Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Q1 2011 Earnings Call Transcript

May 6, 2011 8:00 a.m. ET


Sarika Sahni - Director, IR

David Kirchhoff - President and Chief Executive Officer

Ann Sardini - CFO


Greg Badishkanian - Citigroup

Chris Ferrara - Bank of America

Kurt Frederick - Wedbush Securities

Ken Goldman - J.P. Morgan

Bob Craig - Stifel Nicolaus



Ladies and gentlemen, welcome to Weight Watchers International's first quarter 2011 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 to everyone for joining us today for Weight Watchers International’s first quarter 2011 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer.

At about 7 a.m. Eastern Time today, the company issued a press release reporting its financial results for the first quarter of fiscal 2011. 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 for a 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 morning and thank you for joining us as we review Weight Watchers International's performance for the first quarter of fiscal 2011. Benefiting from a powerful combination of affective marketing, extensive PR coverage and a strong new program launch, Weight Watchers enjoyed excellent Q1 results.

We saw robust enrollment levels in all of our English speaking markets, and weightwatchers.com business reached new heights with surging sign of volumes, particularly in the US. This more than compensated for our anticipated soft results in our continental European business.

Before I review our numbers it’s important to note that our year-over-year operating results benefited from comparing to a weak Q1 in 2010.

On a constant currency basis, Q1 2011 revenues grew 28% over the prior year period with meeting fees of 22% and meeting product sales of 25% and internet revenues growing 65%. This increase compares very favorably to the 16% total revenue growth we saw in Q4 of 2010.

From a volume perspective, combined global online and meeting paid weeks grew by 40% in the first quarter of 2011 versus the prior year period. This 40% growth was a clear acceleration over the 13% growth rate enjoyed in Q4 of 2010.

Q1 2011 paid weeks for our global meetings business grew a robust 23% versus the prior year quarter. Paid weeks for our Weight Watchers Online product grew by an unprecedented 72% versus the same period last year.

Q1 2011 EPS was $1 compared to $0.58 for the same period in 2010; a growth rate of 73%.

I will now briefly review our results in our major geographies and business unites.

First; our North American meetings business. Total NACO revenues which includes the US and Canada were $252 million in Q1 2011, up 34% on a constant currency basis versus the same period in 2010.

Suffice to say, this is strongest growth we have seen in NACO in many years, and it represented a clear acceleration over the trend in Q4 of last year. NACO meeting fees grew by 32% in Q1, 2011 versus the prior year period, entirely driven by volume growth.

In-meeting product sales grew by 46% versus the prior year quarter, driven by volume growth and robust sales of enrollment products.

NACO Q1, 2011 paid weeks and attendances both grew at 33% versus the prior year period, driven by higher active base of members flowing in to the quarter and strong enrollment throughout the quarter.

Enrollment levels in the quarter were not only up significantly versus Q1 2010, but were also significantly above 2009 levels. Importantly enrollments have never-members in the quarter were also substantially higher than 2010 and 2009.

Early last year began to implement our strategy to re-energize our brand in the US. It is important to share the sequence and steps we undertook which helped to drive our strong volume performance in Q1.

First; we refocused our message on our brands core strength plus intensity. After a very weak Q1 2010, we took a new and more aggressive approach to raising the visibility and vitality of our brand in the marketplace.

Beginning April 1, 2010, we began to execute our strategy of showing the Weight Watchers brand in a new and much greater light. As a first step, we launched a new campaign featuring Jennifer Hudson, who shared her success as a Weight Watchers and followed this with the stories other members in Weight Watchers Online subscribers.

The authenticity of their stories and experiences with a lifestyle based approach, clearly resonated with the public. As a results, we saw a gradually building strength in enrollments and meetings and surging growth in our Weight Watchers Online business throughout Q2, Q3 and then in to Q4.

Second; we launched a major new program. With a reenergized brand and a foundation beginning to form, we then launched the new PointsPlus program in 2010 at the end of November.

This new program capitalized on 10 years of advanced nutritional science, while building on the strong equity of POINTS, completely revamping our highly successful program of 13 years, and rebuilding the POINTS plan from the ground up.

While based on the familiar methodology of budgeting and tracking, this new program much more directly encourages and nudges our members to make healthier and more satisfying choices.

Despite the lack of advertising at that time, the program innovation launch gained considerable buzz, largely benefiting from strong press coverage at both the national and local level. As a result we saw significant growth in both never-members and rejoining members in our meeting business throughout December of 2010.

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