Case

Jenny Craig, Inc. (JC)

Case outline

Jenny Craig, Inc. is a medium size firm, but one of the largest weight control service company operating in close to 800 centres offering exercise and diet food products. In 1999, there are 123 franchised centres and 634 company-owned centres, for a total of 757, of which 610 are in the United States and remaining 147 in Canada, Australia, New Zealand and a few other countries. In 1999, 94% of the revenues were generated by food product sales ($ 301 millions out of $ 320 millions), the remainders came from service maintenance fees and franchise royalties.

Jenny Craig faces a highly competitive market where numerous substitutes are readily available, and where brand marketing is important. The weight control market was seriously disrupted in 1996 by FDA (U.S. Food and Drug Administration) approval of Redux, a weight loss medication, and its subsequent promotion as a potent medication, along with a similar medication known as phen-fen. Facing sales loss, Jenny Craig incorporated these medications in all its US centres in January 1997. Following health risk reports, Redux and phen-fen were withdrawn from US market in September 1997. Class action law suits were entered in 1997 in Alabama and Pennsylvania by individuals who received the weight loss medications and developed heart problems, and on behalf of others who might develop such problems, naming Jenny Craig as a co-defendant. A somewhat similar suit was introduced in Nevada in 1999. In 1999, FDA approved Xenical, a prescription drug for treatment of obesity. Jenny Craig does not intend to offer Xenical in its centres, but acknowledges that this may adversely affect its sales.

Sales had been declining even before the 1996 incident. The number of franchised centres decreased every year since 1994 when there were 202, especially in the U.S. where 73 out 159 had closed by 1999. Jenny Craig has been forced to buy some of the centres from franchisees, and for the first time in 1997, Jenny Craig had to borrow $ 6 millions, presumably for that purpose. In 1999, Jenny Craig reported an operating loss for the first time. However, the loss was primarily attributable to an adverse landlord litigation judgement of $ 8 millions (not related to previously discussed law suits).

To fight back the downward trend, Jenny Craig has initiated an advertisement campaign and entered into several ventures. The steps taken include redesigning its own web site, appointing a famous "wellness doctor" (who had appeared on NBC for two decades), entering into partnership with certain web sites, and starting a TV series on the TV/internet Heath Network.

Financial data:

Condensed financial statements without notes are presented for selected years in following tables:

Table T-BCE.1 - Bell Canada Entreprises Balance Sheets

Table T-BCE.2 - Bell Canada Entreprises Income Statements

Normalized statements and selected ratios based on above financial statements are presented in

Table T-BCE.3 - Bell Canada Entreprises Normalized Balance Sheets

Table T-BCE.4 - Bell Canada Entreprises Normalized Income Statements

Table T-BCE.5 - Bell Canada Entreprises Ratios

Information sources:

Visit company web site at http://www.jennycraig.com

SEC 10-K file available at http://www.edgar-online.com/

Jenny Craig, Inc. stock is traded on the NYSE exchange under the symbol JC. Find stock quotes and recent news from http://finance.yahoo.com/ or http://www.quote.com/ or from the exchange.