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3 Things Weight Watchers' CEO Wants Investors to Know

Daniel B. Kline, The Motley Fool

Shares in Weight Watchers (NASDAQ: WTW) dropped by about 30% after the company reported weaker-than-expected earnings on Feb. 26. The share price was not helped by the wellness company releasing a downbeat earnings forecast for 2019.

This news suggests that company, newly dubbed WW, has struggled in its efforts to rebrand itself as a wellness brand rather than a weight loss company. Shares in the company have been struggling since that move was made, even though membership numbers have generally been strong.

CEO Mindy Grossman addressed the poor fourth quarter and the lowered expectations for the coming year during WW's fourth-quarter earnings call. And while Grossman was upbeat, she did not pretend that nothing had gone wrong.

A person stands on a scale.
A person stands on a scale.

WW is trying to brand itself as being about wellness, not weight. Image source: Getty Images.

1. Bad ads?

"After an outstanding year for WW in 2018, our start to 2019 and winter recruitment performance has been very disappointing, as reflected in the financial outlook we are providing today," she said.

Grossman explained that while the chain's winter ad campaign drove "positive perception and relevancy of the WW brand," it did not drive membership. She also noted that the company was facing difficult comps as the previous year's Q4 had been strong.

"In addition, given the particularly competitive winter diet environment, the campaign did not drive recruitment of our significant universe of lapsed members," she said.

2. Still confident in the plan

Grossman acknowledged that things had not gone entirely to plan in Q4, but she expressed strong feelings that the company was moving in the right direction. She did also point out that the company was aiming at a target that was at least somewhat in motion.

"Our journey won't be linear, but in no way do these results diminish our confidence in our long-term strategy to focus on providing an ecosystem of holistic wellness solutions in addition to our best-in-class weight management program supported by the modern WW brand," she said. "There is a global paradigm shift underway."

3. Work remains to be done

WW conducts a survey to gauge consumer perception of the brand each January. This year's version had some encouraging signs.

"In January 2019, we saw significant improvements in our brand equity compared to prior years, with notable gains in the number of prospective members identifying WW as a modern relevant program that can fit their lifestyle. And perhaps most importantly, more people are agreeing that WW is a livable lifestyle, not a short-term diet," she said.

Grossman, however, was nothing if not blunt in saying that the survey results did not mean the company lacked problems. She made it clear that there were still large hills to be climbed.

"These findings notwithstanding, our current urgency to improve marketing efficacy and performance reinforce our confidence that we're on the right track for the brand's long-term potential," she said. "But to be clear, we have work to do and have an intense focus on improving our current recruitment performance to be able to get back to the type of growth trajectory we have delivered in the past."

Do you believe?

WW is undergoing a major brand transformation, and that's not something that happens in a quarter. By dropping the Weight Watcher name, the company has shed its identity. It has to establish new brand equity and explain to potential and lapsed customers exactly what it offers them.

That's not an easy path. But despite the bad news in Q4, membership was up 22% year over year. Grossman has been able to deliver growth, and she should be able to keep the company moving forward. Her willingness to address the Q4 problems and identify what needs to be worked on was encouraging.

WW isn't there yet. Its CEO made that clear. Despite that -- and the fact that the company's rebirth has been a road with more than a few potholes -- Grossman does seem to have the vision and operational ability to lead her company there.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.