Weight Watchers is losing the race for customers against fitness gadgets.
Revenue fell 10 per cent to $US327.8 million ($421 million) in the December quarter, Weight Watchers International said in a statement Thursday, declining for the eighth straight period as FitBit, Jawbone and other activity trackers lure dieters away.
Shares in the company, a pioneer in the weight-loss industry, slumped as much as 16 per cent in extended trading after the results, on top of a 78 per cent decline in the past three years.
Weight Watchers, founded in 1961, has built up an ecosystem of dieting programs, food products and support centers for people seeking to slim down.
But with consumers paying more attention to how many calories they're burning from exercise or everyday activities, fitness gadgets have surged in popularity, with 51.2 million adults in America alone adults using applications to track their health, according to Nielsen.
That's making it harder for Weight Watchers to justify subscriptions starting at $US20 a month, since activity trackers can be paired with free mobile apps that make it easy to analyse caloric input and output.
"Weight Watchers really has to change what they're offering - they have to get modern," said Meredith Adler, an analyst at Barclays. "People are just more digital now than they ever were."
Weight Watchers hasn't stood still. The New York-based company has also embraced activity trackers. Subscribers can use FitBit, Jawbone and the company's own ActiveLink gadget to track diets and exercise.
"The whole health-and-fitness category has morphed into a positive place, with free apps and trackers for people to consider," Weight Watchers said in a statement. "We plan to be there for our members and future members by continuing to provide motivation, accountability and support whenever and wherever they may need it."
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Threat, or opportunity?
Weight Watchers' membership declined 15 per cent in the past quarter, to 2.51 million active subscribers. While profit, excluding some charges, matched analysts' average estimate, revenue fell short of projections. Last month, Weight Watchers was among the most-shorted stocks on the New York Stock Exchange.
David Kirchhoff, former chief executive officer of Weight Watchers, said two years ago that he didn't see wearable devices-- along with social media and other technologies - as a threat. Instead, they presented a chance for the company to enhance its methods, counseling and business model, he said on an earnings conference call in February 2013.
Diet fad
Three months later, on another call, Kirchhoff's tone began to change: "In this cash-strapped environment, the sudden proliferation in popularity of free alternative offerings has created a surge of trial in these apps. The resulting impact is contributing to a challenging recruitment environment, similar to what we saw back in 2000 with the low-carb diet fad."
In November, the battle appeared all but lost.
"Frankly, we were slow to innovate and add value to our products," Weight Watchers chief financial officer Nicholas Hotchkin said at an investor conference on November 11. "We were particularly susceptible to the proliferation of free apps and activity monitors."
On Wednesday, current CEO Jim Chambers said the company still has further to go.
"We are not yet where we expected to be," Chambers said on a conference call. "Our turnaround will take longer than expected."
Corporate deals
The company's best bet is to focus on providing weight-loss programs for corporations and health plans, which have been seeking ways to keep employees healthy and insurance costs low, according to RJ Hottovy, an analyst at Morningstar. in Chicago.
This week, Weight Watchers announced a new partnership with health-care company Humana to offer diet programs at discounted rates on certain health insurance plans.
"The largest growth opportunity for this company is partnering with corporations and health plans," Hottovy said.
"That's where they'll really have a more comprehensive offering. That's something Weight Watchers can provide that calorie counting apps maybe can't."
Bloomberg News