Nutrisystem (NTRI) Beats Q2 Earnings & Sales; '16 View Up

Nutrisystem Inc. (NASDAQ:NTRI) reported second-quarter 2016 adjusted earnings of 54 cents per share, which beat the Zacks Consensus Estimate by 3 cents and surged 32% on a year-over-year basis. Adjusted earnings include 3 cents of initiative expenses related to the South Beach Diet and Shake360.

Revenues increased 15% to $149.8 million and edged past the Zacks Consensus Estimate of $149 million. Revenues were almost in line with the high-end of the management’s guided range of $145 million to $150 million.

The impressive performance was primarily driven by new customer growth, improved reactivation revenue ($36 million, up 17% from the year-ago quarter) and higher revenue per customer in the direct channel. Strong demand for products like Turbo10, TurboShakes and Uniquely Yours were the primary growth drivers.

Revenues from new customers in their initial diet cycle were up over 15% in the quarter, primarily driven by increased customer starts, improved pricing, higher shake purchases and increased sales of more flexible options that the company is marketing.

Gross margin increased 190 basis points (bps) to 53.9% in the quarter. Direct-to-consumer margins grew as a result of historical price increases, less promotional spending and stringent cost management.

Adjusted EBITDA (excluding initiative expenses of $1.3 million for the South Beach Diet and Shake360) rose 33% year over year to $29.9 million.

Retail performance was in line with the company’s expectations. The collaboration with Walmart (NYSE:WMT) continues to benefit Nutrisystem. During the second quarter, the company introduced several products in over 400 Wal-Mart locations. Management stated that this limited time test will run through the first quarter of 2017.

Guidance

Nutrisystem forecasts third-quarter 2016 revenues in the range of $113 million to $118 million. Adjusted EBITDA is expected in the band of $15.6 million to $17.6 million. Earnings are forecasted in the range of 23 cents to 28 cents, including expense of 5 cents related to South Beach Diet and Shake360 initiatives.

Full-year 2016 revenues are now forecasted in the range of $520 million to $532 million, up from the previous range of $517 million to $532 million. Management now expects reactivation revenues to grow in the double-digit range for full-year 2016.

Revenues from the retail channel are still projected at $36 million, up almost $1 million from the year-ago quarter.

Gross margin expansion is expected to dip sequentially in the third quarter due to a slight increase in overhead cost. For the fourth quarter, unfavorable product mix is expected to hurt gross margin expansion. However, management noted that gross margin in both the quarters will expand on a year-over-year basis.

Adjusted EBITDA is now estimated in the band of $66.8--$70.5 million, up from the previous range of $66--$70.5 million.

Earnings are now forecasted in the range of $1.19 to $1.27 per share, up from the earlier guided range $1.17 to $1.27. The guidance excludes the expected impact of the South Beach Diet and Shake360 initiatives (14 cents).

Capital expenditures are expected to be approximately $13 million to $14 million for full-year 2016.

Zacks Rank & Key Picks

Currently, Nutrisystem carries a Zacks Rank #3 (Hold).

Better-ranked stocks include Barnes & Noble (NYSE:BKS) Education (NYSE:BNED) and Summer Infant (NASDAQ:SUMR) . Both the stocks carry a Zacks Rank #2 (Buy).