Weight Watchers International Inc (WTW)

WTW 
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Weight Watchers (WTW)

Q4 2010 Earnings Call

February 17, 2011 8:00 a.m. ET

Executives

Sarika Sahni – Director, IR

David Kirchhoff – President and CEO

Ann Sardini – CFO

Analysts

Chris Ferrara – Bank of America

Greg Badishkanian – Citigroup

Jerry Herman - Stifel Nicolaus

Presentation

Operator

Ladies and gentlemen, welcome to Weight Watchers International's fourth quarter and full year 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 fourth quarter and full year 2010 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 fourth quarter and full year 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 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 fourth quarter and full year of fiscal 2010. While we began 2010 with a weak first quarter, we steadily improved results each subsequent quarter, and I'm pleased to report that we ended the year on a much more positive note.

Benefitting from the successful launch of an important new program in North America, the weightwatchers.com business, we saw meaningful acceleration of our business in Q4 2010. Our North American business showed procession began in late 2008. It is worth noting that we saw solid growth in both our North American meetings enrollments and online signups.

On a constant currency basis, Q4 revenues grew 15.6% over the prior-year period, with meeting fees up 8% and meeting product sales up 25%, and internet revenues growing 32%. This increase compares very favorably to the 3.5% total revenue growth we saw in Q3 of 2010.

From a volume perspective, combined global online and meetings paid weeks grew by 13% in the fourth quarter versus the prior-year period. This 13% growth is a further acceleration to the plus 11% year-over-year growth we reported in Q3.

The increase in Q4 paid weeks was driven principally by rapid growth in our Weight Watchers Online subscription business, as well as further strengthening in our North American meetings business. Global paid weeks in our meetings were up about 3% versus the prior-year period in Q4, while paid weeks for Weight Watchers Online accelerated further for the third consecutive quarter to plus 33% versus prior.

Q4 2010 EPS was $0.66 compared to $0.24 for the same period in 2009. Included in the Q4 2010 result was $0.02 of benefit from the reversal of a prior-year VAT accrual. Included in the Q4 2009 result was a $0.32 accrual for an unfavorable tax ruling in the UK regarding the self-employment status of our leaders in that country.

After adjusting for these two items, Q4 2010 EPS was $0.64, compared to $0.56 for the same period in 2009, an increase of 14%. Suffice it to say we're gratified that our fourth quarter results were able to deliver EPS for the full year of $2.56, above the original full year EPS guidance range of $2.25 to $2.50 that we provided this time last year. Ann will provide a full year recap in her remarks.

I will now briefly review our results in our major geographies and business units. First, our North American meetings business. Total NACO revenues were $180 million in Q4, up 14% versus the same period in 2009. This is a significant improvement over the slight growth we saw in Q3.

NACO meeting fees grew by 9% versus the prior-year period, benefitting from higher meeting fees per paid week as well as volume growth. And meeting product sales grew by 46%, driven by the heavy sales of enrollment products associated with the new program launch.

NACO Q4 2010 paid weeks grew 4% versus the prior-year period, with steady increases in our membership base commencing with the program launch in late November. NACO attendances for Q4 increased 7%, again a significant improvement over the negative 4% trend we saw in Q3.

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