Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Q1 2010 Earnings Call Transcript

May 6, 2010 5:00 pm ET

Executives

Sarika Sahni – Director, IR

David Kirchhoff – President and CEO

Ann Sardini – CFO

Analysts

Jerry Herman – Stifel Nicolaus

Chris Ferrara – Bank of America

Presentation

Operator

Good evening, ladies and gentlemen, and welcome to the Weight Watchers International first quarter 2010 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session, and instructions will be provided at that time. As a reminder, this conference call is being recorded today, May 6, 2010. At this time, I’d like to turn the call over to Ms. Sarika Sahni of Weight Watchers International. Please go ahead.

Sarika Sahni

Thank you. And thank you to everyone for joining us today for Weight Watchers International’s first quarter 2010 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer, and Ann Sardini, Chief Financial Officer. At about 4:15 P.M. Eastern Time today, the company issued a press release today reporting its fiscal results for the first quarter 2010.

The purpose of this call is to provide investors with some further details regarding the company’s financial results as well as to provide a general update on the company’s progress. The press release is available at www.weightwatchersinternational.com.

Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. The company does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

I would now like to turn the call over to Mr. Kirchhoff. Please go ahead, David.

David Kirchhoff

Good afternoon and thank you for joining us, as we review Weight Watchers International’s performance for the first quarter of fiscal year 2010. Consistent with the direction we gave in the last earnings call, Q1 2010 proved to be one of the more challenging quarters at Weight Watchers has faced. The combination of residual slowness in the economy, unprecedented bad weather in our largest market, and comping against the new program launch last year in our US and UK markets created uniquely difficult operating conditions.

As a result, we experienced soft enrollments in our business in both our key US and UK markets, only partially offset by the successful launch of our new ProPoints program in Continental Europe and a continued growth of our global WeightWatchers.com business. As we will discuss later in this call, the early results of Q2 look significantly more favorable.

Before I run through those specific quarterly results, I want to point out that we have modified our approach to our earnings press release to more clearly bridge between our GAAP and non-GAAP financial results, as well as other key metrics. I will focus my remarks on the financial and operating metrics that provide comparability and insight into the performance of our business. I hope you find this new approach helpful.

On a constant currency basis, Q1 revenues declined 4.5% with meeting fees declining 7%, product sales and other revenues declining 6%, and Internet revenues growing 11%. From a volume perspective, combined global online and meetings paid weeks grew by about 1%. Global paid weeks in our meetings were down 4% versus the prior year quarter while paid weeks for Weight Watchers online were up a solid 11%.

Q1 2010 EPS was $0.58 compared to $0.61 for the same period in 2009. After adjusting for the impact of the adverse UK self-employment ruling, along with last year’s restructuring charges, Q1 2009 EPS would have been $0.63 on a comparable basis. Among the factors negatively impacting Q1 2010 EPS was $0.02 per share of higher interest expense.

I will now briefly review our results in our major geographies and business units. First, our North American meetings business. Total NACO revenues were $195 million in Q1, a decrease of 8% versus the same period last year. NACO meeting fees declined 9% while in-meeting product sales declined 4%. NACO Q1 2010 paid weeks were down 8% versus the same period in 2010 while attendance was down 15%. To better understand the drivers behind the weak Q1 2010 volume figures, it is useful to review the trends we saw beginning in Q4 2009.

As I noted on our February call, NACO had been seeing moderating growth trends during the months of October and November. However, when we began to lap against the launch of momentum program in December 2009, we saw a significant drop in relative volume albeit during a typically low volume time of year.

2010 is an off-cycle program innovation year, which resulted and that’s not having meaningful news to entice new consumers into our doors in the first quarter this year. Moreover, in January of last year, we saw a surge of attendance from existing monthly pass members coming to meetings and check out the new gross margin.

We did not have the same benefit this January. It is not clear that when we were pursing out the relative effect of the recession versus momentum innovation in our Q1 2009 results, we underestimated the impact of the new program launch. Our results from this year’s quarter were further impacted by extraordinarily bad weather. In my 10 years at Weight Watchers, I cannot recall a more difficult time from a weather perspective on the North American business.

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