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WW Reports 3rd Quarter Performance

Nov. 5, 2019

“As our strong marketing execution successfully recruited new members and retention continued to increase, we outperformed our expectations for subscriber growth, resulting in our highest-ever end of period subscribers in a third quarter,” said Mindy Grossman, the company’s CEO. “Next week, we will be launching our new program – our most customized yet – which we believe will have broad appeal among current, returning, and first-time members.  The new program, paired with our overall marketing strategy and community activations, including WW Presents Oprah’s 2020 Vision: Your Life in Focus tour, will serve as a strong foundation to accelerate subscriber growth in 2020 and deliver value to our members, employees and shareholders.”

“Subscriber growth gained momentum in the third quarter, with end of period subscribers increasing 6% year-over-year to 4.4 million,” said Nick Hotchkin, the company’s CFO.

End of Period Subscribers in Q3 2019 were up 5.7% versus the prior year period. Q3 2019 End of Period Digital Subscribers were up 12.5% and End of Period Studio + Digital Subscribers were down 7.3% versus the prior year period.

Revenues in Q3 2019 were $348.6 million. On a constant currency basis, Q3 2019 revenues decreased 3.3% versus the prior year period.

Operating Income in Q3 2019 was $94.7 million compared to $118.9 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. 

The company is reiterating its full year fiscal 2019 revenue guidance of at least $1.4 billion and raising its earnings guidance to between $1.63 and $1.75 per fully diluted share.

Investors may have been looking at the 4.6 million subscribers in Q2 and are disappointed that Q3 only produced 4.4 million. As a result, the stock was down 16% after the market’s close.

Conference Call & Marketdata Commentary

Management reported that September was a strong month, and that the Oprah tour for 2020 is 90% sold out. The big announcement,m however, is that WW is going to roll out globally its new program innovation early–next week, Nov. 11th, instead of waiting for the new diet season after Christmas. This is a surprise and a gamble. Tweaks to the program are usually rolled out during the last week of the year. WW did say that the bulk of their marketing effort will still be focused on the end of the year.

This program innovation will entail more customization and personalization, and will appeal to both new and existing customers.

Marketdata just wonders what will happen if the response to the new program is less than enthusiastic. Will they have anything else left to fuel a strong start to 2020?

Management also mentioned virtual group coaching coming in 2020.

Some good questions were asked by analysts attending the conference call. One analysts asked about how competitors such as Noom and the popularity of the Keto diet will affect their strategy. In typical fashion, management avoided answering the question, saying that they will focus on what WW does and not the competition.

They COULD have pointed out that Noom has been discounting their service by 80% in their ads and emails, and that its service can cost up to $50 per month, which is higher than WW’s monthly pass (and you don’t get face to face interaction). Why wouldn’t they say that? WW management COULD have pointed out that the Keto craze, like many other fad diets of the past, will probably have a limited cycle and people will get tired of it. Why are they afraid to compare their program to the competition? Is there some unwritten rule we don’t know about that prevents you from talking about the competition?

Another question had to do with the sustainability of the business apart from the yearly “innovations” or new programs. Again, no acceptable answer. It’s kind of annoying that diet company managements, when faced with a specific question that they don’t like or feel uncomfortable answering, resorts to generalizations and don’t really address the specific of the question. Kind of like politicians.

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