Weight Watchers International, Inc. (NYSE:WTW)
is among the many stocks that have experienced sharp price increases over the last six months. However, the stock recently pulled back from its yearly high and now trades at a level that may be attractive for long-term investors.
Weight Watchers International, Inc. (NYSE:WTW) is the unquestionable leader in the weight-loss industry. The company's strong member network and regular group meetings has proved to be the key to successfully losing weight.
It is important to stress that it is the member meetings, not the nutrition plan, that makes Weight Watchers International, Inc. (NYSE:WTW)' program effective. Other companies, like NutriSystem Inc. (NASDAQ:NTRI)
and Life Time Fitness, Inc. (NYSE:LTM)
compete based on a specific diet or exercise regimen. In fact, Nutrisystem attempts to control every meal consumed by its members to ensure that clients are eating in a manner that allows them to lose weight.
However, while NutriSystem Inc. (NASDAQ:NTRI)'s meal plan creates a captive customer during a member's time on the diet, it does not benefit from the key support group aspect that might otherwise motivate its members to stay on the diet. Having captive customers is an advantage only as long as the customers stay motivated to keep buying in the market. But without that motivation, many members drop out before achieving their weight loss goal. As a result, NutriSystem is unable to achieve anything close to the customer retention that Weight Watchers International, Inc. (NYSE:WTW) enjoys.
While NutriSystem Inc. (NASDAQ:NTRI) pushes a strict diet, Life Time Fitness, Inc. (NYSE:LTM) attempts to keep members on a healthy exercise regimen. The company has one of the largest fitness club networks in the United States, which affords it economies of scale. Many members think that if they exercise regularly, they do not have to adhere to a strict diet in order to lose weight. This convenient lie is often an impetus to sign up for gym membership, but the lack of a strong support group to provide motivation for the long-haul leads to high customer churn.
Motivation is the most important part
There are countless diet and exercise plans that can help people lose weight -- if only people would follow them. The Weight Watchers International, Inc. (NYSE:WTW) diet adds the least value to the program; the real value is in the support groups that motivate members to stick with the diet -- and keep paying dues -- much longer than any other major program.
Over the decades, the amazing results achieved by Weight Watchers International, Inc. (NYSE:WTW) members has earned the company a stellar reputation. But more importantly, the size and scope of its member network makes its success difficult to replicate. Its strong brand and the lack of direct substitutes enables the company to earn high margins and predictable earnings.
Weight Watchers International, Inc. (NYSE:WTW) earns a consistently higher pre-tax margin than its peers. Not only is Weight Watchers' margin higher than NutriSystem Inc. (NASDAQ:NTRI) -- its primary diet competitor -- but it is also more stable. This stability is financial evidence of the Weight Watchers brand, which attracts a steady flow of customers throughout the economic cycle.