Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Q2 2010 Earnings Conference Call

August 5, 2010 5:00 PM ET

Executives

Sarika Sahni – Director, IR

Ann Sardini – CFO

David Kirchhoff – President and CEO

Analysts

Jason Anderson – Stifel Nicolaus

Chris Ferrara – Bank of America

Presentation

Operator

Ladies and gentlemen, welcome to the Weight Watchers International second quarter 2010 earnings teleconference 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 given at that time. As a reminder, this conference call is being recorded today, August 5th, 2010.

At this time, I would 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 second 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 PM Eastern Time today, the company issued a press release reporting its financial results for the second 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 on the company’s corporate website located at www.weightwatchersinternational.com

Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measure are also available as part of the press release.

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. Please refer to these filings, our more detailed discussion of forward-looking statements and risks and certainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no obligations 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 second quarter of fiscal year 2010.

After a very difficult first quarter, our second quarter business results improved significantly as we began to see strengthening in our NACO meetings business and robust growth in our WeightWatchers.com business. While we’re not yet seeing consistent growth across all of our markets, the trends we’re now seeing are far superior to those of Q1 and which we’re experiencing the combined impact of the economy, weather, and less than effective marketing.

The NACO and WeightWatchers.com businesses both responded very well to the newly launched marketing campaign with an almost instantaneous uplift on enrollment trends beginning on April 1st. On a constant currency basis, Q2 revenues were a modest 1.8%, with meeting fees effectively flat, in-meeting product sales down 1%, Internet revenues growing over 20%, and other revenues declining 7%. This overall increase in revenue compares favorably to the 4.5% revenue decline we experienced in Q1.

From a volume perspective, combined global online and meetings paid weeks grew by about 8% in the second quarter versus the prior year. Global paid weeks in our meetings were up about 1% versus the prior year quarter while paid weeks for Weight Watchers online were up a robust 22%. Again, this was a substantial improvement versus the paid week’s trend we saw in Q1 in both the meetings and WeightWatchers.com business.

Q2 2010 EPS was $0.73 compared to $0.76 for the same period in 2009.

I will now briefly review our results in our major geographies and business units. First, our North American meetings business. Total NACO revenues were a $196 million in Q2, effectively flat versus the same period in 2009. This compares favorably to the 8% declined we experienced in Q1. NACO meeting fees declined by 1% versus prior, while in-meeting product sales grew by 5%.

NACO Q2 2010 paid weeks were down 2% versus the prior year period as compared to the negative 8% trends in Q1. Q2 attendances were down 5%, which was a market improvement from the minus 16% trend we observed in Q1.

As noted on the previous earnings call, Q1 enrollments were extremely soft due to a combination of factors, including the lack of program news, the sale marketing campaign, and unprecedented weather conditions. The January through March period is traditionally the largest enrollment period of the year for our business.

Meaning, that our week enrollments in Q1 resulted in very weak attendances in paid weeks levels as we ended Q1. This effectively put us in the hole that was difficult to climb out of this, we moved through our seasonally lighter and normal periods like in the year.

On April 1st, our North America team launched new marketing campaigns that starts to tap into the voice of our members in a new and compelling way. In the case of the NACO meetings business, this campaign heavily featured our new spokesperson Jennifer Hudson in a fully integrated PR and advertising campaign. We saw a median improvement in the enrollment activities of our business, which were sustained through the second quarter. Perhaps most importantly, NACO saw a significant improvement in its never-member (ph) enrollment trends, the first of weakness for us in recent years.

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