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Mar 13

Medifast, Inc. Announces Fourth Quarter and Fiscal Year 2011 Financial Results

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OWINGS MILLS, Md., March 13, 2012 /PRNewswire/ -- Medifast, Inc. (NYSE: MED - News), a leading United States manufacturer and provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the fourth quarter and fiscal year ended December 31, 2011.

"We ended the year with a renewed strategic focus on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center and Wholesale Physicians sales channels, and our internal support divisions to better position our business for maximum profitability long-term," stated Michael C. MacDonald, Chairman and Chief Executive Officer. "Going forward, our executive team is continuing to review and enhance our overall cost structure to further leverage our sales momentum, improve our margins and deliver improved earnings results, while continuing to focus on enhancing the customer experience in each of our sales channels."

Fourth Quarter 2011 Results

For the fourth quarter ended December 31, 2011, Medifast net revenue increased 10% to $69.6 million from net revenue of $63.0 million in the fourth 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 4% to $43.3 million in the fourth quarter of 2011 compared to $41.5 million in the same period last year. Growth in revenue for Take Shape for Life was driven by increased customer product sales as a result of an increase in the number of active health coaches. The Company ended the quarter with approximately 9,600 active health coaches, an increase of 7% compared to 9,000 in the fourth quarter of 2010. The average revenue per health coach per month for the fourth quarter was $1,450 compared to $1,550 in fourth quarter of 2010.

The Company's direct response marketing channel revenue increased 6% to $15.6 million, compared to $14.7 million in fourth quarter of 2010. Marketing and advertising expenses increased approximately 4% to $5.5 million in the fourth quarter of 2011 compared to the same period last year. The Company maintained a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the fourth quarter of 2011 compared to the same period last year. The Company continues to experience a more effective advertising message through more targeted advertising based on extensive analytical research, increased targeted advertising content, and in turn, improved call center and web conversion rates.

In the fourth quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 57% to $10.7 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 19% for centers open greater than one year. The Company had 39 Medifast Weight Control Centers in the comparable store base at December 31, 2011. The Company opened 10 new centers in the fourth quarter for a total of 70 corporate and 30 franchise centers. The Company realized a pre-tax earnings decline of $4.5 million compared to the fourth quarter of 2010. The decrease in profitability is primarily due to the hiring of expertise in key areas to build the internal infrastructure to open new Medifast Weight Control Centers in 2011 and beyond. Hires included regional trainers, district managers, area managers, mobile managers, dieticians, HR recruiters, operations support and marketing. In addition, 31 new corporate centers were opened in 2011 which also resulted in decreased profitability attributable to the startup costs as the stores were in the ramp-up phase during 2011.

Gross profit for the fourth quarter of 2011 increased 12% to $52.3 million, compared to $46.8 million in the fourth quarter of the prior year. The Company's gross profit margin increased 100 basis points to 75.2% in the fourth quarter versus 74.2% in the fourth quarter of 2010. The gross profit margin improvement was primarily the result of leveraging fixed overhead costs in our manufacturing facility. A modest mid-year price increase in 2011 offset increased raw material, fuel, and other transportation charges.

Selling, general and administrative expenses increased $9.1 million or 22% to $50.7 million in the fourth quarter of 2011 versus $41.6 million last year. As a percent of net sales, selling, general and administrative expenses were 72.8% compared to 66.0% in the fourth quarter of 2010. The largest increases in selling, general and administrative expenses were primarily related to increased expansion of the Medifast Weight Control Center model with 10 corporate centers opening in the fourth quarter which led to additional expenses with minimal sales during the new centers ramp up phase.

During the fourth quarter, the Company recorded $1.3 million of additional charges related to increased technology costs, rent expense, and depreciation charges related to the Medifast Weight Control Centers.

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Medifast, Inc. Announces Fourth Quarter and Fiscal Year 2011 Financial Results

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