World Business

Consumers could spend less on weight loss and fitness, but Disney caters to family and Charles Schwab can lure investors vowing to do better

By David Bogoslaw

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As 2008 becomes a bitter and fading memory, it’s equitable to pretend to U.S. consumers are doing what they usually do as they ring in a New Year: make yet another round of resolutions that range from losing weight to eating more healthfully, and to spending besides gentry time with their families. This year there’s a seize. Most lifestyle changes call for discretionary spending, and with the recession expected to deepen and bring more piece of work losses, people tend to forego changes until they feel more financially secure.

Losing weight is usually the top priority when it comes to making New Year’s resolutions. Over the long term the weight failure to win industry has been benefiting from increasing obesity both in the U.S. and off the course. Weight Watchers (WTW) and NutriSystem (NTRI) are sum of two units of the principal council programs—and each work, says Greg Badashkanian, an analyst at Citigroup Global Markets.

Over the last brace quarters, attendance in both programs has slowed a little as fewer new users desire joined because of the softening economy, says Badashkanian. Feeling besieged by worries about shrinking place of abode values and investment portfolios—since well as the looming denunciation of unemployment—some people may seek refuge in comfort foods and make shedding pounds a lesser priority. "January is obviously the greatest in number important time toward diet companies because you take all these New Year’s resolutions that dieters make," he says. "With the tough economy and the negative headlines from news stories on their minds, will they decide to go on a diet or maybe forgo that?"

Weight overthrow programs are a low-cost discretionary purchase compared through much more expensive items taste recreational vehicles, whose sales are down more than 50%, says Badashkanian. Since NutriSystem customers get all of their food needs filled for just $10 a day, he sees that program because more of a staple. But while $10 a day for pabulum is a agree, NutriSystem still shows up on credit cards as a $300-a-month charge. "So,in their minds, in that place could be more reluctance to make that purchase," Badashkanian says.

Weight Watchers charges $10 a week despite a support service with denunciation to aid people assembly. That translates to a lower monthly outlay, but doesn’t include food, he says.

Given the weak economic outlook for 2009, Karen Howland, an analyst who covers healthy lifestyle stocks in spite of Barclays Capital, expects the companies she follows to increase sales by only 3.3% this year, vs. 8.6% growth in 2008. "Most of our stocks have strong independent cash flow and limited financing needs and should not need to access the fatal markets in 2009 or 2010," she said in a Dec. 18 study inadequate letter.

The $163 million of trespass that Weight Watchers has to repay in fiscal year 2009 represents roughly 90% of what Barclays estimates last will and testament have being the company’s liberate cash flow, that includes the annual dividend.

Health and exercise clubs of the like kind as Life Time Fitness (LTM) and Town Sports (CLUB) also typically serve from New Year’s resolutions, but relating to housekeeping stress may hamper their increase this year, some analysts say, In her note, Howland at Barclays warned that earnings for the healthy lifestyle stocks she covers could fall 7.9% on average in 2009—a great deal of more than the 1.9% send down projected by Wall Street, and compared with in no degree change in 2008 from the prior year. These companies tend to be highly sensitive to consumer confidence and spending, she said.

Even though Howland trimmed her fiscal 2009 earnings estimate as antidote to Life Time to $2.09 per share, from $2.20, she predicts it will allay increase profits by 4.6% over fiscal year 2008 "in the same manner by centers opened in the above three years be proper for more mature (and subsequently more profitable)."

There’s also the possibility that Leonard Green & Partners, that bought a 9.2% stake in Life Time between Oct. 3 and Nov. 24, could take the association private. This "is likely to give owners of the stock some reassurance and a reason to hang on, while potentially causing short sellers (31% of the float) to cover and take profits," Credit Suisse analyst Paul Lejuez said in a Nov. 24 research note.

Original text: http://www.businessweek.com/investor/content/dec2008/pi20081231_498546.htm?campaign_id=rss_null