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NutriSystem's CEO Discusses Q2 2012 Results - Earnings Call Transcript

I’ll now turn the call over to Joe Redling. Joe?

Joe Redling

Thanks Joe. Good afternoon everyone. There are few things I want to update you on relative to second quarter. First, I’ll touch on our revenue. Second, I’ll give you a summary of the introduction of our new rate card. Third, I’ll update you on the retail initiative and finally provide an update on the CEO search.

We are encouraged to post a quarter of solid revenue growth. While the growth was below our original forecast for the quarter, with the first quarter we posted a year-over-year increase in Q2 2010. This was largely a function of the strong momentum we experienced in the first five weeks of the quarter. In April, the early Easter caused a spike in demand during the second wave of dieting season. This was amplified by the powerful buzz created by the Janet Jackson reveal of her impressed weight loss results as well as the continuing impact of our 40th Anniversary promotional pricing strategy.

In our last call we shared plans regarding the end of our 40th Anniversary promotion and the rollout of our new rate card which is designed to allow us to continue to promote aggressively, offer customers different options and value at various price points while still allowing the company to generate sufficient margins. Over the past 18 months, as we’re by necessity have to heavily discount to spur consumer response conversion, we’ve seen a continued erosion of gross profit margins which we’ve counterbalanced by carefully managing our marketing spend.

While this strategy has allowed us to maintain profitability and cash flow, during our rough consumer spending macro environment in the long run we have to get back to investing in the brand. The new rate card allows us to do that. It provides a basic option for consumers who want the lowest price, allows Nutrisystem to establish the value of services we used to provide for free, that is shipping and customization and it enables us to achieve gross margins in line with our historical norms.

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