Weight Watchers International, Inc. (WTW)
Q3 2011 Earnings Call
November 08, 2011 05:00 pm ET
Sarika Sahni - Corey Kinger, IR
David Kirchhoff - President & CEO, Director
Ann Sardini - CFO
Bob Craig - Stifel Nicolaus
Charles Boorady - Credit Suisse
Chris Ferrara - Bank of America
Gary Albanese - Auriga
Ken Goldman - JPMorgan
Greg Badishkanian - Citigroup
Anand Vankawala - Avondale Partners
Previous Statements by WTW
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At this time, I’d like to turn the call over to Sarika Sahni of Weight Watchers International. Please go ahead.
And thank you to everyone for joining us today for Weight Watchers International’s third 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 4:00 PM Eastern Time today, the company issued a press release reporting its financial results for the third quarter of fiscal 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.
Good evening and thank you for joining us as we review Weight Watchers International’s performance for the third quarter of fiscal 2011. Weight Watchers had another solid quarter benefiting again from strong performance in the North America and UK in WeightWatchers.com businesses.
The initial launch of our new program is now well behind us and it was gratifying to see continuing strength in the business and high levels of consumer interests in our brand and unique approach to weight management. Once again volumes in WeightWatchers.com were very strong which further contributed to robust topline growth, margin expansion and excellent bottom line results.
On a constant currency basis, Q3 2011 revenues grew 26% over the prior-year period as compared to the 24% revenue growth we experienced in the second quarter of this year. Meeting fees were up 19% and internet revenues grew 65%. From a volume perspective, combined global online and meetings paid weeks grew by 38% in the third quarter of 2011 versus the prior-year period.
This is very similar to the volume growth we achieved in the second quarter of this year. Q3 2011 paid weeks for our meetings business grew 20% versus the prior-year quarter while paid weeks for our online business were up 67%. Q3 2011 EPS was a $1.9 compared to $0.59 for the same period in 2010, a growth rate of 84%. Favorable foreign currency drove $0.02 of this EPS gain and we also benefited from a $0.05 tax benefit from our international operations.
I will now briefly review our results in our major geographies and business units. First, our North American meetings business. Total revenue in NACO which includes the US and Canada were $208 million in Q3 2011, up 23% in a constant currency basis versus the same period in 2010. This growth rate was virtually identical to what we had experienced in Q2 of this year. NACO meeting fees grew by 25% in Q3 2011 versus the prior-year period entirely driven by volume growth. And meeting product sales grew by 22%, a significant improvement from the 5% growth rate we experienced in Q2 of this year, benefitting from new product launches as well as good growth in our enrollment products.
NACO Q3 2011 paid weeks grew 26% versus the prior-year period while attendances grew by 14%. This growth rate reflected somewhat of a moderation of the growth rates we experienced in Q2. Our average class size was up 20% versus the prior-year which helped contribute to stronger gross margins in the NACO business.
Enrollments remained double-digit positive for most of the quarter with the exception of a few weeks in August when the combination of the debt filling debate and the US credit rating downgrade seemed to dominate the news and we had a negative impact on consumer confidence.
In September, we saw enrollment levels bounce back nicely as we benefitted from effective marketing as well as the publicity around the release of a clinical study published in the Lancet, globally one of the most respected medical journals. The Lancet study was a breakthrough publication for Weight Watchers. This large randomized clinical trial was led by investigators from the Medical Research Council of the University of Cambridge in the UK.
The study was conducted in the UK, Germany and Australia with close to 800 people on the sample. In the study, doctors would randomly refer an overweight and typically obese patient to either Weight Watchers meetings or to a standard care program led by a primary care provider. After 12 months, participants in the Weight Watchers arm achieved two times the weight loss and were more than three times more likely to achieve a 10% weight loss as compared to the standard care group.