Press Releases

OWINGS MILLS, Md., May 8, 2012 /PRNewswire/ -- Medifast, Inc. (NYSE: MED), a leading United States manufacturer and provider of clinically proven, portion-controlled weight-loss products and programs, today reported financial results for the first quarter ended March 31, 2012.

"We are very pleased with strong sales momentum across each of our sales channels in the first quarter, however, we remain focused on increased improvement in profitability and believe we took a positive step forward by realigning our Medifast Weight Control Center personnel cost structure late in the quarter," stated Michael C. MacDonald, Medifast's Executive Chairman and Chief Executive Officer. "These efforts should result in annual cost savings of approximately $3.0 million as we continue to drive operational excellence throughout our Take Shape for Life, Medifast Direct, and Medifast Weight Control Center and Wholesale Physicians sales channels to maximum profitability long-term."

First Quarter 2012 Results
For the first quarter ended March 31, 2012, Medifast net revenue increased 20% to $88.9 million from net revenue of $74.3 million in the first quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, Medifast Weight Control Centers and Wholesale Physicians, contributed to this year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 12% to $53.0 million in the first quarter of 2012 compared to $47.1 million in the same period last year. Growth in revenue for Take Shape for Life was driven by an increase in the number of active health coaches, clients and client product sales. The Company ended the quarter with approximately 10,200 active health coaches, a sequential increase of 6% compared to 9,600 in fourth quarter of 2011. The average revenue per health coach per month for the first quarter was $1,650 compared to $1,600 in first quarter of 2011.  The increase is primarily due to an increase in usage of our newly streamlined Trilogy Training website that was launched at the Take Shape for Life annual conference in late July 2011, offering easier to access training material. In addition, Take Shape for Life launched incentives in the months of February and March 2012 that drove client and coach acquisition and resulted in monthly revenue per health coach increase.

The Company's direct response marketing channel revenue increased 19% to $22.5 million, compared to $19.0 million in first quarter of 2011. Marketing and advertising expenses increased approximately 15% to $7.9 million in the first quarter of 2012 compared to the same period last year.  The Company reported a more efficient revenue-to-spend ratio, or return-on-advertising, of 2.9-to-1 during the first quarter of 2012, compared to 2.8-to-1 in the same period last year. The Company continues to achieve a more effective advertising message, more targeted advertising through extensive analytical analysis, and additional public relations success in large national publications.

In the first quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 63% to $13.4 million, primarily due to strong organic growth from the opening of new corporate and franchise locations and a year-over-year improvement in comparable store sales of 21% for centers open greater than one year. The Company had 40 Medifast Weight Control Centers in the comparable store base at March 31, 2012. The Company opened five new centers in the first quarter for a total of 75 corporate and 32 franchise centers.  

The Company's key focuses across the Medifast Weight Control Centers for the remainder of 2012 are continuing to enhance the customer experience through additional offerings such as metabolic testing, additional dietitian support and medical review of labs to show members the impact of weight loss on their overall health.  In order to improve profitability the Company is focused on reducing advertising spend as a percentage of sales for each corporate center, and focusing on the four-wall staffing strategy of each Corporate Center and the amount of corporate support required to support the Medifast Weight Control Centers. 

Gross profit for the first quarter of 2012 increased 18% to $66.8 million, compared to $56.7 million in the first quarter of the prior year. The Company's gross profit margin decreased 120 basis points to 75.1% in the first quarter versus 76.3% in the first quarter of 2011. The gross profit margin decrease was primarily the result of increasing commodity and shipping costs that occurred throughout 2011.  The Company's reported gross profit margin for fiscal year 2011 was 75.3%.

Selling, general and administrative expenses increased $14.0 million to $60.6 million in the first quarter of 2012 versus $46.6 million last year. As a percent of net sales, selling, general and administrative expenses were 68.2% compared to 62.8% in the first quarter of 2011. The largest increases in selling, general and administrative expenses were primarily related to increased expansion of the Medifast Weight Control Center model with five corporate centers opening in the first quarter and 31 new corporate centers in 2011 which led to additional expenses with minimal sales during the new centers ramp up phase. The Company also spent $1.2 million in the quarter on a Medifast branding test including video production, television and web advertising in three of the markets that all the Company's distribution channels are active.    In addition, in the first quarter of 2012 the Company recorded a $0.7 million severance charge as part of a workforce reduction and re-alignment in the corporate centers to enhance profitability long-term.  The Company expects these actions to result in approximately $3.0 million in annualized cost savings.

Operating income for the first quarter of 2012 was $6.1 million compared to $10.1 million in the same period a year ago. The operating margin decreased to 6.9% compared to 13.6% last year.  The decrease in operating income is due to the previously described decrease in gross profit and the increase in selling, general and administrative expenses.  The Company realized a pre-tax earnings decline in the Medifast Weight Control Centers and Wholesale Physicians sales channel of $2.2 million in the first quarter of 2012 compared to pre-tax earnings of $1.1 million in the same period last year, a $3.4 million profit decline year-over-year.  In the fourth quarter of 2011 the Company reported a pre-tax decline of $4.5 million.  The decrease in net profitability is primarily due to the hiring of expertise in key areas to build the internal infrastructure to open new Medifast Weight Control Center and support existing centers as well as 35 stores being open for less than one year as of March 31, 2012. The decrease in profitability is also due the Medifast branding test and severance charge previously discussed in selling, general and administrative expenses for the first quarter of 2012.

The Company had an effective tax rate of 37.0% compared to 38.2% in the first quarter of 2011. The decline in the effective tax rate was a result of extensive tax planning performed by the Company.  As part of its tax planning process, the Company amended several returns filed in prior years.  As a manufacturing entity based in Maryland, the Company adopted the single sales factor apportionment method in addition to claiming new state job credits, reducing the Company's overall effective tax rate compared to the prior year.  The Company anticipates a tax rate of approximately 36% to 37% in fiscal 2012.

Net income for the first quarter of 2012 was $4.0 million, or $0.29 per diluted share, compared to net income of $6.4 million, or $0.44 per diluted share, for the comparable period last year. The decrease in profitability for the first quarter of 2012 is primarily a result of the expansion of the corporate Medifast Weight Control Center model.  Excluding the net effect of any unusual items realized in the first quarter of fiscal 2012 that do not reflect the ongoing operating activities of the Company, net income would have been $4.5 million, or $0.32 per diluted share.

Balance Sheet
The Company's balance sheet remains strong with stockholders' equity of $78.1 million and working capital of $48.3 million as of March 31, 2012.  Cash, cash equivalents, and investment securities for the first quarter of 2012 increased $18.2 million to $52.0 million compared to $33.8 million at December 31, 2011.

Outlook
The Company expects second quarter 2012 net revenue to increase in the range of 15% to 19% or $90.0 to $93.0 million.

Earnings per diluted share are expected to be in the range of $0.37 to $0.41 based on an average weighted diluted share count of 13.8 to 13.9 million.

In the second quarter of 2012, the Company plans to open 11 to 13 new Medifast Weight Control Centers in new and existing markets with expectations to open 25 to 30 new corporate centers by year end. In 2012, the Company is focused on improving operational effectiveness and efficiency in both new and existing corporate centers as they balance sales growth and profitability. The Company will continue to review their annual store growth rate, based on their view of internal and external opportunities and challenges in the marketplace.

Conference Call Information
The Company will host a conference call to discuss these results with additional comments and details. The conference call is scheduled to begin today, May 8, 2012 at 4:30 p.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Medifast's website at www.choosemedifast.com, and will be archived online through May 22, 2012. In addition, listeners may dial (877) 705-6003.

A telephonic playback will be available from 7:30 p.m. ET, May 8, 2012, through May 22, 2012. Participants can dial (877) 870-5176 to hear the playback and enter passcode 392742.

About Medifast
Medifast, Inc. (NYSE: MED) is a leading United States manufacturer and provider of clinically proven, portion-controlled weight-loss products and programs. Medifast has been recommended by over 20,000 doctors and used by over one million clients since 1980. The Company is committed to enriching lives by providing innovative choices for lasting health. Medifast programs have been proven effective through studies by researchers from major university teaching hospitals. The company sells its products and programs via four unique distribution channels: 1) the web and national call centers, 2) the Take Shape for Life personal coaching division, 3) medically supervised Medifast Weight Control Centers, and 4) a national network of wholesale physicians and medical practices. Medifast was founded in 1980 and is located in Owings Mills, Maryland. For more information, please visit http://www.choosemedifast.com.

Forward Looking Statements
Please Note: This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of phrases or terminology such as "intend" or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. Medifast believes this release should be read in conjunction with all of its filings with the United States Securities and Exchange Commission and cautions its readers that these forward-looking statements are subject to certain events, risks, uncertainties, and other factors. Some of these factors include, among others, Medifast's inability to attract and retain independent Associates and Members, stability in the pricing of print, TV and Direct Mail marketing initiatives affecting the cost to acquire customers, increases in competition, litigation, regulatory changes, and its planned growth into new domestic and international markets and new channels of distribution. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward- looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this release, as well as those set forth in its latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q, and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K. All of the forward-looking statements contained herein speak only as of the date of this release.

MED-G

SOURCE Medifast, Inc.