Stock Story -
Wellness company Medifast (NYSE:MED) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 49.9% year on year to $174.7 million. On the other hand, next quarter's revenue guidance of $160 million was less impressive, coming in 10.4% below analysts' estimates. It made a GAAP profit of $0.76 per share, down from its profit of $3.67 per share in the same quarter last year.
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Medifast (MED) Q1 CY2024 Highlights:
- Revenue: $174.7 million vs analyst estimates of $173.5 million (small beat)
- EPS: $0.76 vs analyst expectations of $0.80 (5% miss)
- Revenue Guidance for Q2 CY2024 is $160 million at the midpoint, below analyst estimates of $178.5 million (EPS guidance for the same period was well below expectations)
- Gross Margin (GAAP): 72.8%, up from 70.6% in the same quarter last year
- Market Capitalization: $364.9 million
Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE:MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.
Personal CareWhile personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering.
Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales GrowthMedifast is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.
As you can see below, the company's revenue has declined over the last three years, dropping 6.5% annually. This is among the worst in the consumer staples industry, where demand is typically stable.
This quarter, Medifast reported a rather uninspiring 49.9% year-on-year revenue decline to $174.7 million in revenue, in line with Wall Street's estimates. The company is guiding for a 46% year-on-year revenue decline next quarter to $160 million, a further deceleration from the 34.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to decline 20.7% over the next 12 months.
Operating MarginOperating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
In Q1, Medifast generated an operating profit margin of 4.5%, down 10.8 percentage points year on year. Conversely, the company's gross margin actually increased, so we can assume the reduction was driven by operational inefficiencies and a step up in discretionary spending in areas like corporate overhead and advertising.
Zooming out, Medifast has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 11.4%, higher than the broader consumer staples sector. However, Medifast's margin has declined by 3.8 percentage points on average over the last year. Although this isn't the end of the world, investors are likely hoping for better results in the future.
Key Takeaways from Medifast's Q1 Results It was encouraging to see Medifast narrowly top analysts' revenue expectations this quarter. On the other hand, its revenue and EPS guidance for next quarter missed analysts' expectations by a large amount and its operating margin missed Wall Street's estimates. Overall, the results were highly disappointing. The company is down 14.3% on the results and currently trades at $30.44 per share.