In today's episode of MarketFoolery, host Mac Greer and analyst Ron Gross hit on a few of the market's biggest stories. WW (WW 7.79%) (formerly Weight Watchers) shares were crushed after the company reported weak earnings and lowered guidance. Their rebranding and refocusing strategy doesn't seem to be going so well, but can they turn it around from here? Meanwhile, Best Buy (BBY 1.63%) shares popped after a solid quarter and some very shareholder-friendly moves. Ron revisits his Motley Fool Money stock-to-watch, CRISPR (CRSP 2.22%), which enjoyed a huge pop this week after some exciting clinical study news. But big questions still hover on the horizon, and shareholders need to take a long-term view with companies like this. Tune in to find out more.
A full transcript follows the video.
This video was recorded on Feb. 27, 2019.
Mac Greer: It's Wednesday, February 27th. Welcome to MarketFoolery! I'm Mac Greer. Joining me in studio, the one, the only Motley Fool analyst, Ron Gross. Ron, how are you doing?
Ron Gross: [laughs] You sold it a little too much there.
Greer: You think so?
Gross: This is going to disappoint now. There's nowhere to go.
Greer: Uh-oh. Should we lower our expectations?
Gross: Just a bit.
Greer: OK, just a bit.
Gross: Happy to be here! Good to see you!
Greer: Good to have you! Ron, we're going to talk some Best Buy and we're going to talk a little biotech. How's that sound?
Gross: Love it, love it!
Greer: But we have to start with obvious. We are just a hop, skip, and jump away from Washington D.C., our nation's capital. We're basically in Alexandria, Virginia, just across from the Potomac. So we have to talk about the story that everyone is talking about today. Of course, I'm talking about Weight Watchers' lowered guidance.
Gross: [laughs] It's not a political show, I guess.
Greer: It's not a political show.
Gross: Is that what you're trying to say?
Greer: That's what I'm trying to say. We're not going there at all. We are going to talk about a very bad day for Weight Watchers, which is now known as just WW. They renamed the company. I want to talk about that, too. WW shares down 35% on disappointing earnings and, yes, lowered guidance. Ron, WW is trying to become more of a wellness company.
Gross: Yeah, how's that going? [laughs]
Greer: Uh, not so good! And Oprah is a big part of that plan. She owns a big stake in the company. Her stake, now 35% reduced.
Gross: Less, right, and she owns less stock than she used to because she's been selling, which is also part of the problem we can get into. Let's go back here. A while back, Oprah took a big stake here. The company turned around. It was part image, part execution. The stock did really well. But here we are, down 80% since the June 2018 peak of $101 a share. Things have plummeted back down to earth. As you said, the company is trying to rebrand as WW International. They're trying to become a wellness partner more than a diet brand. They're trying to keep customers for life, not just until you hit your weight loss goal.
Greer: Am I the only guy who's tired of the word "wellness" already? I hate that word. Can I take issue with that word? It's right there with "leverage." Can we leverage wellness?
Gross: [laughs] Synergies. That's a bad one, too. It's an admirable goal, right, to try to increase the average life of a customer and therefore the revenue generated by your average customer. Not easy to do, however. Specific to this quarter and this announcement, their earlier push to add members has not gone well. Less than expected. Their winter season is really important to drive members coming off of the winter wanting to get in shape as the nicer weather approaches. That didn't go well. They posted a decline in subscribers for the third quarter in a row.
They're saying that the name change could partly be responsible because people identified with the Weight Watchers brand. I'm not a brand expert. Maybe that's true.
Greer: WW, that says nothing.
Gross: It's not a great rebranding. Maybe there's something to do there. Oprah Winfrey, as we said, has reduced her stake over the last year. I don't think people liked to see that. I think people were really excited when she got on board. She's on the actual board of directors.
Greer: If you bought when Oprah bought, you did well.
Gross: You did well, but then you gave it all back to a certain extent. They're going to be relying heavily on her for the spring television and digital marketing campaign, which I think is probably a good idea. They've had, obviously, some success leaning on her from a marketing perspective before. But they've got some work to do here. There's so many alternatives now, online and offline, but really mostly in the digital world, whether it be for healthy living or different diets or wellness, the word you hate. There's so many alternatives. It's a tough business.
Greer: OK. But I have learned that you never, ever bet against Oprah.
Gross: That's fair.
Greer: So, when you look at this company going forward, is Oprah the best and the biggest reason to invest in the company? Or is there a bigger reason?
Gross: Well, I would have used to say they've got a pretty strong brand name in Weight Watchers, but that seems to have gone out the door. They're an established brand, and they are actually a brand that... I don't want to pretend to quote scientific data here, but I believe they've proven that they do have the ability through the point-counting system to help people achieve their goals. Now, it's funny that trying to get away from the whole calorie-counting brand to be, as we say, more wellness, they're getting away from what has made them successful. That's a little scary.
I would watch what Oprah does. I would see if she continues to sell shares. Obviously, that is a negative sign. If, for some reason, she left the board, that would be a very negative sign. I assume we will see her showing up in the marketing, as they said, for the spring. Let's see how that goes. Tough business. Subscriptions, especially in this type of space, is tough.
Greer: OK, let's talk wellness and let's talk weight. Over the last 10 years, I've lost around 100 pounds. That's the good news. The bad news is, I've basically lost the same 10 pounds 10 different times.
Gross: [laughs] I am right there with you, my friend!
Greer: OK. So, I need one Ron Gross wellness/diet tip.
Gross: Wow, OK.
Greer: We've talked about this in the past. You've done some crazy diets, right?
Gross: I wouldn't call them crazy, but I've done things where I've had food delivered to my home, so I don't have to think about it --
Greer: Taco Bell?
Gross: [laughs] No. Healthy foods. And I've done things where you substitute meals with protein shakes and things like that. They all work, right up until they don't. It's really about changing lifestyle. Something my family and I have recently tried to adopt is the Mediterranean diet, which is not really a diet, it's more a way of eating.
Greer: Fish? Olives?
Gross: Fish, olive oil, all of that, lots of fruits and vegetables.
Greer: Oh, I can do that!
Gross: Not a lot of red meat.
Greer: Beer and wine?
Gross: Red wine is encouraged.
Greer: Nice. Dogfish beer? [laughs]
Gross: I didn't get up to that part in the book yet. But, I know a lot of these diets say, "We're not a diet, we're a lifestyle change." The Mediterranean diet is really supposed to be that. Eat like you live in Greece, and you'll probably have no money, but you'll be fit. [laughs] Because Greece's economy isn't as strong as it once was.
Sorry to the Greek people listening! But, that's actually something that we enjoy. I like cooking, so it's a little bit of a challenge there, too. You get some more recipes, you get some more cooking under your belt, and you eat healthy at the same time.
Greer: OK, so, think Mediterranean for wellness. Got it!
OK, let's talk about a good, good day for Best Buy. Shares up around 14% at the time of our taping. Ron, we've got better than expected earnings for Best Buy from the holiday quarter. That's eight consecutive quarters now of same-store sales growth. The recent growth coming from wearables, appliances, and smart home devices.
Gross: I will give this to them. However, even with this pop, the stock is still down 4% over the last year. It's a difficult business in the age of Amazon. But, they have done their best. They've really tweaked themselves into being a company that has like add-on services, in-home support, technical support. My experience with them and that is not very impressive, [laughs] but it seems to have resonated with some folks.
This is a strong quarter. 3% increase in comp sales. That's on top of the 9% in comparable sales growth last year. That's pretty good. For the full year, 4.8% comparable sales growth. Nothing to make fun of there. They did a nice job. Revenue was actually down for the quarter, but that's because of a fluke of the calendar. There was actually one last week this year vs. last. There were 257 less Best Buy Mobile stores because they discontinued them, and 12 less large-format stores as well. To be expected that you would see some revenue decline as the store count goes down. But the stores that are in existence have done pretty well. Online was pretty strong, too, up 9%, now makes up about 22% of total revenue.
Greer: They're also hiking their dividend and they're buying back shares. What do those two things tell us, or what do they not tell us?
Greer: It's definitely shareholder-friendly moves. The dividend's actually a 2.9% dividend now going forward. That's a pretty hefty dividend. They're telling that they're generating enough cash flow that they can get their growth initiatives done, as well as return some capital to shareholders. I think that's probably the case, as long as revenue and margins stay somewhat stable.
A new $3 billion share repurchase program in place. They don't necessarily have to execute on that. They can pull that back as cash flow dictates. But those are clearly shareholder-friendly moves. They do have to do some things to be nice to the people who actually own the company because it's been a rough ride if you've been a Best Buy shareholder.
Greer: Ron, I thought it'd be fun to close with some biotech. Who doesn't love biotech?
Gross: Who doesn't love biotech? Come on!
Greer: [laughs] I'm such a geek! On last week's Motley Fool Money, in honor of our 10th anniversary, Chris asked you and our other analysts about one stock that you would recommend or that you'd like for the next 10 years. The stock that you chose is CRISPR. CRISPR is a biotech company. They work in this interesting world of gene editing therapy. They're a gene editing platform, I recently learned from you.
OK, that was last Friday. You recommended CRISPR. On Monday, CRISPR shares up 25%. Now, before you take a victory lap, there was some news. CRISPR has used its gene editing therapy in a clinical study for the first time, and there were other developments, as well. Do tell.
Gross: It was a great day for biotechs all around, truth be told. The big headline was the pharmaceutical company Roche had announced that it would be acquiring company Spark, ticker ONCE. And the stock popped 120% as a result. There was a huge premium, a huge takeout premium. So, all the biotechs, for the most part, rose as well because a lot of thoughts here that a lot of these other companies could be takeout candidates as well, which I think is actually true. A lot of these large pharmaceutical companies would rather acquire these smaller platforms, smaller technology companies, than build it themselves, and they've got plenty of cash to do so. So, we saw a huge pop across the board in the biotech industry.
In addition, as you say, it was pretty exciting news. They announced they dosed their first patient with their CRISPR/Cas9 gene editing therapy, which is what they are focused on, making it the first company to use the technology in a human in a clinical study. Really exciting. It's still really early. All these biotechs, very risky, very volatile. Some of these technologies will just plain and simply not work. Some may work, but there will be side effects that are not worth it. Lots of work to do here, but incredibly exciting.
My theory is that these gene editing platforms will be the future of medicine. There's a lot of ethical things to think about with respect to that. But if you believe, as I do, that they are the future of medicine, I think you want to own a bunch of them, and as I said to Chris on Friday, for at least 10 years. This is not a year or two, it's a 10 or 20-year play.
Greer: I want to come back to some of the implications. You're right, it's both exciting and terrifying. But first, I want to understand. In the case of a company like CRISPR, and when we're talking gene editing, we're talking potentially gene editing on someone who's already sick or has a disease, and/or someone who has a predisposition to a disease?
Gross: You could do it, theoretically, either way. You could correct a problem that exists. You could do it in vitro and make sure that problems don't exist. But you wouldn't really do that. It's really, you identify a problem with DNA that can be fixed through this technology and you go in and fix it. You can do that either before symptoms would appear, theoretically, or after. For example, CRISPR is using their technology, hopefully, to attack people with sickle cell anemia -- not to attack them, to attack the disease. [laughs]
Greer: The blood disease.
Gross: So, they could go in and literally fix the person who has sickle cell. Going forward, the person would be cured in a real sense. You could even do that before symptoms show up if you looked at a person's DNA and you saw where all the mutations existed. I keep saying the word "theoretically," but I really want to stress that. You could theoretically do it for all diseases one day down the road. I don't know what the implications for that would be, if all diseases went away. Let's not think that big. Let's think smaller right now. But, it's fascinating!
I do also want to stress, though, that this CRISPR/Cas9 technology is not the only gene editing technology that is being explored. There's zinc finger, there's AAV-focused companies, there's immunotherapy gene companies. There's a lot of people out there looking to attack and fix mutated DNA.
Greer: Yeah, a lot of players, as you say. How worried should I be about designer babies? Because that scares me. It scares me, Ron.
Gross: It's a real thing. Folks may have read recently about a scientist in China who went in using the CRISPR/Cas9 technology and attempted to -- it remains to be seen whether it was successful -- fix a mutation so the babies would not be affected by HIV virus. It's very controversial because the scientist didn't actually have the approval to do that. It was a relatively rogue thing. I believe the scientist has lost his job. Then, it came out that perhaps, as an unintended consequence, the scientist tweaked the baby's intelligence, ability to learn, ability to retain information, theoretically creating a superbaby. Now, I don't know how much he increased the intelligence. But it's a scary thing.
That's just one example of unintended consequences. There could be unintended consequences that, yes, you fix a certain link of DNA, but somehow it causes cancer as a result. Or, you're trying to create the perfect human -- which, boy, oh boy, that goes down morality and ethic slides that we'll be talking about for decades to come, I think. There's need for very, very strict regulation here.
Greer: Fascinating area! We'll see how it evolves, how it unwinds.
Let's close with another forward-looking question, my desert island question. I know you like CRISPR as one stock that could be interesting for the next 10 years, so I'm not going to ask you about 10 years, Ron. I'm talking five years. You can buy WW, the artist formerly known as Weight Watchers or you can buy Best Buy, or you can buy CRISRP. You're on a desert island. What are you going with?
Gross: That's rough! I'm still going to have to stick with CRISPR because I think five years may just be enough. I do say, if you want to diversify a little, buy the other CRISPR stocks, Editas and Intellia as well. Buy a little basket, maybe. Buy some of the other companies in the gene editing space like bluebird bio. I don't want to answer your question and give people bad guidance. You do need to hold these things for really long periods of time and not let the volatility scare you.
Greer: Fair enough! Ron Gross, thanks for joining me!
Gross: Thanks, Mac!
Greer: As always, people on the show may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's it for this edition of MarketFoolery! The show is mixed by Austin Morgan. I'm Mac Greer. Thanks for listening! And we will see you tomorrow!
