Weight Watchers Announces Third Quarter 2012 Results

Net Income (in millions)

Fully Diluted EPS

Three Months Ended

Three Months Ended

September 29, 2012

October 1, 2011

% Change

September 29, 2012

October 1, 2011

% Change

Net Income / EPS

$67.4

$80.7

(16.5)%

$1.20

$1.09

10.5%

(in millions except percentages)		Three Months Ended				% Change		% Change  Adjusted for Constant Currency
		September 29, 2012		October 1, 2011
Revenues		$430.6		$428.4		0.5%		2.7%
Operating Income		$132.0		$138.3		(4.6)%		(2.2)%
Total Paid Weeks		51.5		47.4		8.8%		N/A
Meeting Paid Weeks		23.9		24.9		(4.2)%		N/A
Online Paid Weeks		27.7		22.5		23.2%		N/A
Attendance		11.3		12.6		(10.2)%		N/A
__________________________________ Note: Totals may not sum due to rounding. See "Reconciliation of Non-GAAP Financial Measures" attached to this release for further detail on adjustments to GAAP financial measures.

 

Third quarter 2012 revenues increased 2.7% on a constant currency basis versus the prior year period as the Company continued to benefit from strong growth globally in the WeightWatchers.com business. This growth in the WeightWatchers.com business was mostly offset by lower sales in the meetings business as the Company experienced weaker volumes in North America and the UK.

Q3 2012 total paid weeks were up 8.8% as compared to the prior year period, on top of the 38.1% growth reported in Q3 2011 versus Q3 2010. Online paid weeks increased 23.2% versus the prior year period, on top of the 66.6% growth experienced in Q3 2011 versus Q3 2010. Meeting paid weeks decreased 4.2% versus the prior year period, similar to the 4.7% drop in Q2 2012 versus the prior year period, and on top of the 19.7% growth reported in Q3 2011 versus Q3 2010.

Q3 2012 operating income decreased 2.2% on a constant currency basis versus the prior year period. Similar to Q2 2012, gross margin expansion from the higher-margin WeightWatchers.com business was partially offset by gross margin contraction in the meetings business due to expenses associated with our retail initiative in North America, one-time costs associated with the transition to a new customer service provider in North America, softer volumes and decreased in-meeting product sales margin due mainly to lower sales of enrollment products. Gains in gross margin were more than offset by higher general and administrative and marketing expenses as a percentage of sales. The Company incurred higher general and administrative expense in Q3 2012 versus the prior year period due to increased investments in the B2B corporate business and a customer service relationship management technology platform. As has been the case throughout the year, marketing expense was higher due to continued investment to drive awareness of Weight Watchers Online, particularly in our Continental European and Canadian businesses.

Q3 2012 NACO Performance

Third quarter 2012 meeting revenues for the North American meetings business (NACO) were down 2.8% on a constant currency basis versus the prior year period, as a result of continued lower enrollment volumes in the small-accounts corporate business and continued weakness in the traditional meetings business.  As a result, Q3 2012 meeting paid weeks and attendance decreased 3.6% and 9.4%, respectively, versus the prior year period. 

On September 10, 2012, the Company acquired its franchise for the Southeastern Ontario region of Canada for $17.0 million.  In addition, following the quarter end, on November 2, 2012, the Company acquired its franchise for the Adirondacks region ofNew York and Vermont. These franchise acquisitions will have a de minimis impact on fiscal 2012 financial results.

Q3 2012 International Performance

Similar to the second quarter of fiscal 2012, Q3 2012 International meeting revenues were down 5.2% on a constant currency basis versus the prior year period, with growth in Continental Europe (CE) continuing to be more than offset by declines in theUnited Kingdom (UK).

• UK:  Third quarter 2012 UK meeting revenues decreased 14.7% on a constant currency basis versus the prior year period due to continued impact from a less effective marketing campaign and weak macro-economic trends.  
• CE:  Third quarter 2012 CE meeting revenues were up 11.1% on a constant currency basis versus the prior year period, while paid weeks were up 12.1% versus the prior year period. CE continues to benefit from successful marketing campaigns, particularly in France and Germany, despite a challenging macro-economic environment.  

Q3 2012 WeightWatchers.com Performance

The WeightWatchers.com business continued to deliver strong growth in the third quarter of fiscal 2012, with Internet revenues up 24.2% on a constant currency basis versus the prior year period.  Online paid weeks were up 23.2%, and end of period active Online subscribers were up 19.5%, versus Q3 2011.  Performance was strong across most markets, with strong double-digit Online paid weeks growth in the North American and Continental European markets.

First Nine Months 2012 Summary

First nine months fiscal 2012 net income was $199.4 million versus $241.2 million in the prior year period.  EPS for the first nine months of fiscal 2012 was $3.19 versus $3.26 in the prior year period.  The decrease in the Company's year-over-year performance for the first nine months of fiscal 2012 was primarily the result of lower sales in the meetings business and higher interest expense offset, in part, by growth in the WeightWatchers.com business.  Foreign currency negatively impacted EPS for the first nine months of fiscal 2012 by approximately $0.07 per fully diluted share.

EPS for the first nine months of fiscal 2012 also benefited from the completion of the Company's tender offer and related stock repurchase transaction.  These transactions, as previously disclosed, resulted in the repurchase of 18,279,289 shares in the aggregate of the Company's common stock for approximately $1.5 billion in the aggregate.

First Nine Months 2012 Global Results

First nine months 2012 revenues increased 1.8% on a constant currency basis versus the prior year period as the Company continued to benefit from strong global growth in the WeightWatchers.com business. This growth in the WeightWatchers.com business was in large part offset by lower sales in the meetings business as the Company experienced weaker volumes particularly in North America and the UK.

First nine months 2012 total paid weeks were up 10.7% as compared to the prior year period, on top of the 39.5% growth reported in the first nine months 2011 versus the first nine months 2010. First nine months 2012 meeting paid weeks and attendance decreased 4.6% and 10.2%, respectively, versus the prior year period, on top of the 21.3% and 13.6% growth in meeting paid weeks and attendance, respectively, in the first nine months of 2011 versus the first nine months 2010. Online paid weeks for the first nine months of 2012 increased 29.5% versus the prior year period, on top of the 70.6% growth reported in the first nine months of 2011 versus the first nine months of 2010.

Operating income for the first nine months of 2012 decreased by 8.0% on a constant currency basis versus the prior year period driven by a combination of volume weakness in the meetings business, higher marketing expense and general and administrative expense as the Company continued to invest in growth areas: namely, deploying first-time Online TV campaigns in several countries, marketing Weight Watchers Online to men in the United States, and building capabilities in B2B, retail and technology.

Full Year Fiscal 2012 Earnings Guidance

The Company has narrowed its full year 2012 earnings guidance to a range of between $4.00 and $4.10 per fully diluted share. This compares with the Company's previously provided earnings guidance range of between $4.00 and $4.20 per fully diluted share.

Third Quarter 2012 Conference Call

The Company has scheduled a conference call today at 5:00 p.m. ET. During the conference call, David Kirchhoff, President and Chief Executive Officer of the Company, and Nicholas Hotchkin, Chief Financial Officer of the Company, will discuss third quarter 2012 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.

Statement regarding Non-GAAP Financial Measures

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. 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.

About Weight Watchers International, Inc.

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 45,000 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 weight management provider 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; 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; 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 people from gathering with others; 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; uncertainties regarding the satisfactory operation of the Company's information technology or systems; 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 impact of the Company's debt service obligations and restrictive debt covenants; the possibility that the interests of the Company's majority owner will conflict with the other holders of the Company's 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).

Contact:

Investors:

Weight Watchers International, Inc.
Lori Scherwin
Investor Relations
(212) 589-2713

Brainerd Communicators, Inc.
Corey Kinger
(212) 986-6667

 

 

 

 

 

 

 

 

 

 

 

 

SOURCE Weight Watchers International, Inc.