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Weight Watchers International (WTW)
Q1 2013 Earnings Call
May 02, 2013 5:00 pm ET
Previous Statements by WTW
» Weight Watchers International Management Discusses Q4 2012 Results - Earnings Call Transcript
» Weight Watchers International Management Discusses Q3 2012 Results - Earnings Call Transcript
» Weight Watchers International's CEO Discusses Q2 2012 Results - Earnings Call Transcript
Nicholas P. Hotchkin - Chief Financial Officer and Principal Accounting Officer
Glen J. Santangelo - Crédit Suisse AG, Research Division
Brian Wang - Barclays Capital, Research Division
Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division
Christopher Ferrara - BofA Merrill Lynch, Research Division
John A. Faucher - JP Morgan Chase & Co, Research Division
Ladies and gentlemen, welcome to the Weight Watchers International's First Quarter 2013 Earnings Teleconference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Thursday, May 2, 2013. At this time, I would now like to turn the meeting over to Lori Scherwin of Weight Watchers International. Please go ahead, Ms. Scherwin.
Thank you, Fred, and thank you to everyone for joining us today for Weight Watchers International's first quarter 2013 conference call. With us on the call is David Kirchhoff, CEO; and Nick Hotchkin, CFO. At about 4:00 p.m. Eastern Time today, the company issued a press release reporting the first quarter financial results of fiscal 2013. 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 measures 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 Dave. Please go ahead.
David P. Kirchhoff
Good afternoon, and thank you for joining us as we review Weight Watchers International's performance for the first quarter of fiscal 2013. Despite a challenging recurring [ph] picture, our Q1 results benefited from appropriate actions on our cost structure and exceeded our earlier expectations. Revenue declined 3.3% versus the prior year with meeting fees declining 6.5% and meeting product sales declining 14.8% and Internet revenues growing 10.9%. Gross profit declined 3% and operating income was essentially flat versus prior year. With the benefit of the reduced share count from last year's tender offer and related share repurchases only partially offset by the associated higher interest expense, Q1 2013 EPS was $0.87, up 18% from Q1 2012 EPS of $0.74.
2013 is proving to be a challenging year for recruitments across most of our business, but we're pleased that retention in our meetings and online businesses have remained strong. As we discussed in our last call in February, a winter campaign failed to drive the level of interest in trial we were looking for. This, combined with continued difficulty in the consumer macroeconomy, poor weather in Europe and the rapid acceleration in the trial of free assets created a particularly muted environment. In response, we've made numerous adjustments to improve our bottom line performance and we're making progress.
We reacted quickly over the course of the first quarter and we were able to enter the spring campaign at the beginning of April with fresh advertising. Our meeting star featuring Jennifer Hudson focused on a recent clinical study showing 5x more weight loss than self-directed dieting and we're much more direct in our messaging. Further, we formed a relationship with Saturday Night Live alum and Suburgatory star, Ana Gasteyer, to create a new set of Weight Watchers Online spots. While we've seen some evidence that this new creative is providing some incremental benefit to our recruitment since we launched it post Easter, we do not anticipate these changes alone will be sufficient to overcome the headwinds in the business.
Given the top line challenges we're facing across the business, the team has moved quickly to improve our cost structure by aggressively seeking efficiencies across cost areas, with a particular focus on inefficient marketing spend and G&A. As Nick will review shortly, we've made early progress, which will benefit our ability to mitigate the impact of the lost volume. Equally as important, we're driving efficiency without stepping back from our medium- to long-term investment areas.
Over the past few months, we've had time to diagnose the issues impacting our business. The combination of continued uncertainty about the global economy, as well as the impact of local changes, such as the retirement of the U.S. payroll tax holiday, have created meaningful pressure on multiple segments of the consumer economy, particularly the lower middle income demographics. In our consumer research, we've consistently found commercial weight management to be among the more discretionary consumer spending categories. In the same research, we've increasingly found that concerns over money and financial commitment have become, by far, the biggest reasons for postponing enrollment in a commercial weight-loss program.