June 8, 2005 -- Business Week Magazine/Brand New Day


NutriSystem is a Brand Truly Made Over

Anyone remember NutriSystem stores from the late 1980s and 1990s? Depressing places, they were. Making appointments with people who seemed as if they could just as easily been selling Avon as treating a person's obesity. Food offerings I would have hesitated to give my Boxer, Missy. Like a person that's gone through a total makeover, NutriSystem is an entirely different company these days.

Chairman and CEO Michael J. Hagan has taken NutriSystem from a bricks and mortar business to one that is entirely online. And some 20% of the business is done, I'm told, cleverly, via QVC. Since middle-aged woman are the primary target of NutriSystem, it has been a very effective marketing strategy. Regional reps and distributors deliver the Nutri-System food to your home. Counsel and advice is done online and by phone. Classes are online too. Support groups are via cyber bulletin boards. The whole business has moved from bricks to clicks, with all the company owned stores closed and franchised stores eliminated.

I can't attest to whether the service is effective at weight loss. I try and eat as little processed food as possible, so NutriSystem wouldn't be my choice. But I love the business model makeover. What gets my attention is how investors have reacted.

Last April, NutriSystem's stock rose 32.4% in one day after the company posted first-quarter earnings and sales that easily topped forecasts and said that second-quarter results would be well above expectations. ooking ahead, NutriSystem forecast second-quarter operating income of $4.2 million to $4.6 million on sales of $28 million to $30 million. Analysts are expecting earnings of 6 cents a share on sales of $20.2 million.
The stock closed yesterday at $13.06, up from its 52-week low of $1.09. Zounds! Looks like about 1200% return to me and I don't even need a calculator for that.

The company has bought a chain of fitness centers it plans to expand. So far, no one has been able to figure out a way to exercise online. So the gyms are bricks and mortar.

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