Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Q3 2010 Earnings Conference Call

November 9, 2010 5:00 PM ET

Executives

Sarika Sahni – Director, IR

David Kirchhoff – President and CEO

Ann Sardini – CFO

Analysts

Robert Craig – Stifel Nicolaus & Co.

Chris Ferrara – Bank of America

Ken Goldman – JP Morgan

Greg Badishkanian – Citigroup

Presentation


Operator

Ladies and gentlemen, welcome to the Weight Watchers International Third Quarter 2010 Earnings Teleconference Call. (Operator Instructions)


At this time, I would like to turn the call over to 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 third 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 third 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 we review Weight Watchers International’s performance for the third quarter of fiscal year 2010. Our business continued to show encouraging signs during the third quarter, particularly in our WeightWatchers.com and NACO meetings business.

Overall participation of our brand in our critical North American market significantly exceeded the levels of this time last year with solid growth in total paid weeks fueled by our Weight Watchers online product and improving trends in our meeting business.

On the constant currency basis, Q3 revenues grew 3.5% over the prior year period with meetings fees up slightly at 1% and meeting product sales up 1%, internet revenues growing 22% and other revenues declining 9%. This overall increase in revenue was a slight improvement over the term we saw in Q2.

From a volume perspective, combined global, online and meetings paid weeks grew by 11% in the third quarter versus the prior year period. This 11% growth compares to 8% year-over-year growth in Q2 and 1 % growth in Q1. The improvement in paid weeks trends has been driven by improvements in both our meetings and online business as we progress through the year.

Global paid weeks and our meetings were up 3% versus the prior year period in Q3, while paid weeks for Weight Watchers Online accelerated further to a robust 26%.

Q3 2010 EPS was $0.59, compared to $0.68 for the same period in 2009. Included in the Q3 2010 result was a $0.05 reserve taken in the quarter for the pending settlement of litigation in California. Without the impact of this reserve, Q3 EPS would’ve have been $0.64.

I will now briefly review our results in our major geographies and business units. First, our North America meetings business, total NACO revenue were $169 million in Q3, up 2% versus the same period in 2009. This is a slight improvement over the flat year-over-year trend we saw in Q2 and a substantial improvement over the 8% decline we experienced in Q1.

NACO meeting fees grew 2% versus the prior year period, the first time we’ve seen positive trajectory in this trend this year and meeting product sales grew by 5%.

NACO Q3 2010 paid weeks grew 3% versus the prior year period, the first time we’ve seen this growth in this metric this year despite a one week delay to the start of our fall marketing campaign. As a result of this delay and the negative impact from the timing of July 4th, Q3 attendances were down 4%. Without the impact of these two factors, we estimate Q3 attendances would’ve been down roughly 2%.

2010 continues to be a tale of two periods, Q1 and the rest of the year. As we’ve discussed on prior calls, the critical first quarter was a period in which we did not have news to fuel marketing, so our marketing was not punching its weight and we experienced difficult weather conditions beyond our historical norms.

Since the launch of our revamp marketing programs beginning of April 1st of this year, we’ve seen stabilization of our volumes.

As was the case in Q2, third quarter enrollments were flat to slightly positive versus the prior year period.

In addition, we continue to benefit from retention of members who purchase our monthly pass commitment plan.

These two trends have allowed us to come close to rebuilding the membership pace that was weaken by our soft first quarter recruitments. We continue to see strong consumer response to our marketing campaigns featuring Jennifer Hudson, including the launch of several spots for this fall. Marketing that authentically communicates the real successes that our members could achieve and adapting a healthier lifestyle with Weight Watchers clearly resonates with consumers. This much harder hitting marketing has allowed us to stay relatively strong despite consumers remaining cautious with their discretionary spending.

Looking forward, we expect our volume trends in the fourth quarter to roughly mirror the third quarter with attendances slightly below prior year and paid weeks effectively flat with prior year.

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