NutriSystem, Inc. (NASDAQ: NTRI) is well known as the weight management and weight loss company that delivers specially designed food in bulk.   You have seen its  commercials on TV.  Now the company is naming a new Chief Marketing Officer.  This might be noise at most companies, but for a company such as NutriSystem the marketing position is perhaps one of the most important for the future of the company.  This comes on the heels of a long period where this went from a growth story to a contraction and value story, and what the company recently called soft consumer spending  in 2009.

The company has named Chris Terrill as Chief Marketing Officer.  The interesting notion here is that this is effective immediately.  Terrill succeeds Monica Woo, Executive Vice President of eCommerce & Chief Marketing Officer, who is leaving the company in mid-August to pursue other entrepreneurial opportunities.  The company further noted that Monica Woo’s tenure was short, although in included the launch of the NutriSystem D program for diabetics.

Terrill previously headed the company’s eCommerce efforts.  There he oversaw the complete redesign of the NutriSystem web platform. Before NutriSystem, he was the Product and Marketing VP at the Blockbuster Inc. (NYSE: BBI) online unit Blockbuster.com.  He also spent six years in senior positions with Match.com, and the company noted that he was responsible for the creation and launch of the relationship service called  Chemistry.com.

The company notes that the internet has become the primary engine of the company, generating almost 80% of the company’s overall transactions. The company notes that he will now lead an integrated effort across all channels.

So why is the marketing position important?  NutriSystem was THE growth stock to be from late 2004 to early 2006.  Then it traded sideways for about 18 months before falling in 2007 and then again in 2008 with no recovery.  Shares are around $14.00 today, and the 52-week range is $10.01 to $22.68.

The company recently gave some guidance which significantly lowered estimates.  It also announced job cuts and ended its investment in ZeroWater.  So the question is if NutriSystem can become a more rational growth stock again or if it will trade as a mature staple stock.

The company’s products using the low-glycemic and balanced diet approach do statistically work.  The problem with any dietary regimen is getting users to stick with it.  One weekend of beer and pizza binging can wreck a week or two of  efforts.

Over the last couple weeks the earnings estimates came down.  Analysts are now looking for earnings of $1.21 for fiscal December 2009 and $1.28 now for 2010.  The problem is that sales are expected to be around $533.5 million for 2009 and just over $506 million for 2010.  If the 2010 estimates come true, that would mark the third consecutive year of declines from the peak revenues of $776+ million in 2007.

Around $14.00, valuations are not high at all with a market cap of roughly $435 million, no long-term debt to speak of, and over $77 million in cash and liquidity as of the March 31 period.  Any boost that can add to the channel in six to nine months could have a significant boost.  This will come from marketing efforts.

We never really meant this as a joke despite the mention of it, but NutriSystem does offer a benefit during hard times.  The meals are actually more than affordable.  We doubt the company wants to embark on a program of low-priced meals for hard times, but it is a reality.

Our take is that the marketing effort ahead is what will help to define whether NutriSystem will become a growth stock again or will be considered a mature stock that was a former growth story.

Jon C. Ogg
June 26, 2009

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