Standard & Poor’s Ratings Services on Monday lowered its rating on Weight Watchers International, Inc. on concerns about lower earnings ahead.
The rating agency said it believes the company’s credit measures over the next year will be weaker than previously forecast. It also believes the company’s operating performance will continue to decline somewhat because of tepid consumer spending tied to the payroll tax increase that took effect at the beginning of the year, and high fuel prices.
Weight Watchers warned investors last month that fewer people are signing up for its weight-loss programs in 2013 than anticipated, and forecast full-year earnings well below market expectations. CEO David Kirchhoff said Weight Watchers’ marketing has not been as effective as the company had hoped for, citing a tough economy and stiffer competition.
S&P lowered the weight-loss company’s corporate credit rating one notch to “BB-” from “BB,” which keeps it in junk-grade territory. The outlook is stable.
S&P said it believes the company’s financial performance will be hurt by a slow start in enrollment this year, but it expects Weight Watchers to use its free cash flow to lower its debt. That should result in the company’s credit ratios staying close to current levels over the next year or two.
Shares of Weight Watchers fell 67 cents, nearly two percent, to close at a new 52-week low of $40.33. The company’s stock has lost half of its value over the past year.