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Medifast (MED) Stock Gains on Q1 Earnings & Revenue Beat

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Medifast, Inc. MED delivered splendid first-quarter 2021 results, as both earnings and sales saw significant year-over-year growth. Also, both metrics cruised past their respective Zacks Consensus Estimate. Strength in OPTAVIA remained a strong driver, with average revenue per active earning OPTAVIA coach increasing year over year. Impressively, the company’s shares gained 6.7% during the after-market trading session on May 4. In the past six months, this Zacks Rank #2 (Buy) stock has gained 29.7% compared with the industry’s growth of 17%.

Clearly, Medifast began 2021 on a solid note, with the first quarter witnessing exceptional growth and productivity, thanks to strength in its independent OPTAVIA Coaches as well as employees. To this end, OPTAVIA Coaches are focused on utilizing technology, such as the company’s own app-based platforms, along with social media channels and field-led training platforms. We note that consumers’ increased inclination toward health, together with a solid OPTAVIA coach-based model, has been helping Medifast draw new clients. Notably, the company remains committed to making further investments to improve its infrastructure in order to aid growth.

Quarterly Highlights

The company posted earnings of $3.46 per share, which crushed the Zacks Consensus Estimate of $2.72 and surged a whopping 121.8% on a year-over-year basis.

MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC Price, Consensus and EPS Surprise
MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote

Net revenues of $340.7 million soared 90.9% year over year and beat the Zacks Consensus Estimate of $287 million. Markedly, OPTAVIA-branded products formed 88.9% of consumable units sold in the quarter, up from 79% in the preceding quarter. Incidentally, total active earning OPTAVIA coaches jumped 61% to 52,500.

Further, average revenue per active earning OPTAVIA coach came in at $6,454, up from $5,333 in the same period last year. Certainly, the relevance of the company’s offerings amid an environment where consumers are choosing health and wellness options has been an upside. We note that management intends to sunset its Medifast-branded product line by the second-quarter end, as part of its brand and business strategy.

Gross profit jumped 83.8% to $248.5 million, while the gross margin contracted 280 basis points year over year to 73%. The gross margin was hurt by the burgeoning demand for OPTAVIA-branded products, as it resulted in high use of co-manufacturers and led to the need for accelerated shipments to cater well to customers before the company’s fulfillment capacity goes completely online. We note that costs associated with these factors, along with inventory write-offs associated with the sunset of the Medifast-branded product line, weighed on the company’s gross margin.

Moving on, SG&A expenses flared up 75.2% from $111.7 million to $195.7 million in the quarter, mainly accountable to escalated OPTAVIA commission costs, elevated credit card fees and greater salaries and benefits for employees stemming from increased sales. As a percentage of revenues, SG&A expenses declined 510 basis points to 57.5%.

Income from operations jumped from $23.5 million to $52.8 million, thanks to higher gross profit and sales, along with a decline in SG&A expenses (as a percentage of sales). As a percentage of sales, income from operations expanded 230 bps to 15.5%.

Other Financial Updates

The company concluded the quarter with cash, cash equivalents and investment securities of $212.9 million and total shareholders’ equity of $174.9 million. Notably, management did not have any interest-bearing debt on its balance sheet as of Mar 31, 2021.

The company, on Apr 13, 2021, entered a credit agreement that provides for a senior secured revolving credit facility worth $125 million, along with a letter of credit sublimit worth $20 million. Apart from these, the credit agreement provides for an additional facility, which allows the company to escalate its senior secured revolving credit facility by up to $100 million. No amounts were used under the credit agreement as of May 4, 2021.

Management paid out a quarterly cash dividend of $1.13 per share on Feb 5, 2021. Further, Medifast unveiled a 26% hike in the quarterly dividend on Mar 18, 2021, taking it to $1.42 per share, which is payable on May 6. The company used $7.5 million for share buybacks during the first quarter. It has shares worth roughly 2.3 million remaining under its buyback plan.

Outlook

Management anticipates revenues for the full year 2021 to come in the range of $1.4-$1.475 billion. Full-year earnings per share are envisioned to be $12.69-$14.14. The Zacks Consensus Estimate is currently pegged at $10.89 per share.

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