Weight Watchers Posts Strong 1st Quarter

May 3, 2018 - "Driven by the enthusiastic, global response to our new WW Freestyle™ program, we ended the first quarter with 4.6 million subscribers – the highest level in the history of Weight Watchers and an increase of 1 million compared to a year ago. Member engagement has been incredible with members staying longer than ever before.  Average retention is now well over 9 months," said Mindy Grossman, the company's President and CEO.

Nick Hotchkin, the company's CFO said. "Based on our strong performance and continued momentum, we expect our annual revenue to grow by almost 20% and have raised earnings guidance for 2018."

Highlights:

  • End of Period Subscribers in Q1 2018 up 29% year-over-year to a record 4.6 million, driven by growth in all major geographic markets.
  • Total Paid Weeks in Q1 2018 up 27% year-over-year
  • Revenues in Q1 2018 of $408 million, up 24%, or 20% on a constant currency basis, year-over-year.
  • WTW expects full year 2018 revenue slightly north of $1.55 billion.
  • Gross margin percentage of 54.1% in Q1 2018, up from 49.9% in the prior year period
  • Operating Income in Q1 2018 of $62 million, up 105%, or 96%
  • Raised FY 2018 earnings guidance to an EPS range of $3.00 to $3.20
  • Cash balance as of March 31, 2018 was $117.6 million
  • In Q1, North America revenue increased 20% on and end of period subscribers increased 28%. Continental Europe revenue increased 26% and end of period subscribers increased 34%. In the U.K., revenue was up 12% and end of period subscribers increased 19%.

Conference Call Highlights:

Continental European markets, France and Germany, achieving record member recruits in the quarter. France was the strongest performing market in Q1. Looking at the U.S. as an example, approximately 40% of member signups in Q1 were new to Weight Watchers, an increase in the proportion of first-time members compared to recent years. For the 1.6 million members, who are also looking for an in-person experience, globally, WTW held approximately 30,000 meetings a week, led by more than 8,000 coaches. "We have predictable seasonal trends with approximately 40% of our annual member recruitments and annual marketing expense occurring in the first quarter." Signups in Q1, 25% chose an initial 6-month plan versus only 5% taking the 6-month option the year ago. "

In North America, the firm's largest market, WTW anticipates full year revenues to be up in the mid-teens. In Continental Europe, they now expect full year revenue to be up in the mid-20% range. And in the U.K., they expect full year revenue to be up in the mid-teens. Marketing expense in 2018 is expected to be approximately $240 million or flat year-over-year as a percent of sales.

"This summer, we'll also be partnering with several nonprofit organizations whose mission and values align with ours. At the same time, we'll be kicking off an Invite a friend referral program. We piloted the invite-a-friend program in Canada, where it tested well in terms of member recruitment."

"We're working with Fresh Realm, who brings national scale and expertise in food logistics toward launching WW Fresh quick prep, preportioned meal kits and individual fresh food products. We expect WW Fresh to be available at grocery retail later this year."

The firm will be also be launching WW's first-ever integrated rewards and recognition program.

Marketdata Commentary

The company appears to be hitting on all cylinders. All geographic markets are growing, the company finally is pursuing some external retail partnerships, length of stay is rising, and there' still room for growth if they get some traction in the large healthcare organizations and corporate at-work market segments. WTW is also trying to maintain momentum during the traditionally slow summer months, exemplified by this statement: "I think the strategy of ambassadors and influencers is really enabling us to be visible throughout the year also."

Foreign markets offer lots of untapped potential as well.  "We've got a small business in Brazil and trying to have a presence at all in Asia-Pacific, so we've got terrific long-term opportunities." The company already has an edge over competitors such as NutriSystem and Medifast in terms of its international footprint. It has operated abroad for decades.

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

https://finance.yahoo.com/news/weight-watchers-announces-strong-first-201500443.html

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