It has been about a month since the last earnings report for Medifast (MED). Shares have lost about 7.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Medifast due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Medifast's Q2 Earnings Top Estimates, Sales Decline Y/Y
Medifast delivered second-quarter 2023 results, with the top and bottom lines declining year over year. Nevertheless, earnings and net revenues missed the Zacks Consensus Estimate.
Macroeconomic headwinds like the dynamic economy, inflation, shift in social media algorithms and a competitive environment have been hurting Medifast’s ability to push customer acquisition. Management is on track with the Fuel for the Future plan with key initiatives to fuel efficiency and reduce costs.
Medifast’s adjusted earnings came in at $2.77 per share, down from $3.42 million reported in the year-ago quarter. The metric surpassed the Zacks Consensus Estimate of $1.44.
Net revenues of $296.2 million declined 34.7% year over year, mainly due to lesser active earning OPTAVIA Coaches and lesser productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach stood at $5,578, down 16.3% from $6,667 million, thanks to persistent pressure on customer acquisition. This was somewhat offset by the price increase undertaken in November 2022. The total number of active earning OPTAVIA Coaches fell 21.9% to 53,100 compared with 68,000 reported in the year-ago quarter. The top line surpassed the Zacks Consensus estimate of $253.5 million.
The gross profit came in at $210.7 million, down 34.5% year over year on reduced revenues. The gross profit margin was 71.1%, up from 71% reported in the prior-year quarter. We had expected the gross profit margin to come in at 67.3% in the second quarter.
Selling, general and administrative expenses (SG&A) fell 36.9% year over year to $172 million. As a percentage of revenues, SG&A expenses contracted 208 basis points (bps) to 58.1%. The reduction in SG&A expenses is a result of progress on various cost reduction and optimization efforts and lower coach compensation, stemming from reduced sales volumes and lesser active earning coaches. We had expected SG&A expenses, as a percentage of revenues, to be 60%.
The income from operations declined 21% to $38.7 million. As a percentage of revenues, the metric increased to 13.1% from 10.8% reported in the year-ago quarter. We had expected the metric to come in at 7.3% in the second quarter.
Other Financial Updates
Medifast concluded the quarter with cash and cash equivalents of $147.4 million, no interest-bearing debt (as of Jun 30, 2023) and total shareholders’ equity of approximately $185.6 million.
The company declared a quarterly cash dividend of $1.65 per share, payable on Aug 8, 2023, to shareholders of record as of Jun 27.
Management expects revenues of $220-$240 million for third-quarter 2023. The company expects earnings per share (EPS) between 71 cents and $1.32 for the third quarter. It anticipates the effective tax rate between 23% and 25% for the third quarter of 2023.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -42.56% due to these changes.
At this time, Medifast has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Medifast has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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