Weight Watchers reports Q1 net earnings of US$48.8M, compared with earnings of US$54.6M in year-ago period, as revenues fall 3.3% to US$486.9M
May 2, 2013
– Weight Watchers International, Inc. (NYSE: WTW) today announced its results for the first quarter of fiscal 2013 and narrowed its fiscal 2013 earnings guidance. First quarter 2013 highlights include:
Global engagement as measured by paid weeks up 1.4% versus the prior year period
Internet revenues of $140.8 million, up 10.9% versus the prior year period, with Online paid weeks up 10.3% and end of period active Online subscribers up 6.2% versus the prior year period
Early progress with our cost savings program
Following the quarter end on April 2, 2013, successfully refinanced and extended the maturity of our long-term debt to take advantage of favorable market conditions
"As we previously indicated, the winter diet season proved to be challenging for recruitment across our businesses given a weak consumer backdrop and an intensely competitive environment. In response, we have made several adjustments to improve our position in the market with consumers, including new advertising campaigns. Further, we are gaining early traction with our cost savings program while continuing to work to innovate our core product offerings to better enable us to increasingly address the ever growing obesity epidemic," commented David Kirchhoff, Chief Executive Officer of the Company.
Kirchhoff added, "We are narrowing our fiscal 2013 earnings guidance to incorporate our business trends to date, our current cost savings program and the effect of higher interest expense related to our recent debt refinancing. Our full year earnings guidance range is now between $3.60 and $3.90 per fully diluted share excluding a one-time charge associated with our refinancing which we will record in the second quarter."
Q1 2013 Consolidated Summary
First quarter 2013 net income was $48.8 million versus $54.6 million in the prior year period. Earnings per fully diluted share (EPS) for Q1 2013 were $0.87 versus $0.74 in the prior year period.
EPS in Q1 2013 continued to benefit from the completion of the Company's previously disclosed tender offer and related stock repurchase transaction that took place in March and April 2012, respectively. Foreign currency did not have a significant impact on EPS in Q1 2013.
Q1 2013 Global Results
First quarter 2013 revenues decreased 3.2% on a constant currency basis versus the prior year period, resulting from lower sales in the meetings business as the Company experienced weaker volumes globally, but most notably in North America and the UK. This decline was only partially offset from continued growth in the WeightWatchers.com business across all geographies.
Q1 2013 total paid weeks were up 1.4% as compared to the prior year period. Online paid weeks increased 10.3% versus the prior year period, while meeting paid weeks declined 8.1% versus the prior year period.
Q1 2013 operating income increased 1.0% on a constant currency basis versus the prior year period. The increase in operating income was driven by lower marketing expense, primarily in the United States, a combination of a strategic decision made by the Company in fiscal 2012 not to repeat a men's campaign in the first quarter of fiscal 2013 and more efficient digital advertising.
Q1 2013 NACO Performance
First quarter 2013 meeting revenues for the North American meetings business (NACO) were down 7.3% on a constant currency basis versus the prior year period, as a result of lower enrollment volumes. Q1 2013 meeting paid weeks and attendance decreased 6.5% and 15.9%, respectively, versus the prior year period.
The Company completed three franchise acquisitions in the second half of fiscal 2012 (September through December 2012) as well as a fourth franchise acquisition in March 2013. Franchise acquisitions benefitted NACO revenue by approximately 1.0% in the first quarter of 2013.
Q1 2013 International Performance
First quarter 2013 International meeting revenues were down 10.8% on a constant currency basis versus the prior year period, primarily driven by lower sales in the UK.
UK: First quarter 2013 UK meeting revenues decreased 18.6% on a constant currency basis versus the prior year period. The results in this market were negatively impacted by a difficult macroeconomic and competitive climate. Paid weeks declined 17.8% versus the prior year period.
CE: First quarter 2013 Continental Europe (CE) meeting revenues decreased 1.9% on a constant currency basis versus the prior year period, while paid weeks declined 1.0% versus the prior year period. Declines in volume trends in CE were driven by cycling against the successful launch of the new program and new advertising campaigns in the prior year period.
Q1 2013 WeightWatchers.com Performance
The WeightWatchers.com business continued to deliver double-digit growth in the first quarter of fiscal 2013, with Internet revenues up 10.9% on a constant currency basis versus the prior year period. Internet revenues were up in all markets. Online paid weeks were up 10.3%, and end of period active Online subscribers were up 6.2%, versus Q1 2012. Sign-up performance in the US was weak, as the difficult macroeconomic environment and the heightened competitive backdrop reduced consumer trial of our program. Sign-up performance in International was strong.
On April 2, 2013, after the end of first quarter of fiscal 2013, the Company completed the successful refinancing of its long-term debt, which represents a multi-year extension on the maturity dates from the Company's previous term loan facilities and includes a new revolving credit facility with a maturity date of April 2018. The Company used the proceeds from its new term loans to pay off the outstanding borrowings under its previous term loans and revolving credit facilities.
Full Year Fiscal 2013 Earnings Guidance
The Company has narrowed its full year 2013 earnings guidance to a range of between $3.60 and $3.90 per fully diluted share, which includes the impact of approximately $0.15 related to higher interest expense from the Company's recent debt refinancing. This earnings guidance range excludes an expected one-time charge to be taken in the second quarter related to the write-off of fees associated with the debt refinancing. The new earnings guidance range compares with the Company's previously provided earnings guidance range of between $3.50 and $4.00 per fully diluted share.
First Quarter 2013 Conference Call
The Company has scheduled a conference call today at 5:00 p.m. ET. During the conference call, David Kirchhoff, Chief Executive Officer of the Company, and Nicholas Hotchkin, Chief Financial Officer of the Company, will discuss first quarter 2013 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 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.
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