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Nutrisystem (NTRI) Q1 Earnings, Revenues Top; '16 View Up

Nutrisystem Inc. NTRI reported first-quarter 2016 adjusted earnings of 13 cents per share, which beat the Zacks Consensus Estimate by 6 cents and surged 30% on a year-over-year basis. Adjusted earnings exclude 4 cents of initiative expenses related to the South Beach Diet and Shake360.
 

Revenues increased 18.1% to $162.1 million and edged past the Zacks Consensus Estimate of $152 million. Revenues also beat management’s guided range of $148 million to $158 million. The impressive performance was primarily driven by new customer growth, improved reactivation revenue ($40 million) and higher revenue per customer in the direct channel.

Revenues from new customers in their initial diet cycle were up over 15% in the quarter, primarily driven by increased customer starts, improved pricing, higher Shake purchases and increased sales of more flexible options that the company is marketing.

Adjusted EBITDA (excluding initiative expenses of $1.7 million for the South Beach Diet and Shake360) rose 21% year over year to $9.7 million.

Total costs and expenses increased 19.3% from the year-ago quarter to $158.3 million, primarily due to higher marketing (up 24.5%) and cost of revenues (up 19.3%) in the reported quarter.

This March, Nutrisystem in collaboration with Walmart WMT started a twelve week roll-back campaign which successfully drove increased sales volume and awareness.

However, operating income declined 16.3% year over year to $3.8 million due to higher expenses.

During the quarter, Nutrisystem authorized a share repurchase program, whereby the company may repurchase up to $50 million of its common stock over the next 18 months in open market transactions.

Guidance

Nutrisystem forecasts second-quarter 2016 revenues in the range of $145 million to $150 million. Adjusted EBITDA is expected in the band of $27.5 million to $29.5 million. Earnings are forecasted in the range of 48 cents to 53 cents, including expense of 2 cents related to South Beach Diet and Shake360 initiatives.

Full-year 2016 revenues are forecasted in the range of $517 million to $532 million, up from the previous range of $505 million to $525 million. Management now expects reactivation revenues to grow in the double-digit range for full-year 2016.

Revenues from retail channel are now projected at $36 million, up almost $1 million from the year-ago quarter.

Adjusted EBITDA is now estimated in the band of $66.0--$70.5 million, up from the previous range of $62.5--$67 million.

Earnings are now forecasted in the range of $1.17 to $1.27 per share, up from the earlier guided range $1.09 to $1.19. The guidance excludes the expected impact of the South Beach Diet and Shake360 initiatives (14 cents).

Capital expenditures are still expected to be approximately $12 million to $14 million for full-year 2016, flat with the 2015 figure. Approximately $2 million to $3 million of this capital expenditure relates to the South Beach and Shake360 capital investment.

For full-year 2016, Nutrisystem expects an improvement in gross margins on a consolidated basis, buoyed by higher average selling price and effective management of food and distribution costs.

Zacks Rank & Key Picks

Currently, Nutrisystem carries a Zacks Rank #3 (Hold).

Better-ranked stocks include Vista Outdoor VSTA and Central Garden & Pet Company CENT. While Vista Outdoor sports a Zacks Rank #1 (Strong Buy), Central Garden carries a Zacks Rank #2 (Buy).

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