Medifast's (NYSE:MED) Q1 Earnings Results: Revenue In Line With Expectations But Stock Drops 14.3%

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.

Is now the time to buy Medifast? Find out by accessing our full research report, it's free.

“Fast paced medical innovation is providing greater access to medical weight loss solutions than ever before. We are transforming our OPTAVIA offer to include comprehensive support for consumers who wish to use GLP-1 medical weight loss solutions on their individual journeys to sustainable healthy lifestyles. It’s a market that is estimated by a recent BCG market study to have the potential to grow to $50B or more by 2030, and it’s one that we are uniquely positioned to capitalize on,” said Dan Chard, Chairman & Chief Executive Officer.

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 Care

While 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 Growth

Medifast 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.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Operating Margin

Operating 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.

Medifast may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.