Weight Loss For Idiots

Despite Lean Economy, Diet Plan Serves Up Fat Profit Growth – Yahoo! News

How do you fatten profits in a down economy?

Michael McDevitt, chief executive of diet products company Medifast, has found a good formula: Provide a meal plan that helps consumers shed pounds for a low price, and give them choices of weight-loss programs to meet their needs.

This approach has helped Medifast (NYSE:MED – News) expand profits by at least 57% and income by at least 25% the past five quarters, even as the recession deepened and consumers began to scrimp on nonessential spending.

Medifast's strong performance has whetted the investor appetite. Its shares are trading near a three-year high.

You take five Medifast meals a day, including shakes, soups and scrambled eggs. In addition, you can have one meal you prepare or take out, such as lean meat and veggie burgers.

The meals cost about $10 a day. That's less than the $16 a day the average American adult spends on food, the company says.

Clinical Proof

McDevitt states Medifast is clinically proven by researchers from Johns Hopkins to help you lose up to 2 to 5 pounds per week, which is more than other commercial diets on the market,

“The value of the cost per pound lost is tremendous,” he said.

That value is a plus in a down economy, McDevitt adds. People might be more willing to spend money on a weight-loss program if they're losing 4 pounds a week vs., say, a pound a week.

Medifast offers the plan via a few distribution channels. You can order products directly from its Web site or from its call center. Or you can get one-on-one weight-loss counseling at its walk-in clinics.

Its fastest grower and biggest moneymaker is a direct income segment called Take Shape for Life.

It's a network of so-called health coaches who are trained to wage coaching and support to clients on the program. The health coaches get paid a commission on the product income they generate.

Medifast's multiple distribution model has helped lift its business at a time when the weight-loss market isn't growing, states analyst Scott Van Winkle of Canaccord Adams.

Second-quarter earnings climbed 82% to 20 cents a share. Sales climbed 48% to $40.7 million.

Meanwhile, rivals Nutrisystem (NasdaqGS:NTRI – News) and Weight Watchers (NYSE:WTW – News) saw income and earnings decline for the same period.

“Medifast is the only company in the weight-loss industry that sells via clinics, direct response and direct selling,” Van Winkle said.

The exposure it gets through its multichannel approach helps build the brand and gives consumers different solutions, he says.

Medifast's Take Shape for Life segment has really caught fire.

“It is the largest driver of growth,” McDevitt said.

The segment swelled to 60% of income in the second quarter, up from 40% in mid-2007, the CEO says.

Take Shape for Life's second-quarter revenue climbed 98% to $24 million.

The segment follows a direct-sales model. Most health coaches are people who have lost weight on the program, while about 20% are health care professionals.

To become a health coach, you must pass a test showing you comprehend the basics of the program and its products. Then Medifast certifies you and trains you via print and broadcast materials.

The coaches wage clients free education on the program, teaching them how to get started, offering weight-loss tips and strategies, passing on their success stories and pointing them to support materials.

Each health coach has his or her own Medifast Web site where clients, who are typically friends and family, order products, which Medifast ships to the door.

“A weight-loss company is at a large advantage if it has face-to-face selling,” Van Winkle said.

Health coaches' commission average 25% of apiece client's order, McDevitt says.

The Take Shape for Life segment's second-quarter income jump was driven by higher customer product income as a result of an increased number of active health coaches.

“The more health coaches, the more sales,” McDevitt said.

He figures the average health coach has about six clients.

In the second quarter, the number of health coaches rose 66% vs. a year early to 4,650. The average product income per health coach rose 19%.

The Take Shape for Life segment's growth started to speed up in mid- 2007 when Medifast released a new training program that gives health coaches pointers on helping clients become health coaches.

Since then, the number of health coaches has grown at an average monthly compound rate of about 5%, McDevitt says.

These days, Medifast might be having a less difficult time raising the number of health coaches. Van Winkle states it's easier to recruit health coaches when the unemployment rate is high, as it is now, and people are looking for part-time work.

Weight Control Centers

Medifast's weight control centers are doing well. It has 35 of these walk-in centers, 24 that are company-owned and 11 that are franchised. Clients pay a fee, determined by weight loss, for counseling at one of these clinics.

Second-quarter income from this segment climbed 111% to $4.1 million, as Medifast saw healthy growth in income at clinics open more than a year and good consumer response to three clinics it opened in Austin, Texas, during the quarter.

McDevitt sees a lot of potential to grow the clinic business as it expands its company-owned units into new markets.

Medifast's direct-response channel uses ads to pitch the plan. In the second quarter, Medifast continued to improve the effectiveness of its ads, which helped drive profit growth, McDevitt says.

Followers anticipate Medifast to keep up its healthy growth. Analysts polled by Thomson Reuters see earnings rising 76% to 67 cents a share for full-year 2009, then 16% in 2010.

Sure, consumers might be pulling back their spending on diet plans during the recession. But the overweight problems continue in America.

A hefty 34% of U.S. adults are overweight and 32% percent are obese, according to the Centers for Disease Control and Prevention.

How would you like to lose 15 pounds next week