Medifast, Inc. (NYSE: MED), a leading provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the second quarter ended June 30, 2010.
Second Quarter 2010 Highlights Include:
- Net revenue increased 60% year-over-year to $66.7 million, compared to $41.7 million in 2009;
- Take Shape for Life revenue increased 71% year-over-year to $42 million;
- Active health coaches increased 72% to 8,000 coaches compared to 4,650 last year;
- Medifast Weight Control Center comparable store sales increased 25% year-over-year;
- Operating profit margin increased 240 basis points to 13.9% compared to the prior year;
- Diluted earnings per share increased 90% to $0.38, compared to $0.20 last year.
For the second quarter ended June 30, 2010, Medifast reported net revenue increased 60% to $66.7 million from net revenue of $41.7 million in the second quarter of the prior year. Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response, and Medifast Weight Control Centers, contributed to this strong year-over-year revenue increase.
This growth was driven by strong increases in the number of active health coaches and increased revenue generated per health coach, which is the result of increased client product sales. Revenues in the direct sales channel, Take Shape for Life, increased 71% to $42 million in the second quarter of 2010 compared to $24.6 million in the same period last year. The number of active health coaches increased 72% to approximately 8,000 compared to 4,650 in the second quarter of 2009. In addition, at the beginning of the third quarter of 2010, Medifast, Inc. hosted its Annual Take Shape for Life Annual Convention with a 62% increase in attendance to 2,100 compared to 1,300 last year.
The Company's direct response channel revenue increased 43% to $17.3 million, compared to $12.1 million in second quarter of 2009. Regarding the Company's increase in marketing and advertising expenses by approximately 38% to $6.2 million, the direct response channel generated a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the second quarter of 2010 compared to a 2.7-to-1 ratio in 2009.
In the second quarter, Medifast Weight Control Center channel revenue increased 60% to $6.7 million, primarily due to strong organic growth, improved marketing and advertising effectiveness, and an increased number of clients seeking additional support and accountability in their weight-loss and weight maintenance compared to the second quarter of 2009. Comparable store sales increased 25% for the second quarter of 2010 for clinics open greater than one year. The company ended the second quarter with 29 corporate and 20 franchise clinics.
"We are extremely pleased with Medifast's strong second quarter revenue and earnings performance. Our multi-platform distribution channels continue to provide a complementary source of support for Medifast direct response, weight loss clinics and health coaches to connect with clients in ways they prefer and share Medifast's clinically proven weight-loss programs," said Michael S. McDevitt, Medifast's Chief Executive Officer. "We started the second half of the year with a 62% increase in attendance at the Take Shape for Life Annual Convention; and we believe this combined with the addition of at least 11 new Medifast Weight Control Centers, and a strong, efficient investment in Direct Response advertising provides strong momentum for the second half of 2010."
Mr. McDevitt continued, "Going forward, we are confident that our vertically integrated operations and increased capacity will allow us to continually improve the long-term leverage of our business model by expanding our margins and future long-term profitable growth."
Gross profit for the second quarter of 2010 increased 61% to $49.5 million, compared to $30.8 million in the second quarter of the prior year. The Company's gross profit margin increased 30 basis points to 74.2% in the second quarter versus 73.9% in the second quarter of 2009. Overall, the gross profit margin improvement was primarily due to improved pricing on raw materials and packaging, as well as increased manufacturing efficiencies, partially offset by short-term increased costs in April associated with shipments of product to clients, as a result of the need to expedite shipments due to a delay in outbound shipping verifications. By the end of April 2010 all shipping verifications were restored and costs resumed a normalized level for the remainder of the second quarter of 2010.
Operating income for the second quarter of 2010 increased 93% to $9.3 million compared to $4.8 million in the same period a year ago. The Company's operating margin expanded 240 basis points to 13.9% from 11.5% for the same period last year. This improvement was due to strong net revenue growth that helped drive 210 basis points of selling, general, and administrative expense leverage as well as the continued overall strength of the Company's proven business model.
Net income for the second quarter of 2010 was $5.6 million, or $0.38 per diluted share, compared to net income of $3.0 million or $0.20 per share for the comparable period last year.
Net increase in cash and cash equivalents for the first six months of 2010 was $13.6 million or 10.7% of sales compared to $9.3 million in the same period last year
Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc. commented, "The Board of Directors is extremely pleased with the fact that each of Medifast's primary distribution channels delivered strong, profitable growth in the second quarter. Medifast continues to be a leader in the medical weight-loss marketplace and we believe our multi-platform program will provide consistent, long-term growth."
In July, the Company announced the grand opening of a 50,000 square foot distribution center in Dallas, Texas. The facility includes 5,100 square feet of office and conference space, with both distribution and contact center capabilities. Medifast's Texas Distribution Center is expected to reduce transit times considerably for West Coast clients.
Balance Sheet
The Company's balance sheet remains strong with stockholders' equity of $61.9 million and working capital of $38.2 million as of June 30, 2010. For the first six months of 2010, cash, cash equivalents, and investment securities increased 91% or $14.8 million to $31.2 million, as a result of improved operating cash flow.
Outlook
The Company continues to expect gross profit margin improvement in the range of 50 to 100 basis points in 2010 as compared to the prior year, due to a decrease in the cost of each unit sold and continued manufacturing efficiencies. The Company anticipates the full year 2010 advertising spend to increase by 25 to 30% with a revenue-to-spend ratio of 2.8-to-1.
The full year tax rate is expected to be in the range of 39% to 40% and full year diluted shares outstanding of approximately 14.8 to 15.0 million.
In the second half of 2010, the Company plans to open an additional 11 to 13 new Medifast Weight Control Centers with the proven model of providing one-on-one support through a personal counselor and personalized program. The Company opened three centers in the first half of the year.
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