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Weight Watchers Reports Q4 and Full Year 2012 Results, Analysts Disappointed, Stock Price Falls

Full year 2012 revenues increased 1.8% on a constant currency basis versus the prior year as the Company continued to benefit from strong global growth in the WeightWatchers.com business. Revenues for 2012 were $1.826 billion, vs. $1.819 billion in 2011. This growth in the WeightWatchers.com business was in large part offset by lower sales in the meetings business as the company experienced weaker volumes particularly in North America and the UK. Full year 2012 total paid weeks were up 9.3% as compared to the prior year, on top of the 37.3% growth reported for the full year 2011 versus the full year 2010. Full year 2012 meeting paid weeks and attendance decreased 5.4% and 11.0%, respectively, versus the prior year. Online paid weeks for the full year 2012 increased 26.7% versus the prior year, on top of the 67.6% growth reported for the full year 2011 versus the full year 2010.

Full year 2012 operating income decreased 5.3% on a constant currency basis versus the prior year.

Meeting fees for 2012 stood at $935 million. Product sales at these metting were $253 million. Internet revenues was the bright spot, rising 26% to $504 million. NACO (North American) meeting fees were down 5.6% to $799 mill. and International meeting fees were down 9.0% to $389 million. Total attendance was down 11%.

The company provided full year 2013 earnings guidance of between $3.50 and $4.00 per fully diluted share.

"While 2012 set a company record for combined global meetings members and global Weight Watchers Online subscribers, we have been disappointed by our recruitment trends thus far in 2013," commented David Kirchhoff, Chief Executive Officer of the company. "Our current marketing has not been as effective in this tough economic and increasingly competitive environment."

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Marketdata Opinion & Conference Call Details

In the conference call after release of Q4 2012 and full year results, WW management revealed that early 2013 trends for the first 6 weeks of the new year are not good. Jessica Simpson getting pregnant again, after her success losing 50 lbs last year did not help. Also cited was the negative effect on consumer confidence related to the fiscal cliff situation and the higher payroll taxes that kicked in Jan. 1. Severe weather in the U.K. did not help either. Management also reported that they have not yet convinced many of its online users to convert to the regular program.

WW is retreating somewhat on the men's program, citing a too high cost per acquisition. As well, the firm is reducing its advertising spend on banner ads online. They are eliminating all non-productive ad spending.

The company doesn't see any real threat from mobile weight loss apps or from social media, and reports good progress in the B2B market. They also don't see much impact from the new Rx diet drug from VIVUS, since it still has a high out-of-pocket co-pay. The drug is also viewed as an adjunct to lifestyle changes, not a replacement for them. However, they do concede this could be a rough year. We'd also like to hear what progress the company has made in its multi-year retail site modernization. How many of the 850 or so leased sites have been refurbished? No one's talking about that.

All these factors may be true, but we at Marketdata don't think they fully explain why the response from consumers has been so weak. The simple fact, in our opinion, is that consumers (and Marketdata) just don't see much that's new with the 360 degree program. It's a very minor modification and tweaking of the Points system, but nothing to rave about. That said, in this environment of slow economic recovery, flat revenues or even a gain of 1-2% is no minor accomplishment. Flat is the "new growth". The company still generated $1.8 billion last year and its Internet revenues are still growing 20+% annually. When compared to other weight loss brands, that's not all that bad.

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