Weight Watchers Getting Eaten Alive

Popular weight-loss company Weight Watchers

is down 16 percent today, despite beating estimates in both earnings and sales for the second quarter. Theories as to why the market took a bite out of Weight Watchers are as plentiful as their two-point snack bar flavors. The theory is that Weight Watchers has lowered their short-term guidance, instead investing a significant amount of their cash into upgrading their company, better positioning WTW for the future. What have they invested in? According to Wedbush Securities analyst Kurt Frederick, "They have invested in IT, hiring people, increased salaries. Increased investments is the reason why their guidance is a little bit weaker than what people thought it would be." And for that, they got knocked down — hard — by Wall Street. It's somewhat ironic, considering the clamoring across the political spectrum for companies to do the right thing and use their cash to invest in hiring Americans. Weight Watchers does just that, and gets rewarded with a 16 percent dip in value. Gee, thanks. The details on WTW are pretty straightforward. They have a market cap of 5.78 billion, and 37.8% institutional ownership. In terms of sales growth, they've seen a steady incline the past decade, with the exception of the really awful 2009-2010 Christmas season. The economy led consumers to cut back on discretionary spending that season, leading to the slight decline in sales in January 2010. Weight Watchers International is a provider of weight management services, operating globally through a network of company-owned and franchise operations. Through WeightWatchers.com, the company offers Internet subscription weight management products to consumers and maintains an interactive presence on the Internet for the Weight Watchers brand. The company provides two Internet subscription offerings: Weight Watchers Online and Weight Watchers eTools. Weight Watchers Online provides interactive and personalized resources that allow users to follow WWI's weight management plans via the Internet. Weight Watchers eTools is the Internet weight management companion for Weight Watchers meetings members, who want to interactively manage the day-to-day aspects of their weight management plans on the Internet. It is these online tools that offer some incredible growth opportunities for Weight Watchers going forward. Unlike their brick-and-mortar business model, these online tools allow for more participants per "class". This can keep costs low (no buildings to lease) as well as keep participation higher (clients can log in at their leisure).

Traders who believe that Weight Watchers will rebound from today's declines might want to consider the following trades:

Traders who believe that Weight Watchers is overweight (rimshot) may consider an alternate positions: