Weight Watchers is adding more subscribers and keeping them longer

Weight Watchers International Inc. not only added one million subscribers year-over-year in the second quarter, analysts also highlight that the company is keeping those subscribers for a longer length of time.

Still, the company’s shares are down 15% in Tuesday trading, on track for their biggest one-day decline in over three years, after year-end subscriber guidance that analysts describe as “somewhat disappointing.”

Weight Watchers WTW, -13.95% reported a 28% year-over-year rise in subscribers, to 4.5 million, at the end of the second-quarter period, which Chief Executive Mindy Grossman attributed to the appeal of the WW Freestyle program, a summer marketing campaign, and the company’s digital program, including its mobile app.

“Given the nature of our subscription business model, we anticipate this higher level of subscribers when entering 2019 would alone translate into an EPS [earnings per share] tailwind of approximately 50 cents in 2019,” said Chief Financial Officer Nicholas Hotchkin on the call, according to a FactSet transcript.

Moreover, 21% of subscribers are choosing the initial six-month plan, up from 14% who chose the plan a year ago. And the average retention is hitting “record levels,” Grossman said, at “well over nine months.”

“Put simply, not only is Weight Watchers broadening its reach to new audiences, but it is keeping existing members longer than ever before,” said SunTrust Robinson Humphrey analysts in a note.

SunTrust maintained its buy stock rating and $110 price target.

Weight Watchers is striving to become not just about losing weight, but about overall wellness.

“At our February 7 Global Event, Oprah said it best: healthy is the new skinny,” Hotchkin said on the call. “We can be more holistic, more diverse and reflect what people want today and in the future in a partner for health and wellness.”

Weight Watchers is also launching a loyalty program that will reward behavior rather than spending, and offer rewards tied to Weight Watchers products and experiences.

“Further top-line growth and improved retention should result from the launch of Weight Watchers’ first rewards and loyalty program at the end of 2018,” wrote KeyBanc Capital Markets analysts led by Edward Yruma. “Weight Watchers will continue to invest in brand-building initiatives to improve engagement with subscribers… as it looks to move average retention well beyond the nine-month mark.”

KeyBanc rates Weight Watchers shares at overweight with a $115 price target.

The company reported earnings of $1.01 per share, far exceeding the FactSet consensus for 88 cents, and revenue of $409.7 million, just below the $410.0 million FactSet consensus.

Weight Watchers also raised its guidance to between $3.10 and $3.25 from $3.00 to $3.20. The FactSet consensus is $2.97.

However, the company expects to end 2018 with about four million subscribers.

“[W]ith the recent run in shares, we believe investors were anticipating more of an upward revision to guidance,” SunTrust said. “In particularly, we view the reiteration of end-of-period subscribers as somewhat disappointing although we do believe this is more a factor of conservatism given the number of new initiatives being rolled out for 2018.”

J.P. Morgan analysts raised their price target to $120 from $105 after the earnings announcement, saying the company “remains one of the most attractive growth stores in our home and personal care coverage universe.”

J.P. Morgan rates Weight Watchers stock at overweight.

Weight Watchers shares have skyrocketed 77.4% for the year so far, while the S&P 500 index SPX, +0.38% is up 7% for the period.