Sima Sistani, CEO, WW International, August 16, 2023.
Scott Mlyn | CNBC
WeightWatchers CEO Sima Sistani has sent an internal memo to employees attempting to reassure them that the financial position of the corporate is solid and its recent clinical business related to the specter of GLP-1 weight reduction drugs is growing faster than expected.
The memo, shared with CNBC, comes after heavy selling in WW shares that has seen the stock market value of the long-lasting weight reduction company fall to under $150 million amid concerns in regards to the company’s debt load and its core weight reduction business growth prospects at a time of latest blockbuster drugs like Novo Nordisk‘s Ozempic and Wegovy, and Eli Lilly‘s Zepbound.
Within the memo, Sistani told employees she wanted “to take a moment to address a number of the breathless media coverage.”
While the news on Feb. 28, concurrent with its earnings, that Oprah Winfrey was planning to leave the corporate’s board and donate all of her shares in the corporate to a museum’s endowment had led to a 20%-plus drop on earnings day, shares stabilized later that week. But since then WW shares have suffered heavy selling, dropping to a recent 52-week low on Thursday. Over the past one-month period, shares are down 58 percent. The stock, due to its debt load and short interest, as well as the final anxiety in regards to the impact of the brand new weight reduction drugs, is subject to heightened volatility.
Concerns in regards to the company’s significant debt load have made recent headlines in recent weeks, nonetheless, the difficulty isn’t a recent one and far of the debt isn’t due for years.
“These headlines are sometimes just speculation,” Sistani wrote to employees. “We have now strong liquidity and usually are not in a money crunch. We have now very attractive, long-term debt agreements, with no maturities due until 2028 and 2029.”
Guggenheim Partners analysts wrote in a note on Thursday that they’re “unconcerned” about WW’s ability to service its debt, which incorporates roughly $945 million outstanding on a non-amortizing term loan that matures in April of 2028, and $500 million of notes due in April of 2029.
The corporate ended 2023 with roughly $109 million in money, according to Guggenheim.
At its current market cap, the near $1.5 billion in debt is roughly 10 times the publicly traded value of the corporate’s equity.
There was some confusion out there over the financial issues and risk of bankruptcy which contributed to pressure on the stock, with no less than one Wall Street research report this week indicating that WeightWatchers had hired lawyers. But CNBC was able to confirm on Thursday that it was the corporate’s lenders, not WW, that had hired a law firm in preparation for conversations in regards to the debt load.
“Despite the high leverage, we consider WW may have no problem covering interest payments on the debt, and can ultimately be in a a lot better position to recapitalize the corporate in 2-3 years after the Clinical business scales. Furthermore, we expect any worries about a recapitalization or default this yr are overblown,” the Guggenheim analysts wrote.
Guggenheim maintains a buy rating on the shares and $12 price goal. WW shares closed at $1.87 on Thursday.
Last yr, WW acquired Sequence, since rebranded as WeightWatchers Clinic, as a way to confront the specter of the GLP-1 drugs to its legacy business by having the flexibility to connect patients with clinicians who can prescribe the drugs and mix the drugs with a broader weight-loss program. The FDA mandates the drugs be used along with broader weight-loss food plan and exercise methods.
Sistani said within the note to employees that because it reported on Feb. 28 and provided guidance for the yr, its GLP-1 related clinicals business has grown quickly. “In truth, we’re heading in the right direction to beat our Q1 guidance for Clinic subscribers,” she wrote.
While any faster growth for the clinicals business is a plus, several analysts who cover the stock have told CNBC that the core weight-loss management business has to grow for investors to turn bullish on the stock, given the scale of the legacy business relative to the brand new clinicals effort.
“WW is in a tough spot,” said one analyst consulted after the inner memo was shared, but who couldn’t comment for attribution due to concerns about fair disclosure of the fabric information. “Sequence [the clinicals business now named WeightWatchers Clinic] ought to be the longer term. That is the GLP-1 playbook, but at this point it’s still very small. In the event that they are talking about upside to that small business in and of itself, it isn’t meaningful. The larger issue is the legacy business continues to suffer and the corporate is overly levered.”
When WW reported results on Feb. 28, the corporate said it had ended Q4 with 3.8 million subscribers, including 67,000 for clinical subscriptions, but its guidance for the total yr 2024 was total subscriber growth within the range of three.8 million to 4.0 million, including between 140,000 and 160,000 subscribers to WeightWatchers Clinic.
“Turning around and totally transforming a business isn’t for the faint of heart!” Sistani wrote to employees. “As we stay focused on delivering for our members, the stock price will handle itself,” she stated. “I do know clickbait stories and their predictable, albeit temporary, market impact do not feel great. But take pride, because we’ll prove the naysayers flawed.”
Oprah Winfrey said in her statement announcing her intentions to leave the WW board this upcoming May and donate all of her shares to the National Museum of African American History and Culture that she would proceed to work with the corporate to de-stigmatize obesity and give attention to weight reduction as management of a chronic condition (Oprah told People she began using weight reduction drugs in December). Next Monday, Winfrey is scheduled to appear in a national primetime weight-loss special on ABC.
Guggenheim said in its note on Thursday “we might not be surprised if the special comprises positive commentary about pairing GLP-1 drug therapies together with a clinically-guided behavior modification program.” It noted that WW was amongst corporations from the burden loss industry involved within the TV event.
Sistani was named to the inaugural CNBC Changemakers list, revealed in February.
—CNBC’s Brandon Gomez contributed reporting.