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Medifast stock plunges on earnings miss, weak outlook

Published 04/30/2024, 09:08 AM
Updated 04/30/2024, 09:17 AM
© Reuters.  Medifast (MED) stock plunges on earnings miss, weak outlook
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Medifast (NYSE:MED), a wellness company known for its OPTAVIA brand, reported a significant decline in first-quarter revenue and earnings after the close on Monday, missing Wall Street estimates and projecting weaker-than-expected guidance for the second quarter. The company's shares plummeted 25% as investors reacted to the disappointing results and outlook.

For the first quarter ended March 31, 2024, Medifast's revenue fell to $174.7 million, a sharp 49.9% decrease from $349.0 million in the same quarter last year. This decline significantly missed the analyst consensus of $205.79 million. The company's adjusted earnings per share (EPS) for the quarter was $0.66, falling short of the expected $1.50 by analysts.

The stark revenue drop was attributed to a decrease in the number of active earning OPTAVIA Coaches, lower Coach productivity, and a $9.1 million impact from changes in the company’s sales order terms and conditions. The total number of active earning OPTAVIA Coaches decreased by 35.6% to 37,800 compared to 58,700 in the first quarter of 2023.

Despite the revenue and profit decline, the company's gross profit margin improved slightly to 72.8% from 70.6% in the prior year, benefiting from inventory management efficiencies and cost savings initiatives. However, selling, general, and administrative expenses as a percentage of revenue increased to 68.3%, up from 55.3% in the previous year, due to market research, investment costs, and company-led acquisition initiatives.

Medifast's net income also saw a steep decline to $8.3 million from $40.0 million in the first quarter of 2023. Chairman & Chief Executive Officer Dan Chard commented on the results, "While 2024 will be a year of investment for future growth, we believe the initiatives we are undertaking will be foundational in creating a platform for sustained company growth in the years ahead."

Looking ahead, Medifast forecasts second-quarter 2024 revenue to be between $150 million and $170 million, with diluted EPS ranging from $0.05 to $0.40. These figures fall below the analyst consensus, which anticipates an EPS of $0.67 and revenue of $175.1 million.

The company's balance sheet remains robust with $156.4 million in cash, cash equivalents, and investment securities, maintaining a debt-free position. Despite this, the significant earnings and revenue miss, coupled with a weak forward-looking guidance, has led to a substantial decline in Medifast's stock value, reflecting investor concerns over the company's near-term performance.

Reacting to the report, analysts at DA Davidson said Neutral-rated MED reported a small 1Q24 sales beat compared to their estimate but they noted profit missed consensus by 11% due to higher SG&A behind the new GLP-1 drug offering.

"We're cutting our 2024E EPS to $0.75 from $1.86 because: (1) while new clients may be up sequentially in 3Q24, Coaches will not (there's a lag); and (2) MED books monthly sales/drug customer of only $217 vs. ~$400 for the original 5-and-1 plan. If ad spend is $60M in 2025 rather than the $37M in our model, EPS would be $0.65 rather than our estimate of $2.25," said analysts at the firm, which also cut its target for the stock to $25 from $40.

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