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» Weight Watchers International's CEO Discusses Q1 2012 Results - Earnings Call Transcript
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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. As has been previously been announced, the company has hired a new Chief Financial Office, Nick Hotchkin, who starts his employment with the company as of August 20 of this year. Consequently, for this call, David's remarks will also cover the financial section of the company's results. I would now like to turn the call over to Dave. Please go ahead. David Kirchhoff Good afternoon and thank you for joining as we review Weight Watchers International's performance for the second quarter of fiscal 2012. Overall, Q2 2012 financial results were in line with our expectations and previously provided guidance. However, as we will discuss later, we are now taking a more cautious view of the second half of the year. During June and July we've seen weakening in our business trends we believe driven by the combination of increasing uncertainty in the economy, as well as some indications of wear-out of our current advertising campaign in the U.S. Turning back to a review of the second quarter. On a constant currency basis Q2 2012 total revenue was up slightly at plus 2.3% over the prior year period. With meeting fees down 5.5% and meeting product sales down 8.1% and Internet revenue growing 31%.
Global combined paid weeks were up 11% in Q2 2012 versus the same period last year. Global meeting paid weeks were down 4.7% in Q2 while global paid weeks for our online product were up 30%. For Q2 2012 our operating income margin was effectively flat to prior. While gross margin was up 1.5 percentage points, marketing as percentage of revenue was up 1.8 percentage points primarily reflecting continued investment and driving awareness of our Weight Watchers online product.G&A, as a percentage of revenue, was close to flat versus prior. Q2 2012 EPS was $1.36 compared to $1.17 for the same period in 2011 benefitting from a share repurchases earlier this year. We experienced about $0.06 of unfavorable Forex impact in the second quarter of this year versus prior. I will now briefly review our results on our major geographies and business units. First, our North American meeting business. Total make on revenue, which includes the U.S. and Canada in Q2 2012 was down 6.1% on a constant currency basis versus the same period in 2011, a slight improvement over the -8.9% result for the first quarter. (inaudible) meeting fees declined 6.3% and meeting product sales declined 7.5% versus the prior year quarter driven entirely by attendance volume declines as product sales per attendance grew 2.7%. NACO Q2 2012 paid weeks declined 5.5% while attendance has declined 9.9% versus a prior year period. As was the case in Q1, the material portion of the volume shortfall was a result of the continued impact of the execution issues we had earlier this year and the small accounts portion of our corporate business. Excluding the corporate business, NACO paid weeks and attendances in the second quarter were down an estimated 3.6% and 7.4%, respectively. In reviewing the NACO results I will first provide an update on the status of our efforts to address the issues and the small accounts corporate business.
As noted on our previous two calls, our issues in the small account portion of our business were driven by our decision to transition all of our corporate accounts, including small accounts from defined length series to a corporate version of monthly pass. This resulted in changes, disruptions and problems in the following areas: 1) in shifting to an automated web-based signup process we lost the benefit of having an on-premise information session, which is an important recruiting tool to ensure that enough employees are signed up at a given worksite to allow a new at-work meeting to start, 2) there were a number of technical problems associates with the web-based enrollment portal and 3) significant changes in procedure created extra burdens for the sales organization, which resulted in slow follow-up on new sales leads and in addressing issues.By March we had fully diagnosed all of the issues and determine the proper path forward and began to systematically implement changes, including, one, fixing the technical issues associated with the online enrollment portal, two, fully reinstituting the on-premise information sessions and, three, beginning in early September we will return to selling fixed durations series for accounts with less than 5,000 employees and without a subsidy in place. Read the rest of this transcript for free on seekingalpha.com