WW Reports Q2 Results – Brighter Outlook, Stock Upgrades

August 8, 2019

On Aug, 6th, the company reported that:

“Member recruitment trends improved throughout the second quarter as we saw good response to our spring campaigns. End of period subscribers increased 1.5% year-over-year to 4.6 million – our highest level ever for a second quarter,” said Mindy Grossman, the Company’s President and CEO. “We are focused on building momentum and look forward to launching our new program innovation later this year, which we believe will accelerate subscriber growth in 2020. We are still early in our journey as a global holistic wellness company with the best-in-class weight management program, and we see tremendous opportunities ahead to drive growth in 2020 as well as over the long-term.”

“Solid execution drove our results to be above our expectations for the quarter.  With improving trends, particularly in Digital, we are raising our earnings guidance for the full year to a range of $1.55 to $1.70 per fully diluted share,” said Nick Hotchkin, the Company’s CFO, Operating Officer, North America and President, Emerging Markets.

  • End of Period Subscribers in Q2 2019 of 4.6 million 
     
  • Revenues in Q2 2019 of $369 million 
     
  • Q2 2019 EPS of $0.78
     
  • Raising FY 2019 EPS guidance to a range of $1.55 to $1.70

Q2 2019 Business and Financial Highlights

  • End of Period Subscribers in Q2 2019 were up 1.5% versus the prior year period. Q2 2019 End of Period Digital Subscribers were up 8.3% and End of Period Studio Subscribers were down 11.1% versus the prior year period.
     
  • Total Paid Weeks in Q2 2019 were down 0.6% versus the prior year period. Q2 2019 Digital Paid Weeks increased 6.6% and Studio Paid Weeks decreased 13.2% versus the prior year period.  
     
  • Revenues in Q2 2019 were $369.0 million. On a constant currency basis, Q2 2019 revenues decreased 8.1% versus the prior year period. 
    º Service Revenues in Q2 2019 were $313.8 million. On a constant currency basis, these revenues decreased 6.9% versus the prior year period, primarily driven by Studio member recruitment declines.
    º Product Sales and Other in Q2 2019 were $55.3 million. On a constant currency basis, these revenues decreased 14.5% versus the prior year period, primarily due to a decline in product sales.
     
  • Operating Income in Q2 2019 was $105.5 million compared to $127.7 million in the prior year period. This decrease in operating income was primarily driven by operating deleverage on lower revenues in the quarter versus the prior year period.  

Full Year Fiscal 2019 Guidance

The Company now expects full year fiscal 2019 revenues of at least $1.4 billion and is raising its earnings guidance to between $1.55 and $1.70 per fully diluted share.

Weight Watchers International Inc. was upgraded from underperform to buy at Bank of America Merrill Lynch on subscriber numbers stabilization in the second quarter and a user-driven 2020 program that leaves analysts bullish. Bank of America raised its price target to $27 from $25.

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

https://corporate.ww.com/file/Index?KeyFile=399077096

Conference Call Highlights:

In the Aug. 6 conference call, management reported that 4.6 mill. subscribers was their highest level ever, and that Q3 is off to a strong start. The firm's celebrity ambassadors are generating more exposure and impressions. Gross margin is 58%. End of Q3 subscribers is expected at 4.3 million. The average retention of U.S. studio members is 10 months.

No. American and UK revenues in 2019 are expected to be down in the mid to single digits, with Continental Europe flat. Marketing spend for 2019 is expected at $250 million (17.8% of sales). EBIDTA for 2019 is expected to be $360 million. WW will spend $40 million on marketing in Q3, and the firm did not run any TV ads in July.

WW is opening its first WW studio in a Kohl's retail store, in Chicago, later this month. WW is pilot testing a virtual group coaching service. The company is working on changes to its employer health solutions business, seeing more business potential there. The 2020 innovation to its program is coming in Q4 but still not details. 75 of its retail studio sites are slated for modernization (but this is a small number of its total 800 sites).

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