PHILADELPHIA -- It was a diet of bad news for NutriSystem Inc. Thursday.

Shares of the Horsham, Pa., company plunged 34 percent after the weight-loss firm lowered its third-quarter profit forecast, mainly on competition from GlaxoSmithKline's new diet pill, Alli.

Several analysts downgraded NutriSystem on the news, and even NutriSystem said it was surprised by the large hit to the stock, which closed down 33.6 percent, or $15.98, to $31.59.

NutriSystem was the biggest decliner on the Nasdaq Thursday when more than 26.7 million shares of the weight-loss company's stock changed hands. That trading volume was more than 14 times its average daily volume.

The company warned after the stock market closed Wednesday that its third-quarter profit would come in well below its expectations and those of Wall Street because of a decline in business from new customers.

NutriSystem, which sells portion-controlled prepared foods mostly over the Internet, said its quarterly earnings would be between 62 cents and 66 cents a share, compared to an earlier forecast of 77 cents to 82 cents a share.

NutriSystem also said it now expects quarterly revenue of $188 million, compared to its earlier estimate of between $200 million and $208 million. The company will report third-quarter earnings Oct. 23.

Analysts on average had expected the company to post earnings of 82 cents a share on $207 million in revenue, according to a poll by Thomson Financial.

In a note titled "Throwing in the Towel," analyst Scott Van Winkle of Canaccord Adams said NutriSystem's business model appears broken. "New customer acquisitions declined, while costs to acquire new customers jumped much more than expected to between $212 and $216 compared to our $185 estimate," he wrote.

"Indications that the company is more aggressive in making acquisitions outside of weight loss indicate that growth has come to a halt in the core business in our opinion."

After GlaxoSmithKline's new over-the-counter weight-loss drug hit store shelves in mid-June, new customers buying NutriSystem products dropped about 7 percent.

"Our estimate is at least 2 million people tried Alli," said James D. Brown, NutriSystem chief financial officer. "If 1 percent of those customers would have been NutriSystem customers, then you pretty much have got our shortfall," he said, in an interview.

"We think some of the people likely to be our dieters are also likely to try Alli," Brown said, adding that Alli's impact on NutriSystem will "moderate as we go forward."

"We're not publicly making a projection at this point. It's not going to go away overnight in terms of having a negative impact on our new customer starts," Brown said.

GlaxoSmithKline has not disclosed recent Alli sales, but said in late July during a second-quarter earnings conference call that sales since the diet drug's launch June 15 were $150 million.

Sameet Sinha, an equity analyst with Kaufman Bros. L.P., said it has become difficult to forecast NutriSystem's 2008 results. "Since new customer acquisition is an integral part of NutriSystem's business model, we feel the impact from Alli will continue to take its toll on the company," he wrote in a note to clients.

"While it was once easy to acquire customers, it may become increasingly difficult to do so now. We believe, for the first time, the likelihood of negative growth in 2008 is a possibility."

NutriSystem expects about 218,000 new customers in the third quarter, a 7 percent decline from the same quarter a year ago.

Although NutriSystem has been a volatile stock, Brown said, the company was "surprised by the reaction" from investors. "But our job here is to manage the business and not manage the markets."

NutriSystem's chief executive officer, Michael J. Hagan, is among the investors in Philadelphia Media Holdings L.L.C., which owns The Inquirer, the Philadelphia Daily News and Philly.com. Brian Tierney, chief executive of Philadelphia Media Holdings and publisher of the newspapers, is on NutriSystem's board.