NutriSystem Shareholders Lost More Weight Than Their Clients (NTRI)

NutriSystem, Inc. (NASDAQ:NTRI) has lowered expectations for its preliminary financial results for its third quarter. The company simultaneously announced that it authorized a $100 million increase to its existing stock repurchase program and it has entered into a $200 million credit facility.  But the damage is done:

• Revenues are now expected to be approximately $188 million.  While this is a 21% increase over the prior year’s quarter, this is well under the $206.6 million estimate.
• New customers are expected to decline by 7% (yr/yr) to approximately 218,000 for the direct business.
• New EPS Range $0.62 and $0.66 versus consensus of $0.82.
• Cash and equivalents expected to increase by $35 million in the quarter, with $117 million in cash, cash equivalents and marketable securities expected at quarter end.
• Michael J. Hagan, Chairman & CEO: “After a very strong first half of the year, our results for the third quarter didn’t meet our expectations. We continue……."  After that it doesn’t really matter.

Shares were down 1.4% today in regular trading to close at $47.57, toward the low end of the $40.82 to $76.20 trading range over the last year.  Shares have just gapped down after reopening and are currently trading around $38.00.  If this holds, these prices are new 52-week lows.   At some point someone may look at this as a value stock, but not today.

If you watch CNBC or watch other television you’ll notice that its advertising has been much more sporadic than steady compared to prior months.  Maybe this buyback add-on will help stabilize the stock. This was probably somewhat assumed by many major brokerages.  Lehman downgraded this stock back in July, but a boutique called Broadpoint apparently just upgraded this on Monday. 

Jon C. Ogg
October 3, 2007

Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.