home weigh-ins as well. That new option is now the more popular one, with 2.6 million digital subscribers at the end of the year, double the number who still go to meetings.

Oprah's Appeal Put to Test at Weight Watchers as Dieters Go Keto

That flexibility helps the company attract new subscribers who aren’t interested in the community aspect, but it also puts the program in direct competition with other digital-based diet apps, like Under Armour Inc.’s MyFitnessPal, which track calories from the comfort of a smartphone.

Winfrey, a media mogul who has the power to make a brand with her ballyhooed “favorite things,” helped boost subscriber growth after years of declines. Oprah’s public pronouncements about losing weight, even while eating bread, helped push the shares higher, increasing the value of her stake in the company, despite pessimism from a bevy of short sellers.

In 2017, the stock almost quadrupled and it kept climbing until last June, when it peaked north of $100. But in the second of half of last year, growth concerns started to emerge, with focus turning back to all the competition in the weight-loss market. With the plunge on Wednesday, the shares are potentially on track for their biggest one-day decline since going public in 2001.

Wellness Push

Since taking over in the summer of 2017, Grossman has tried to transform the company, emphasizing wellness over weight loss to make the brand more relevant. And she’s has worked to improve the company’s technology platform, opened a cafe at the Barclays Center in Brooklyn and tried to bring in more male and younger female customers.

Oprah's Appeal Put to Test at Weight Watchers as Dieters Go Keto

Still, this year got off to a bad start. The company said that its ads didn’t land during the dieting season and that it will be tough to quickly bounce back, with subscriber growth now forecasted to be negative this year.

Grossman, who said there was a “global paradigm shift underway” in how people think about weight loss, called the start of the year “very disappointing,” but said she remains confident in her “long-term strategy to focus on providing an ecosystem of holistic wellness solution in addition to our best-in-class weight management system.”

But there’s still an uphill battle ahead.

“Consumers seem confused by WW’s goal of shifting towards becoming a wellness company, expanding its focus beyond just weight loss,” said Olivia Tong, an analyst at Bank of America Merrill Lynch.

©2019 Bloomberg L.P.