Weight Watchers International, Inc. (WTW)
Q2 2011 Earnings Call
August 5, 2011 8:00 AM ET
Sarika Sahni – Director, IR
David Kirchhoff – President and CEO
Ann Sardini – CFO
Chris Ferrara – Bank of America/Merrill Lynch
Ken Goldman – JPMorgan
Jerry Herman – Stifel Nicolaus
Greg Badishkanian – Citigroup
Gary Albanese – Capstone Investments
Previous Statements by WTW
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At this time, I’d like to turn the call over to Ms. Sarika Sahni of Weight Watchers International. Please go ahead.
Thank you. And thank you to everyone for joining us today for Weight Watchers International’s second 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 7:00 AM Eastern Time today, the company issued a press release reporting its financial results for the second 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 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.
Good morning and thank you for joining us as we review Weight Watchers International’s performance for the second quarter of fiscal 2011. Weight Watchers continued to deliver excellent top and bottom line results from the second quarter driven by strong performance in our North America, U.K. and weightwatchers.com businesses. Despite the impact of a late Easter and a tougher prior year comparable than in Q1, second quarter meeting enrolments in our NACO and U.K. markets remained strong benefiting from effective marketing and sustained consumer interest in the Weight Watchers proposition.
In the second quarter, sales for our Weight Watchers online products were once again at record levels. On a constant currency basis, Q2 2011 revenues grew 24% over the prior year period as compared to 28% revenue growth, we experienced in the first quarter of this year. Meeting fees were up 21% and Internet revenues grew 70%.
From the volume perspective, combined global online and meetings paid weeks grew by 40% in the second quarter of 2011 versus the prior year period. This historically high growth rate was virtually identical to what we experienced in the first quarter. Q2 2011 paid weeks for our global meetings business grew 21% versus the prior year quarter. Paid weeks for our Weight Watchers Online product grew by 73% versus the same period last year. Q2 2011 EPS was $1.17 compared to $0.73 for the same period in 2010, a growth rate of 60%. Favorable foreign currency drew $0.04%for this EPS gain.
I will now briefly review our results in our major geographies and business units. First, our North American meetings business, total revenues in NACO, which includes the U.S. and Canada, were $241 million in Q2 2011, up 23% on a constant currency basis versus the same period in 2010. As expected, the growth rate moderated somewhat from the unprecedented 34% growth rate versus the prior year period we experienced in Q1 as we began to lap the launch of our new marketing campaign Peter and Jennifer Hudson last year. NACO meeting fees grew by 29% in Q2 2011 versus the prior year period entirely driven by volume growth. And meeting product sales grew by only 5% versus the prior year quarter as we experienced softer results with our consumable products.
NACO Q2 2011 paid weeks grew 32% versus the prior year period while attendance grew by 20%. As was the case in Q1, class sizes were up materially in our NACO meetings with average meeting average growth excluding our at work business of greater than 30%, again the value of these larger meetings is threefold, more vibrant meetings, better compensation for service providers and higher gross margins.
As I noted earlier, Q2 of last year marked the launch of our new marketing strategy. Enrollment volumes in the second quarter of last year improved considerably versus the very weak trends we experienced in the first quarter of 2010. This year second quarter comparable was also made tougher as a result of this year’s spring campaign starting three weeks later in April because of the timing of later Easter.
Our recruitment levels for this year, therefore started more slowly in April and then returned to stronger growth rates in May and June as there is spring campaign headed straight. Never member enrollment growth remained strong in the second quarter. We are now on a seasonally quite time of year though we’ve been running TV advertising in July, as was the case last year. Despite some of the negative macro factors affecting consumers such as the weakening economy and falling consumer confidence, we’ve continued to see solid enrollment growth during the first month of Q3. As we look at the remainder of the year for NACO, we expect to see continued strong results. We have now wrapped the production of our fall marketing creative and we feel good about our marketing promotion plans that will commence in late August. Our biggest challenge will come in the fourth quarter, typically a seasonally low period. When we begin camping the soft launch of PointsPlus, which saw roughly 60% enrollment growth in December.