Why Did Weight Watchers International, Inc. Shares Gain 30% in August?

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Weight Watchers (NYSE: WTW) has completed its comeback. The chain, which had struggled since Oprah Winfrey bought 10% of the company in October 2016, has steadily grown in 2017 and improved its outlook for the full year.

What happened

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In the second quarter, the company reported a 10% increase in revenue and total paid weeks were up 17% over the previous year. In addition, end-of-period subscribers grew by 20% year over year to 3.5 million. The weight loss membership club also reported that earnings per share (EPS) rose to $0.67 from $0.46 in Q2 2016.

"Weight Watchers' strong performance is due to the broad-based improvements the company has implemented, including updating the program, enhancing the digital offerings, and refreshing the meetings experience," said CEO Mindy Grossman in the earnings release.

So what

While revenue is an important number for any company, for Weight Watchers the key metrics are paid weeks and membership. Seeing it increase those by such impressive numbers shows that its new model works.

Investors clearly believed that. After closing July at $35.82, shares rose to finish August at $46.81, a 30% increase, according to data provided by S&P Global Market Intelligence.

Now what

The best may be yet to come. Weight Watchers has raised its full-year earnings guidance to between $1.57 and $1.67 per fully diluted share. That's up from the $1.40 and $1.50 it predicted in the first quarter.

The best news for Weight Watchers is that it's showing sustainable growth tied to its business model, not Winfrey coming on board. The media mogul has shown she can drive customers to the brand as a spokesperson, but her involvement alone can't keep them.

Now, Weight Watchers has a modernized version of its program that seems to resonate. That provides a strong foundation the company can build on in a market where success should lead to more success through word of mouth and customer referrals. Essentially, each successful member acts as a billboard touting the brand to anyone who asks, "How did you lose the weight?"

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.