Weight Watchers Beats Q1 Estimates

May 7, 2019

Weight Watchers International (WW) came out with a quarterly loss of $0.16 per share versus the Zacks Consensus Estimate of a loss of $0.26. This compares to earnings of $0.31 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 38.46%.

The firm posted revenues of $363.1 million for the quarter ended March 2019, compared to year-ago revenues of $408.2 million.

  1. End of Period Subscribers in Q1 2019 4.6 million, up 1% year-over-year
  2. Total Paid Weeks in Q1 2019 up 4% year-over-year
  3. Revenues in Q1 2019 of $363 million, down 11%, or 9% on a constant currency basis, year-over-year
  4. FY 2019 EPS guidance increased to a range of $1.35 to $1.55.

“Trends improved sequentially throughout the quarter, resulting in 4.6 million subscribers at quarter end, up 1% year-over-year,” said Mindy Grossman, the company’s President and CEO. “We are confident that our strategy to focus on providing holistic wellness solutions leveraging our best-in-class weight management program is the right path to support long-term sustainable growth.”

“For the remainder of the year, we are focused on driving member recruitment and retention and elevating our brand, as well as exercising strict cost discipline,” said Nick Hotchkin, the company’s CFO.

  • Service Revenues in Q1 2019 were $306.7 million. On a constant currency basis, these revenues decreased 4.1% versus the prior year period.  This decrease was primarily driven by declines in the North America and UK markets. 
  • Product Sales and Other in Q1 2019 were $56.4 million. On a constant currency basis, these revenues decreased 26.8% versus the prior year period, primarily due to a decline in product sales.
  • Operating Income in Q1 2019 was $21.9 million compared to $62.1 million in the prior year period.
  • Full Year Fiscal 2019 Guidance...The company is reiterating its full year fiscal 2019 revenue guidance of approximately $1.4 billion and raising its earnings guidance to between $1.35 and $1.55 per fully diluted share.

Conference Call Findings:

Management claims that the business has stabilized and they now have more targeted and focused marketing efforts across all platforms. They plan to focus on four consumer areas: nutritional science, visibility and flexibility, technology (app engagement is growing), and personalization.

Digital revenues were up 115 in Q1, and the firm had a 55% gross margin. EBIDTA for the year is expected to be $350 million. WW plans to spend $250 million on marketing this year. The firm has a $193 mill. cash balance.

Nick Hotchkin, the CFO, will be the new operations director for NACO.

WW will be tracking customer satisfaction levels more closely via MPS data. It is now pilot testing virtual coaching. The 2020 "innovation" is coming later this year. Special groups are being added to Connect (brides, LGBTQ, etc.). In the Summer there will be some events, such as a Global Wellness Day. The company added a new celebrity ambassador in the UK that's doing well.

Marketdata Commentary

The company seems to be on the right track and has corrected marketing missteps of Q1. One move we question, however, is the appointment of Nick Hotchkin to the head of NACO operations. Yes, he has a significant tenure with the company, but does a finance guy have the marketing and operations expertise needed to run NACO, and rally the troops? This is a new area for him, and we don't know if he has the chops to do it. NACO is a very significant chunk of the business.

The complete Press Release with financial tables can be found here:

https://corporate.ww.com/file/Index?KeyFile=397778418

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