Weight Watchers CEO just sent a memo to employees as stock price plummets | Wilnesh News

Weight Watchers CEO Sima Sistani sent an internal memo to employees in an attempt to reassure employees about the company’s financial health and the pace of new clinical business growth related to the threat of GLP-1 weight-loss drugs Faster than expected.

memorandumShared with CNBC, it comes after a massive sell-off global stocks That dropped the iconic weight-loss company’s stock market value to less than $150 million amid concerns about its debt load and its growth prospects for its core weight-loss business. Novo NordiskOzempic and Wegovy, and Eli Lilly and CompanyZepp Bond.

In the memo, Sistani told staff she wanted to “take a moment to address some of the stifling media coverage.”

On February 28, at the same time as the financial report was released, there was news that Oprah Winfrey planned to leave the company’s board of directors and donate all her shares in the company to the museum endowment fund, causing the stock price to drop 20% on the day of the financial report. %, but stabilized later that week. But WW stock has since suffered a massive sell-off, falling to a new 52-week low on Thursday. Shares have fallen 58% over the past month. The stock’s volatility has increased due to its debt load and short interest, as well as widespread concerns about the impact of new weight-loss drugs.

Concerns about the company’s massive debt load have made new headlines in recent weeks, however, the issue is not new and much of the debt has not come due in years.

“These headlines are often just speculation,” Sistani wrote in a letter to employees. “We have strong liquidity and are not in a cash crunch. We have very attractive long-term debt agreements that don’t mature until 2028 and 2029.”

Guggenheim Partners analysts wrote in a note Thursday that they are “concerned” about WW’s ability to repay its debt, which includes about $945 million of outstanding non-amortizing term loans due in April 2028 and $500 million in notes due in April. April 2029.

The company had about $109 million in cash as of 2023, according to Guggenheim.

At current market capitalization, the nearly $1.5 billion in debt is roughly 10 times the publicly traded value of the company’s equity.

Some confusion over financial issues and bankruptcy risks has weighed on the stock, and at least one Wall Street research report this week suggested that Weight Watchers has hired lawyers. But CNBC confirmed on Thursday that it was the company’s lender, WW is not, it hired a law firm to prepare for a conversation about the debt load.

“Despite high leverage, we believe WW will have no problem paying interest on its debt and will ultimately be in a better position to recapitalize the company in 2 to 3 years as the clinical business scales up. Additionally, We believe any concerns about recapitalization or defaults this year are overblown,” Guggenheim analysts wrote.

Guggenheim maintained a buy rating and $12 price target on the stock. The volatile shares closed up 20% at $2.26 on Friday.

Last year, WW acquired Sequence, later renamed WeightWatchers Clinic, as a way to counter the threat from GLP-1 drugs to its traditional business due to its ability to connect patients with clinicians who could prescribe the drugs and Combined with medications. Wider weight loss program. The FDA requires these drugs to be used in conjunction with a broader weight loss diet and exercise approach.

Sistani said in a note to employees that its GLP-1-related clinical business has grown rapidly since it reported and provided full-year guidance on February 28. “In fact, we are on track to exceed our first quarter guidance for Clinic subscribers,” she wrote.

While any faster growth in the clinical business is a plus, several analysts covering the stock told CNBC that the core weight loss management business would have to grow for investors to be bullish on the stock, given the size of the business relative to the legacy business. share. New clinical work.

“WW is in a tough spot,” said one analyst consulted after the internal memo was released, but could not comment on attribution due to concerns about fair disclosure of important information. “Sequence (the clinical business now called WeightWatchers Clinic) should be the future. That’s the playbook for GLP-1, but right now it’s still very small. If they’re talking about the benefits of this small business itself, it doesn’t make sense.” The big problem is that traditional businesses continue to suffer and companies are overleveraged.”

When WW reported results on February 28, the company said it had 3.8 million subscribers at the end of the fourth quarter, including 67,000 clinical subscribers, but its Full Year 2024 Guidance The total number of users increased by 3.8 million to 4 million, with WeightWatchers Clinic accounting for 140,000 to 160,000 users.

““Turnaround and revolutionizing a business is not for the faint of heart!” Sistani wrote in a letter to employees. “When we focus on serving our members, the stock price will take care of itself,” she said. “I know some of the headline-grabbing stories.” Their impact on the market, although temporary and predictable, doesn’t feel big. But be proud because we will prove the naysayers wrong. “

Oprah Winfrey said in a statement that she plans to leave the WW board this coming May and donate all her shares to the National Museum of African American History and Culture, where she will continue to work with the company to fight obesity. stigma, and focusing on weight loss as a chronic disease management (Oprah tells people She started using diet pills in December). Winfrey is scheduled to appear on ABC’s national primetime weight loss special next Monday.

“We would not be surprised if the special included positive comments about GLP-1 pharmacotherapy combined with a clinically guided behavior modification program,” Guggenheim said in a note Thursday. It noted that WW is participating in the TV event One of the companies in the weight loss industry.

Sistani was named to the inaugural CNBC Changemakers list announced in February.

—CNBC’s Brandon Gomez contributed reporting.