In October of 2015, Oprah Winfrey gave Weight Watchers Intl Inc.’s (WTW US) shareholders an early holiday present by buying 6.4 million shares of common stock along with 3.5 million options and becoming its brand representative for the next five years. WTW’s stock price immediately jumped 105% from $6.79/share to $13.92/share and hit its year-to-date high of $26.61/share a month later.
Since hitting $26.61/share in November of 2015, WTW has been down 60.5% to $10.52/share until Oprah unwrapped another gift to WTW shareholders today – a 40 lb. weight loss using the Weight Watchers program. WTW stock spiked 11% today to $11.70.
Weight Watcher’s short interest has averaged $211 million in 2016, but has been decreasing recently and was down to $146 million by the end of November. Short sellers have been increasing their holdings in December and short interest rose $86 million, or 59%, to $231 million.
Short interest will not be able to increase significantly in the future as most of the lendable stock has already been taken down. There are less than 2 million shares of stable stock left to borrow and there have been recalls hitting the street in the last week. Stock borrow rates have increased to a 10% fee and will be increasing to 12%-15% by early next week.
Even though WTW has 63.9 million outstanding shares, because Raymond Debbane’s private equity fund, Artal Group, owns 29.4 million shares and Oprah Winfrey owns 6.4 million shares there is only a 28 million share float in the stock. Not all of these shares are in stock lending programs, leaving 20-21 million shares that can be shorted.
Short sellers will not only have to look at Weight Watcher’s fundamental metrics, but also if Oprah’s weight loss announcement increases customer acquisition. Traditionally, Weight Watchers adds 40% of its yearly users in the 1st quarter and this timely testimonial may increase the amount of new post-New Year’s customers. If Oprah can stay away from her “favorite things” over the holidays and have another favorable weight related announcement in the 1st quarter, Weight Watchers will not only have an extended period of customer acquisition but also increased customer retention. Short sellers will be trying to predict two things as to whether to keep their short holdings – WTW’s 4th quarter earnings results and Oprah’s scale.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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