NEW YORK - July 30, 2014 // PRNewswire // - Weight Watchers International, Inc. (NYSE: WTW) today announced its results for the second quarter of fiscal 2014 and raised its full year fiscal 2014 earnings guidance. Second quarter 2014 results include:
"While Q2 financial performance is down significantly year over year, our transformation plan remains on track," commented Jim Chambers, the Company's President and Chief Executive Officer. Chambers added, "Given our performance in the first half and our expectations for the balance of the year, we are raising our full year fiscal 2014 earnings guidance to a range of $1.65 to $1.85 per share."
Q2 2014 Consolidated Summary
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Second quarter 2014 net income was $54.0 million versus $64.9 million in the prior year period. EPS for Q2 2014 was $0.95 versus $1.15 in the prior year period. Foreign currency had a $0.02 benefit on EPS in the second quarter 2014.
Net income for Q2 2014 included $6.5 million ($4.0 million after-tax or $0.07 per fully diluted share) of charges the Company incurred in connection with its previously disclosed plan to restructure its organization and a $2.4 millionnet tax benefit ($0.04 per fully diluted share) related to an intercompany loan write-off in connection with the closure of the Company's China business partially offset by the recognition of a valuation allowance related to tax benefits for foreign losses. Excluding the restructuring charges and the net tax benefit, net income was $55.6 million and fully diluted EPS was $0.98 in Q2 2014.
Net income and EPS for Q2 2013 were impacted by the write-off of fees associated with the Company's debt refinancing in April 2013. This write-off resulted in a $21.7 million ($13.3 million after tax or $0.24 per fully diluted share) early extinguishment of debt charge recorded in the second quarter of fiscal 2013. Excluding this early extinguishment of debt charge, net income was $78.3 million and EPS was $1.39 in Q2 2013.
Q2 2014 Global Results
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Second quarter 2014 revenues decreased 16.8% on a constant currency basis versus the prior year period. This decrease was primarily driven by lower revenues in North America. Q2 2014 total paid weeks were down 14.4% as compared to the prior year period, with an Online paid weeks decline of 15.5% and meeting paid weeks decline of 12.9%. These declines were driven by lower active subscriber bases for both Monthly Pass and Online at the start of the quarter and lower recruitments versus the prior year period.
Second quarter 2014 operating income decreased 26.8% on a constant currency basis versus the prior year period. Excluding the Q2 2014 $6.5 million of restructuring charges, Q2 2014 operating income decreased 22.5% on a constant currency basis versus the prior year period. Operating income decline was driven primarily by lower revenues in North America.
Q2 2014 North America Performance
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Second quarter 2014 service revenues for the North America business were down 20.4% on a constant currency basis versus the prior year period driven by a 19.4% decline in total paid weeks. The paid weeks decline was driven by lower Monthly Pass and Online active subscriber bases at the start of the quarter and lower second quarter 2014 recruitments as compared to the prior year period.
Q2 2014 UK Performance
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Second quarter 2014 service revenues for the UK business were down 11.9% on a constant currency basis versus the prior year period driven by a 10.7% decline in total paid weeks. The paid weeks decline was driven by lower Monthly Pass and Online active subscriber bases at the start of the quarter. Second quarter 2014 recruitments declined as compared to the prior year period.
Q2 2014 CE Performance
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Second quarter 2014 service revenues for the Continental Europe (CE) business were down 0.4% on a constant currency basis versus the prior year period. Total paid weeks increased by 1.0%, driven by a 3.7% increase in Online paid weeks. Service revenue was negatively impacted, however, by a 3.3% paid weeks decline in the meetings business, which generates more revenue per subscriber per week than the Online business. The increase in total paid weeks was primarily driven by the higher active Online subscriber base at the beginning of the quarter which more than offset a lower Monthly Pass active base and recruitment softness.
The Company raised its full year fiscal 2014 earnings guidance to between $1.65 and $1.85 per fully diluted share compared to its previously provided earnings guidance of between $1.45 and $1.70 per fully diluted share. This guidance, like the prior guidance, incorporates the fact that fiscal 2014 includes a 53rd week, which bridges the last week of December 2014 and the first week of January 2015 and has an expected negative $0.04 per share impact on the full year EPS. Excluded from the above earnings guidance are the following items: the one-time gain of $0.11 per share associated with the Brazil acquisition, the anticipated full year, aggregate charges of approximately $0.13 per share in connection with the Company's organizational restructuring and the net tax benefit of $0.04 per share associated with the closure of the Company's China business and the establishment of a valuation allowance, both of which were booked in the second quarter of fiscal 2014.
The Company has scheduled a conference call today at 5:00 p.m. ET. During the conference call, Jim Chambers, President and Chief Executive Officer of the Company, and Nick Hotchkin, Chief Financial Officer of the Company, will discuss second quarter 2014 results and answer questions from the investment community. Live audio of the conference call will be simultaneously webcast over the Internet on the Company's corporate website, www.weightwatchersinternational.com. A replay of the webcast will be available on this site for approximately 90 days.
The following provides information regarding non-GAAP financial measures used in this earnings release:
To supplement the Company's consolidated results presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company has disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Net income, earnings per fully diluted share and operating income with respect to the second quarter of fiscal 2014 are discussed in this release both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis) to exclude the impact of expenses associated with the Company's previously disclosed restructuring of its organization. Net income and earnings per fully diluted share with respect to the second quarter of fiscal 2014 are discussed in this release both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis) to exclude the net tax benefit associated with an intercompany loan write-off in connection with the closure of the Company's China business and the establishment of a valuation allowance related to tax benefits for foreign losses that are not expected to be realized. Net income and earnings per fully diluted share with respect to the second quarter of fiscal 2013 are discussed in this release both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis) to exclude the impact from the early extinguishment of debt charge associated with the Company's previously reported debt refinancing. Earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) is presented in the attachments to this release. In addition, the Company presents certain of its financial results on a constant currency basis in addition to GAAP results. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. In this release and any attachments, the Company calculates constant currency by calculating current-year results using prior-year foreign currency exchange rates.
Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and are useful for period-over-period comparisons of the performance of the Company's business. While management believes that these financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies. See "Reconciliation of Non-GAAP Financial Measures" attached to this release and reconciliations, if any, included elsewhere in this release for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures.
Weight Watchers International, Inc. is the world's leading provider of weight management services, operating globally through a network of Company-owned and franchise operations. Weight Watchers holds over 40,000 meetings each week where members receive group support and learn about healthy eating patterns, behavior modification and physical activity. WeightWatchers.com provides innovative, subscription weight management products over the Internet and is the leading Internet-based provider of these products in the world. In addition, Weight Watchers offers a wide range of products, publications and programs for those interested in weight loss and weight control.
This news release and any attachments include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance and any statements about the Company's plans, strategies and prospects. The Company generally uses the words "may," "will," "could," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this news release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; the Company's ability to continue to develop innovative new services and products and enhance its existing services and products or the failure of its services and products to continue to appeal to the market, or the Company's ability to successfully expand into new channels of distribution; the ability to successfully implement new strategic initiatives; the effectiveness of the Company's marketing and advertising programs; the impact on the Weight Watchers brand of actions taken by the Company's franchisees, licensees and suppliers; the impact of the Company's debt service obligations and restrictive debt covenants; uncertainties regarding the satisfactory operation of the Company's information technology or systems; the recognition of asset impairment charges; risks and uncertainties associated with the Company's international operations, including economic, political and social risks and foreign currency risks; the Company's ability to successfully make acquisitions or enter into joint ventures, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; uncertainties related to a downturn in general economic conditions or consumer confidence; the seasonal nature of the Company's business; the impact of events that discourage or impede people from gathering with others or accessing resources; the Company's ability to enforce its intellectual property rights both domestically and internationally, as well as the impact of its involvement in any claims related to intellectual property rights; the impact of security breaches or privacy concerns; the impact of disputes with the Company's franchise operators; the impact of existing and future laws and regulations; the possibility that the interests of the Company's majority owner will conflict with other holders of its common stock; and other risks and uncertainties, including those detailed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company's results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company's filings with the Securities and Exchange Commission (which are available from the SEC's EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and via the Company's website at www.weightwatchersinternational.com).
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Corey Kinger
Brainerd Communicators, Inc.
(212) 986-6667
kinger@braincomm.com
WW (formerly Weight Watchers) is a global wellness company, we inspire millions of people to adopt healthy habits for real life.