MED Q3 Earnings Beat, Revenues Fall on Customer Acquisition Challenges

MED Q3 Earnings Beat, Revenues Fall on Customer Acquisition Challenges

Medifast, Inc. MED reported third-quarter 2024 results, with the bottom and top lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year. Results were hurt by challenging customer acquisition, thanks to increased competition from GLP-1 medications and shifting consumer spending behaviors.

Medifast’s adjusted earnings were 35 cents per share in the third quarter, down from $2.12 in the year-ago quarter. Nevertheless, the metric surpassed the Zacks Consensus Estimate pegged at a loss of 15 cents per share.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Net revenues of $140.2 million declined 40.6% year over year due to fewer active-earning OPTAVIA Coaches and reduced coach productivity. The average revenue per active-earning OPTAVIA Coach was $4,672, down from $5,008 million due to softness in customer acquisition. The total number of active-earning OPTAVIA Coaches fell 36.3% to 30,000 from 47,100 in the year-ago quarter. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $135.5 million.

MEDIFAST INC Price, Consensus and EPS Surprise
MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote

Medifast’s gross profit was $105.7 million, down 40.4% year over year. The downside can be attributed to reduced revenues. The gross profit margin was 75.4%, an expansion from 75.2% reported in the year-ago quarter’s level.

Selling, general, and administrative (SG&A) expenses decreased by 31.8% to $103.6 million due to lower OPTAVIA coach compensation resulting from a reduction in active-earning coaches and decreased volumes. In addition, there was a decline in costs associated with coach-related events, including the annual convention. We expected the metric to decrease 38.2% to $93.8 million in the third quarter.
 
As a percentage of revenues, SG&A expenses increased 950 basis points (bps) to 73.9%, which was driven by around 590 bps related to company-led customer acquisition efforts and 340 bps linked to reduced leverage on fixed costs due to declining sales volumes.

The adjusted income from operations declined 85.3% to $3.8 million, while the adjusted operating margin decreased 810 bps year over year to 2.7%.

The Zacks Rank #3 (Hold) company concluded the quarter with cash, cash equivalents and investments of $115.3 million, no debt (as of Sept. 30, 2024) and total shareholders’ equity of $207.3 million.

As of Sept. 30, 2024, the company held a $225 million credit facility. Due to its strong cash position, expected to remain stable through the credit facility’s expiration, the company terminated the credit agreement, effective Oct. 30, 2024. This decision was part of the Fuel for the Future initiative.

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