Weight Watchers International Inc (WTW)

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Weight Watchers International, Inc. (WTW)

Q4 2011 Earnings Call

February 14, 2012 5:00 PM ET


Sarika Sahni – Investor Relations

David Kirchhoff – President and CEO

Ann Sardini – Chief Financial Officer


Charles Boorady – Credit Suisse

Jerry Herman – Stifel, Nicolaus

Chris Ferrara – Bank of America

Greg Badishkanian – Citigroup

Gary Albanese – Auriga

Anand Vankawala – Avondale Partners



Ladies and gentlemen, welcome to Weight Watchers International Fourth Quarter and Full Year 2011 Earnings Teleconference Call. During the presentation, all participants will be in a listen-only mode. Afterwards you’ll be invited to participate in the question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded today, February 14, 2012.

At this time, I’d 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 fourth quarter and full year 2011 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer.

At about 5 p.m. Eastern Time today the company issued a press release reporting its financial results for the fourth quarter and full year 2011. The purpose of this call is to provide investors with 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 the risks and uncertainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no 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 morning. And thank you for joining for us as we review Weight Watchers International’s performance for the fourth quarter and full year of fiscal 2011. Weight Watchers ended 2011 with a strong fourth quarter and the best financial performance in the company’s history.

The combination of the launch of PointsPlus and hard hitting marketing benefited our North American meetings business throughout the year, but particularly in the first quarter of 2011 when we saw explosive growth. The WeightWatchers.com business surged to new heights throughout the year. Strong performance in the U.K. was sufficient to offset softness in our Continental European business.

In the fourth quarter 2011, our business delivered solid year-over-year volume growth and very strong financial performance despite beginning to lap the surge in volume we experienced with the new program launch that began in late November 2010. WeightWatchers.com remained at all time highs throughout the end of fiscal 2011.

On a constant currency basis, Q4 2011 revenues grew 12.5% over the prior year period with meeting fees up 11%, in-meeting product sales down 22% and internet revenues growing 60%.

From a volume perspective, combined global online meetings and in-meetings paid weeks grew by 34% in the fourth quarter versus the prior year period. Q4 2011 global paid weeks in our meetings business were up about 13% versus the prior year period, while paid weeks for Weight Watchers Online remain very strong at 67% versus the prior year period, almost exactly on par with the growth rates we saw in Q3.

Q4 2011 EPS was $0.86, compared with $0.66 for the same period in 2010, a growth rate of 30%. Included in the Q4 2010 EPS was a $0.02 benefit per share from the reversal of a prior year U.K. debt accrual.

For the full year, the company delivered revenue of $1.8 billion, operating income of $546 million and net income of $305 million. This translated into a 2011 full year EPS of $4.11 versus $2.56 in 2010, a growth rate of 61%.

I will now briefly review our results in our major geographies and business units. First, our North American meeting business, to put our fourth quarter metrics in context, as I just noted, beginning in late November of the fourth quarter we began lapping the launch for the PointsPlus program in 2010.

During that launch we experienced tremendous fear on bugs around the historic program changeover. This resulted in an unusual surge in enrolments in the last six weeks of fiscal 2010. Further many Monthly Pass subscribers who otherwise would not have attended it frequently during the seasonally low period, showed up in late November and December to learn about the new program. This resulted in a significant surge of attendances during this typically quite time of year.

Finally, as we switched over to the new program in the last six weeks of 2010, we experienced abnormally high levels of end meeting product sales per attendee as our entire install base of members bought the new tools and publications associated with following the new PointsPlus program.

For the fourth quarter of 2011, total NACO revenues were $193 million, up 7% versus the same period in 2010. NACO meeting fees grew by 16% versus the prior year period, driven principally by paid weeks volume growth.

In-meeting product sales declined by 22%, as we began to comp against the spike in product sales related to our PointsPlus launch in Q4 2010. As a point of reference, product sales in Q4 2010 were up 36% as compared to Q4 2009.

NACO Q4 2011 paid weeks grew 15% versus the prior year period, comparable to 26% paid week growth we saw in Q3 of 2011. NACO attendance sales for Q4 increased 6% versus the prior year period, slower than the 14% growth we saw in Q3 of 2011, but ahead of the expectations we communicated in our Q3 conference call.

The two test markets where we rolled out our new upgraded retail centers in 2011 showed enrollment lift of about 15%. In anticipation of tough comparables in the seasonally all important Q1, we made an all-out effort to open as many new upgraded retail centers as possible, prior January 2012 setting an ambitious objective of reaching 50% of our network by end of year.

Unfortunately, due significantly to unforeseen delays in achieving permitting due to the complexities of a widely varying municipal rules and ordinances, we were able to only open a total of 166 centers, half of our objective prior to the beginning of the January winter campaign. As of this call, openings of new locations have reached 239, a 35% of the total fleet of stores.

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