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Weight Watchers Reports 1st Quarter Results, Stock Soars

April 30, 2014 — Weight Watchers reported Q1 results and raised its EPS estimate for the year.  Stock price up as much as 20% on May 1.

First quarter 2014 results include:

Revenues of $409.4 million, down 16.6% versus the prior year period, with total paid weeks down 13.9%
Cash flow provided by operating activities totaled $83.1 million
Earnings per fully diluted share (EPS) were $0.38″We are encouraged by the progress we are making on our transformation plan, but there is still a great deal of work to do,” commented Jim Chambers, the company’s President and CEO Chambers added, “Our Q1 financial results were ahead of our expectations.  Given this, we have revised our full year fiscal 2014 earnings guidance to a range of $1.45 to $1.70.”

Effective the first day of fiscal 2014, the company realigned its organizational structure and the Company now has four reportable segments:  North America, United Kingdom, Continental Europe and Other.  Other consists of Asia Pacific, emerging markets and franchise revenues.

In addition,  in March 2014, the company acquired an additional 45% equity interest in its Brazilian partnership, increasing its equity interest to 80%. The Denmark operation was closed. The company also acquired a San Francisco start-up called Wello. a company that offers one-on-one and group fitness training online.

First quarter 2014 revenues, net decreased 16.9% on a constant currency basis versus the prior year period. This decrease was primarily driven by lower revenues in North America. Q1 2014 total paid weeks were down 13.9% as compared to the prior year period. The company expects 2014 revenues to decline to $1.4 billion.

Despite the launch of Simple Start at the beginning of the year, recruitment softness continued, impacted by activity monitors and free apps that generated significant consumer interest and influenced trial dynamics in the category. The company plans to put more emphasis on integration with activity monitors as well. New ads featuring Jessica Simpson will be out soon too.

In the conference call, significant time was provided for comments by the firm’s new technology officer, Dan Crowe, who stated; ” We will be agile service-oriented, data-driven, cloud-enabled and efficient. We will be a model for digital technology in the markets in which we compete…”

Marketdata Commentary

Analysts in on the conference call apparently saw some positives in the company’s outlook. Management reported seeing stabilization in the business and provided some more detail on their technology plans to move away from inefficient legacy systems
to a more modern platform, which will be ready for the Winter 2015 diet season. Management also said that they are adopting a more innovative start-up mentality that will allow them to create and launch new products/services much quicker, coupled with $150 million in cost savings and a headcount reduction of 200. The company also hinted at offering one-to-one coaching, which would be something new. As management reported, this is a good start but the company still has a lot of work to do to get back to a growth mode.

What we STILL haven’t heard anything about — What’s the average age of the firm’s 10,000 group leaders? Can they make a decent living/were their wages increased and are they now happy?  (Remember many complained about low wages and long hrs.) What percentage of them are minorities? These group leaders are one the company’s most valuable assets, that deal with customers every day, so why aren’t the Wall St. analysts even asking about them? Just unbelievable. And these analysts make $300-500K a year for their insights?

Find the complete press release and financials here

Find a transcript of the entire conference call here

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