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.

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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-eps-surprise-chart | MEDIFAST INC Quote

A Closer Look at MED’s Q3 Results

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%.

MED’s Financial Health Snapshot

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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What to Expect From Medifast in Q4?

Medifast expects fourth-quarter revenues to range between $100 million and $120 million. This reflects a continued decline in active-earning OPTAVIA Coaches, driven by near-term challenges in customer acquisition due to the growing adoption of GLP-1 medications in the market. Management forecasts a loss per share for the quarter in the range of 10 to 65 cents.

The company’s guidance includes an expected $7 million in spending for company-led marketing during the quarter. However, it does not account for any gains or losses resulting from fluctuations in the market price of MED’s LifeMD common stock holdings, as these are difficult to estimate.

MED’s shares have lost 7.2% in the past three months against the industry’s 0.5% growth.

Some Better-Ranked Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Freshpet FRPT, Vital Farms VITL and United Natural Foods UNFI.

Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 132.9%, on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 26.1% and 204.3%, respectively, from the year-ago period’s reported figure.

Vital Farms, which offers a range of ethically produced food, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 82.5%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal year’s sales and earnings suggests growth of 27% and 88.1%, respectively, from the year-ago reported numbers.

United Natural Foods distributes natural, organic, specialty produce and conventional grocery and non-food products. UNFI currently has a Zacks Rank #2.

The Zacks Consensus Estimate for UNFI’s current financial-year earnings suggests significant growth from the year-ago period’s reported figure. United Natural Foods has a trailing four-quarter earnings surprise of 199.3%, on average.

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