NutriSystem Inc (NTRI) filed Quarterly Report for the period ended 2009-09-30.
NutriSystem is a leading provider of weight management products and services. They offer an at-home weight loss program based on portion-controlled lower Glycemic Index prepared meals weight loss plans and private telephone and online support. Nutrisystem Inc has a market cap of $671.8 million; its shares were traded at around $21.72 with a P/E ratio of 21.3 and P/S ratio of 1. The dividend yield of Nutrisystem Inc stocks is 3.2%. Nutrisystem Inc had an annual average earning growth of 154.1% over the past 5 years.
Highlight of Business Operations:
In both the nine months ended September 30, 2009 and 2008, the direct channel represented 93% of our revenue. Net sales through the direct channel were $118.6 million and $392.4 million in the three and nine months ended September 30, 2009, respectively, compared to $149.5 million and $531.1 million in the comparable periods of 2008. The decrease in 2009 is primarily attributable to the decline in customer starts due to the weakening economy. Revenue is primarily generated through customer starts, reactivation of former customers and the customer ordering behavior, including length of time on our program and the diet program selection. Critical to increasing customer starts is our ability to deploy marketing dollars while maintaining marketing effectiveness. Factors influencing our marketing effectiveness include the quality of the advertisements, promotional activity by our competitors, as well as the price and availability of appropriate media.
We distribute our proprietary prepackaged food through QVC, a television home shopping network. In both the nine months ended September 30, 2009 and 2008, this channel represented 6% of our revenue. On the QVC network, we reach a large audience in a 50 minute infomercial format that enables us to fully convey the benefits of the Nutrisystem diet programs. Under the terms of our agreement, QVC viewers purchase Nutrisystem products directly from QVC and are not directed to the Nutrisystem website. Retail prices (including shipping and handling) offered on QVC to consumers are similar to prices offered on the website. We generate a lower gross margin (as a percent of revenue) on sales through QVC relative to the direct channel, but QVC sales require no incremental advertising and marketing expense and, management believes, exposure on QVC raises consumer awareness of the Nutrisystem brand. Net sales through QVC were $7.6 million and $26.1 million for the three and nine months ended September 30, 2009, respectively, compared to $11.0 million and $36.6 million in the comparable periods of 2008. QVC sales are a function of the number of shows and the sales per minute on each show.
Costs and Expenses. Cost of revenue decreased to $57.8 million in the third quarter of 2009 from $76.3 million in the third quarter of 2008. Gross margin as a percent of revenue increased to 54.5% in the third quarter of 2009 from 53.1% for the third quarter of 2008. The increase in gross margin was primarily attributable to decreased freight costs. We have focused on these costs and have been working in partnership with our vendors to apply cost saving measures.
Marketing expense decreased to $36.3 million in the third quarter of 2009 from $39.2 million in the third quarter of 2008, yet marketing expense as a percent of revenue increased to 28.6% in 2009 from 24.1% in 2008. The increase as a percent of revenue is due to increased spending to promote the launch of Nutrisystem D. We are expecting the revenue growth from this launch to be reflected over the remaining months of 2009. Substantially all marketing spending during the quarter promoted the direct business, and the decrease in marketing is primarily attributable to decreased spending for advertising media ($3.8 million) partially offset by increased production of television advertising ($697,000). In total, media spending was $30.9 million in the third quarter of 2009 and $34.7 million in the third quarter of 2008.
General and administrative expenses decreased to $16.7 million in the three months ended September 30, 2009 compared to $22.6 million in the comparable period of 2008. General and administrative expense as a percent of revenue decreased to 13.1% in the three months ended September 30, 2009 from 13.9% for the comparable period of 2008. In the third quarter of 2009, compensation, benefits costs and temporary help decreased ($3.1 million) and outside and computer services decreased ($2.2 million) due to our focus on cost containment. Internet and telephone also decreased ($332,000) due to lower rates.
Depreciation and amortization expense increased to $3.0 million in the third quarter of 2009 compared to $2.5 million in the third quarter of 2008 due to the increased capital expenditures during 2008 and 2009 on our website.
NTRI is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
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