Nutrisystem Proves They Do More Than Employ Old Football Players

After plunging more than 41% on the year, shares of diet products provider Nutrisystem (NTRI) popped more than 10% Monday after the bell on better-than-expected earnings.  The company, perhaps better known for employing retired football players, coaches and commentators than leaving frozen food on your doorstep, reported Q1 EPS of $0.15/share on $159 million in revenue vs. estimates of $0.12/share on $156 million.  Gross margins rose to 54.6% on cuts in SG&A, but profits were still down year-over-year on a 21% increase in marketing costs.

The recovery did not play out for NTRI as they would have liked, as the company dropped from $33.54 to $15.26 between late December and early March, a period in which the S&P was relatively flat.  After this under-performance, NTRI did rally somewhat as the S&P rose, but it still remained at depressed levels heading into Monday’s report.  Perhaps the recession is over for Nutrisystem now, as they beat on the Q and also on guidance for the year.

Besides an  aggressive marketing campaign, NTRI began selling their products in new venues such a Walgreen Co. (WAG) drugstores and Wal-Mart Stores Inc.’s (WMT) Sam’s Club wholesale warehouses, expanding its reach further beyond its mail-order roots.  This strategy seems to have paid off, and CEO Joe Redling added that he, “expect[s] new customer starts to continue to strengthen in the second quarter and anticipate[s] modest revenue growth year over year for the balance of the year.”

Overall, it does seem that NTRI is back on the right track.  Shares closed up the after-hours session at $20.33, good for a 9.89% gain.  Still, this has been a very weak stock as of late so I’d recommend taking a wait-and-see approach with this one.  Watch volume over the next few days to get a hold on whether institutions are getting back behind the company.  If that is indeed the case, then you can open up a position on a breakout through $21.50, or $0.10 above near-term highs.

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Disclosure: No holding in NTRI, WMT, WAG.


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