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Medifast, Inc. Announces Growing Pocketbook From Shrinking Waistlines

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OWINGS MILLS, Md.,Medifast, Inc.(NYSE: MED), a leadingUnited States manufacturer and provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the fourth quarter and fiscal year endedDecember 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 Centerand Wholesale Physicians sales channels, and our internal support divisions to better position our business for maximum profitability long-term,” statedMichael 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 endedDecember 31, 2011,Medifastnet revenue increased 10% to$69.6 millionfrom net revenue of$63.0 millionin 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 millionin the fourth quarter of 2011 compared to$41.5 millionin 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$1,450compared to$1,550in fourth quarter of 2010.

The Company’s direct response marketing channel revenue increased 6% to$15.6 million, compared to$14.7 millionin fourth quarter of 2010. Marketing and advertising expenses increased approximately 4% to$5.5 millionin 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 atDecember 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 millioncompared 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 millionin 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 millionor 22% to$50.7 millionin the fourth quarter of 2011 versus$41.6 millionlast 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 theMedifast Weight Control Centermodel 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 millionof additional charges related to increased technology costs, rent expense, and depreciation charges related to the Medifast Weight Control Centers.

Operating income for the fourth quarter of 2011 was$1.5 millioncompared to$5.2 millionin the same period a year ago. The operating margin decreased to 2.2% compared to 8.3% last year.  The decrease in operating income is due to the previously described increase in selling, general and administrative expenses partially offset by the increase in gross profit.

Net income for the fourth quarter of 2011 was $1.2 millionor $0.08per diluted share, compared to net income of $3.4 millionor $0.23per diluted share for the comparable period last year. The decrease in profitability for the fourth quarter of 2011 is primarily a result of the expansion of the corporate Medifast Weight Control Centermodel.

 

About Medifast

Medifast, Inc.(NYSE: MED) is a leading United Statesmanufacturer and provider of clinically proven portion-controlled weight-loss programs. Medifasthas 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. Medifastprograms 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. Medifastwas founded in 1980 and is located in Owings Mills, Maryland.

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