Fitness Trackers Eating Away at Weight Watchers

Revenue Down 10%, Membership Down 15% in Fourth Quarter

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Weight Watchers is losing the race for customers against fitness gadgets.

Revenue fell 10% to $327.8 million in the fourth 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.

Weight Watchers, founded in 1961, has built up an ecosystem of dieting programs, food products and support centers for people seeking to slim down. 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 American adults using applications to track their health, according to Nielsen. That's making it harder for Weight Watchers to justify subscriptions starting at $20 a month, since activity trackers can be paired with free mobile apps that make it easy to analyze 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 company has also launched an aggressive ad campaign from Wieden & Kennedy, which included an ad in this year's Super Bowl (see video above) and other spots including "World of Food," "If You're Happy and You Know It" and "My Butt."

"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."

Weight Watchers' membership declined 15% in the past quarter, to 2.51 million active subscribers. While profit, excluding some charges, matched analysts' average estimate for 7 cents a share, revenue fell short of projections.

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.

Three months later, on another call, Mr. 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 Nov. 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."

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 Inc. in Chicago. This week, Weight Watchers announced a new partnership with health-care company Humana Inc. 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," Mr. 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

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