Weight Watchers International Inc. (WW) Third quarter 2019 earnings call transcript | EXCLUSIVE OFFER !

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Weight Watchers International Inc (NASDAQ: WW)
Call for results for the third quarter of 2019
November 5, 2019, 17:00. AND

content:

  • Prepared notes
  • Questions and answers
  • Call the participants

Prepared notes:

Operator

Welcome to WW International's third quarter 2019 earnings conference call. (Operator Instructions) After the presentation today, you will have the opportunity to ask questions. (Operator instructions)

I would now like to leave the conference to Corey Kinger, Investor Relations. Please go ahead.

Corey KingerVP, Investor Relations

Thank you, Alison, and thank you all for joining us today for WW International's third quarter 2019 conference call. At approximately 16:05 Eastern Standard Time, we issued a press release disclosing our results for the third quarter of 2019. The purpose of this call is to provide investors with additional information about the Company's financial results. as well as a general update on the progress of society.

The press release is available on the company's website, at corporate.ww.com address. Additional investor materials are also available on the Company's website, in the investor section under Presentations and Events.

Reconciliations of the non-GAAP measures disclosed in this conference call with the most directly comparable GAAP financial measures are also available in the press release.

Before I begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that all forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the Company's filings with the Securities and Exchange Commission. Please refer to these documents for a more detailed discussion of the forward-looking statements and the risks and uncertainties of such statements.

All forward-looking statements are made as of today and, unless required by law, the Company assumes no obligation to publicly update or revise such statements, whether as a result of new information, future events or otherwise.

Mindy Grossman, President and Chief Executive Officer; and Nick Hotchkin, Chief Financial Officer, Head of Operations, North America and President, Emerging Markets.

I will now give the call to Mindy.

Mindy F. GrossmanPresident and Chief Executive Officer, Director

Thank you, Corey. Good afternoon to all and thank you for participating in our call today. We ended the third quarter with 4.4 million subscribers, up 6% over the previous year, which is a positive momentum compared to the second quarter, where we recorded a 1 , 5% of the number of subscribers at the end of the period. This is the highest level of subscribers in the Company's third quarter as a result of our progress in returning our hiring trend to a positive trajectory and retention.

This strong performance generated revenue of $ 349 million in the third quarter, operating income of $ 95 million and EPS of $ 0.68. Thanks to improvements in every aspect of our advertising campaigns, research, eCRM, studio engagement, etc., we are proud to say that we had positive membership recruitment on a global basis in the third quarter. Registrations for digital subscriptions continued to show year-over-year gains and the enrollment trend for studios continued to improve. We expect an acceleration of recruitment growth in the fourth quarter.

Our average retention has continued to increase and is now barely more than 10 months in the world. This is an important milestone for our brand, reflecting the intense drive we have had to both enhance our studio experience and deliver a leading digital ecosystem in the market, with which our members commit each day. Although retention trends may be rewarded (Phonetics) at the launch of a new program, we are confident that these retention gains induced by our engagement strategy will continue during the season. ;winter.

As we have discussed throughout the year, we have identified five priority areas for 2019 that all align with our key goals of recruiting, retaining and enhancing the WW brand. They are marketing, execution and strategy; studio strategy and future experience; Innovation 2020; customization; and the activation of the global community. Our teams have done a remarkable job improving our marketing execution since the beginning of the year and the results translate into a sequential improvement in our subscriber and revenue trends.

Our fall marketing campaigns have stimulated all of our global markets. September has been our best recruitment month of one year on the other since the beginning of the year, supported by TV advertising in our major markets. Our American advertising creative presented the experience of 10 of our members during their visit to Oprah Winfrey in Maui and sharing their WW stories. Social and digital networks have also been very effective at generating increased traffic worldwide.

The power of our science, but also the fun of our creativity, resonates well with the public. We continue to be agile and flexible, adjusting our mix in real time to efficiently drive traffic and conversion.

In addition to recruiting-driven marketing, our teams do an excellent job of communicating with current members, which improves the user experience and promotes loyalty. Among all the points of contact of our members, we focus on commitment and measurement. We have improved our email marketing capabilities to include more personalized and differentiated content in our monthly member newsletter, which results in higher click rates.

Members appreciate and respond to more personal content. In August, I launched a personal monthly newsletter, giving members a behind-the-scenes glimpse of what was happening at WW, sharing my experience as a member, sharing my family life, my social life and the how I live my WW life.

In addition, I communicate frequently with members directly via Connect and other social channels. Having this ability was fantastic to keep the pulse and become a genuine member of the WW community. Our marketing efforts for members have also increased the visibility of our WellnessWins loyalty and rewards program, in applications, e-mails and social marketing. Our current goal is to help improve the tracking of food and activities, even during the holiday season, and to expand our incentive rewards catalog.

Since their launch a year ago, members have won 6.1 billion wins. Donations to WW Good, our social impact initiative to provide fresh fruits and vegetables to families in need, continue to be one of the most traded awards. They demonstrate the effect of the effect paid in the WW community and raised nearly $ 0.5 million. These victories provide our members with positive reinforcement and motivation to continue their journey.

We have always been obsessed with consumers and brands, and while seeking to improve the perception of the relevance of WW, we constantly monitor the perception and brand awareness. Since the winter, in most markets, the new WW logo, known as Weight Watchers, has been the subject of growing or sustained awareness and the relevance of the brand continues to s & # 39; improve. We focus on improving the perception of branded maternity especially among potential members and on the fact that WW is recognized as a plan for me.

With the upcoming launch of our new innovation program, we believe that we are well positioned to make significant gains in these areas in 2020. Trends in NPS, which is an indicator of customer satisfaction, are very positive for our studio and our digital experiences. in our geographic markets. Our application experience continues to receive high marks among our membership base, demonstrating that the digital experience combined with a highly tactile in-person community provides invaluable value to members.

Member engagement for apps remains strong, with strong trends in the percentage of members following their food, registering their weight, using Connect and synchronizing a fitness device. In September alone, nearly 2 million members used Connect and in the third quarter, our members created nearly 2 million messages, 13 million comments and more than 60 million likes.

The number of members clocking one device each month was over 1.6 million in the third quarter, compared to about 1.3 million the previous quarter. Community and commitment are at the heart of everything we do. The more points people have, the more likely they are to continue their journey and become more successful. And when we influence a person's life, it creates a coaching effect that affects family and friends, spreads healthy habits and creates lasting change.

I will now give Nick the call to discuss our finances and perspectives, and then I will come back to discuss our priorities and plans for 2020.

Nicholas P. HotchkinCFO, Head of Operations, North America and President, Emerging Markets

Thank you, Mindy. Before discussing our initiatives regarding our studio strategy and future experience, I will review our third-quarter financial data and take stock of our outlook for the full year. We closed the third quarter with 4.4 million subscribers, up 6% year-on-year, higher than we expected. The number of end-of-period digital subscribers increased 13% year-over-year to 3.1 million, up from 8% in the second quarter. The number of studio subscribers in the period decreased 7% to 1.3 million, up from 11% in the second quarter.

Global global recruitment was positive compared to the previous quarter, as September's trends accelerated with the start of our fall marketing campaign and remained strong in October, placing us, in our view, in a good position. starting position for our innovation launch and our winter season. Recruitment channels such as Invite a Friend and Integrated Purchasing have continued to work well for us and are very effective at attracting members for the first time. In the third quarter, about 15% of our global recruits joined through these two channels.

In the third quarter, total revenue amounted to $ 349 million, down 3% from one year to another in constant currency. Digital subscription products grew by 9% and studio products by 13% at constant exchange rates. Continental Europe was our best-performing segment, with total sales up 3% from the previous one. Gross margin reached 56%, down 300 basis points year-on-year at constant exchange rates due to lower revenues, winter launch preparations and inventory reserves increased compared to the previous year. Earnings from operations were $ 95 million, down 19% from the same period last year, at constant currency, primarily due to a reduction in the impact activity related to the decline in operating revenues compared to the same period last year.

Our tax rate for the third quarter was 22%, which was lower than we had previously anticipated. Third-quarter EPS GAAP was $ 0.68, compared with $ 1.00 in Q3 2019. EBITDAS was $ 109 million in Q3, compared to $ 135 million for the same quarter last year.

Let's move on to our perspectives. We expect the trends in our business to continue to increase in the fourth quarter. We are still forecasting that the business figure for the year 2019 will reach at least $ 1.4 billion, despite the increased currency difficulties in the second half of the year. Our revenue forecast now assumes a negative foreign exchange impact estimated at $ 28 million compared to the $ 20 million anticipated in our August call and our $ 12 million call in May. These forecasts also assume a continued shift in composition towards digital subscriptions and predict further improvement in recruitment trends in the fourth quarter.

Although product sales have declined since the beginning of the year, we expect that they will become positive in the fourth quarter as we will benefit from our expanded range of offerings and enhancements. trends in studio attendance. Overall, we expect subscription revenues to account for approximately 85% of our total revenues in 2019.

We continue to forecast that the turnover in North America and the United Kingdom will show a decline in its average one-digit business turnover over the previous year, at exchange rate constant. We are now expecting a turnover in Continental Europe slightly up from the previous year. a constant currency base. Our indicative range of EPS for the full year increased from $ 1.63 to $ 1.75. This forecast is based on 70 million shares outstanding for the full year.

For the rest of my comments, I'll talk about the mid-point of our BPA range over a full year and at a constant exchange rate. We expect fourth quarter gross margin to decrease by approximately 300 basis points, reflecting initial investments to support the upcoming launch of the program. We estimate that the gross margin rate will decrease by around 150 basis points for the full year 2019.

Marketing expenses in 2019 are expected to rise to around $ 245 million. We will continue to be flexible and flexible in our approach, investing in initiatives that deliver results and launching our winter TV advertising campaign after Christmas. General and administrative expenses in 2019 are expected to be slightly north of $ 250 million. Below the line, we now assume that interest expense will be approximately $ 136 million for the full year and an effective tax rate of approximately 23% for the year. In the expectation of finalizing regulations that could have an impact on the foreign income tax, our full year tax rate could not exceed 20%, which is reflected in the upper part of our indicative range of BPA.

For the year, we expect operating expenses, primarily focused on technology improvements, capitalized software and studio network enhancements, to be around $ 60 million and that D & A should be about $ 50 million.

I would now like to spend a few minutes talking about our capital structure and our cash generation. Our liquidity position is strong. At the end of the third quarter, we had $ 239 million in cash and an unused revolver of $ 150 million. With improving business trends and strong cash generation, early in the fourth quarter, we decided to voluntarily repay an additional $ 50 million in term loans, bringing the total of voluntary prepayments of this year to $ 100 million.

We expect EBITDAS of approximately $ 360 million for the full year, which will help maintain our strong cash generation. We have a debt structure consistent with the agreement and the ability to prepay our term loan at any time. We ended the third quarter with a leverage ratio of net debt to EBITDAS of 3.85 times. It should be noted that the leverage calculations used in our credit agreement are based on the senior lien principle and that, in the third quarter, our consolidated net debt leverage ratio ranked first on EBITDAS was 2.92 times.

With a business model generating a lot of cash, we have the resources and the flexibility to not only run the business and reduce our debt levels, but also to continue to invest in initiatives that will contribute to our bottom line. growth. Beyond direct investments in operations, we can also pursue mergers and acquisitions, technology and digital products, as well as franchises such as our recent acquisition of the Last Vegas franchise in October. Looking ahead, we plan to end the year 2019 with more subscribers over twelve months, which, given the nature of our commercial subscription model, is translates into a modest additional income up to 2020.

It should be noted that this is only a starting point, before taking into account the benefits of the expected growth in membership recruitment next year. And while we do not provide specific revenue guidance for 2020 today, given our momentum and successful initiatives this year, coupled with the upcoming launch of our new program, we plan to increase recruitment, increase the number of subscribers and increase revenue and profitability in 2020.

Before returning the call to Mindy, I would like to discuss our initiatives regarding our studio strategy and our future experience. The resumption of studio growth is an important part of our strategy. The strong focus on the company has resulted in a steady improvement in trends since the beginning of the year and we expect studio studio recruitment to become positive in the fourth quarter.

Despite these measures, the studio sector continues to weigh on our revenue statistics even though the price of the studio subscription is twice that of the digital subscription. As we expect digital growth to continue to outpace studio growth, our long-term component studio strategy. In the short term, we are launching another workshop participation challenge, encouraging members to stay engaged during the November and December holidays. Our summer attendance challenge has been a great success this year and we intend to build on our momentum in 2020.

In addition, we are adding more rewards to our members. These moments of recognition and celebration are powerful motivators that are an integral part of the members' journey. On the people side, we are very fortunate to have a group of passionate and committed coaches and guides who inspire and encourage members every day.

Historically, we have recruited our coaches only from among our studio members. We are also recruiting from our digital members who are equally passionate and committed and we believe this approach will be beneficial as we seek to attract new audiences and take advantage of our coaches in a digital environment as well as in the studios. In addition to these short-term actions, we reinvent the studio experience and we see a path to a variety of experiences that meet the needs and demands of our members. 28 high-volume US studios now have more full-time, ever-enriched experience, with an expanded selection of retailers and a full-time studio director engaging members, engaging and enrolling, and raising awareness of the local community .

We are also testing the studio in a store located in partner sites, such as our newly opened driver with Kohl's in Dekalb, Illinois. The first reactions were positive. They help to increase the number of studio registrations and the upgrade of only digital member studios. .

To reinforce our brand presence this winter, we will test ephemeral seasonal stores in busy locations where customers can learn more about WW and speak with a coach. At the same time, we will continue to have a footprint of flexibility to exploit third-party sites, which we call studio ads, to reach communities where we only hold a few meetings a week.

Finally, we are currently testing virtual group coaching in several markets. We are very excited about this and are planning a wider launch later in 2020, offering more ways for members to interact with our coaches, as well as with other members, no matter what format is right for them. life.

And with that, I would like to return to Mindy.

Mindy F. GrossmanPresident and Chief Executive Officer, Director

Thank you, Nick As a goal-oriented organization, we strive to provide our members with a deeply human and personal experience, optimized by technology and based on an effective, science-based program that delivers results sustainable. I am very pleased to announce that next week we will launch our new Innovation Program worldwide.

As a reminder, our last Innovation program was in December 2017. All details will be announced on Monday, November 11th. This new program will be our most personalized weight loss program ever, leading to clinically significant weight loss model healthier eating. We are constantly listening to our community and we know that our members want a more personalized approach. We are excited and look forward to launching this program.

And as always, no food will be banned on the Internet. Beyond our 2020 food innovation, our goal is to permanently personalize the WW experience, so that each member of the group believes to understand them, to know them and to offer them a program especially for them.

Prior to launching our innovation, we worked intensively with our studio teams to ensure that our coaches and guides have the training and support they need to effectively advocate for the new program. Through a combination of live training and virtual micro-learning sessions, our teams are well prepared and excited about the imminent launch.

While the launch of our program and our messages are imminent, all the amplification of our marketing will begin after Christmas. This winter, we'll be launching a targeted campaign highlighting the new WW program, weight loss results and success stories from individual members who have successfully lost weight with the new WW program, including those from our ambassadors of global celebrities such as Kate Hudson. , Tamela Mann, Helen Segara, Robbie Williams, Sam Armytage and many others. It will be a robust integrated campaign on television, social networks, digital and public relations.

Oprah Winfrey will also be present in our campaigns in the United States and Canada with a crowd of members, who will express themselves so that the new WW program is personalized for you. As we have already discussed, one of our other priorities is to galvanize communities and reach new and diverse audiences through events, activations, content and events. experiences. We have launched this initiative with events around World Wellness Day at Essence Fest, WW Good events and a number of special wellness events across our markets.

We will continue to mobilize in 2020 and beyond, by encouraging the community and bringing people together in a new way. And starting in January, there will be a tremendous opportunity to do what WW and Oprah Winfrey do best, bringing communities together for a common goal of health and well-being. Together, we will present WW presents Oprah's 2020 Vision: Your Life in Perspective, a one-day wellness event in nine US cities.

We are delighted by WW's incredible response to Oprah's 2020 tour as part of the WW tour, which already has over 80% of the national tour. The press coverage has been fantastic so far, generating 23 million impressions online and nearly 19 million mentions on radio and radio. We look forward to announcing special guests and getting more details on the tour in the coming weeks. We are thrilled to present Oprah's Vision 2020 presentation tour to more than 100,000 people, with a much greater ripple effect at the beginning of the year.

Harnessing the unparalleled power of an in-person experience and extending it to our global community is one of the many ways in which WW inspires the community as a global wellness partner, making it accessible to all. People are looking for experiential, creative, empowering and fulfilling experiences. Creating and delivering such events is now essential to reach a new and diverse audience and connect to WW.

We also explained that we wanted to own Healthy Kitchen, be it products, foods, content and experiences. As we grow our brand, WW goes to new places, from Barclays Center cafes and menus to Healthy Kitchen tools and food products in 250 Kohl stores, and now, WW is at home. # 39; airport. Our fully reformulated and refurbished instant WW snacks are now available in more than 80 (indecipherable) markets at nine major US airports including JFK, LaGuardia, Newark and Chicago O & # 39; Hare.

And while we're looking to make an impact on the definition of healthy cooking in addition to our healthy meals with Blue Apron, we are now collaborating with Sur La Table, offering WW cooking classes in more than 80 of their stores. We are excited about the upcoming class fill rates with Asian favors, with the WW class being the most popular WW cooking class to date.

We are also actively working on the complete transformation of our health solutions business. Our goal has been to train a whole new team, to optimize our program offer and to develop the technological systems necessary to improve our processes and our reports. Avec une équipe revigorée, nous visons à accroître la notoriété de WW en tant qu'avantage de bien-être et à démontrer la valeur de WW par le biais de partenaires stratégiques représentant les employeurs, les fournisseurs, les médecins et les payeurs.

Nous avons une grande liste de clients, nous constatons un plus grand engagement et une opportunité considérablement plus grande dans les années à venir. Nous parlerons plus en détail des opportunités à court et à long terme pour cette activité en 2020.

Nos équipes du monde entier sont extrêmement enthousiastes et énergiques alors que nous concrétisons notre vision d'inspirer des habitudes saines pour la vie réelle et d'assurer le bien-être de tous. Avec un nouveau leadership dans bon nombre de nos pays, nos équipes sont énergiques et concentrées sur l'amélioration des tendances en 2019 et la mise en œuvre des priorités qui contribueront à un avenir plus fort.

En résumé, nos résultats du troisième trimestre démontrent clairement notre capacité à relancer l’activité et WW est sur le point de revenir à une trajectoire de croissance en 2020. Je suis confiant dans nos stratégies et nos plans pour améliorer notre marque, diversifier notre public, élargir notre présence et une croissance et une rentabilité durables à long terme. Nous aurons un élan vers 2020, accéléré par notre nouveau programme Lancement de l'innovation, soutenu par une campagne d'hiver vigoureuse à venir et par l'engagement et l'enthousiasme accrus dans notre expérience de studio repensée. En outre, WW présente la tournée Oprah intitulée «Vision 2020: Votre vie en perspective», qui amplifiera notre message et encouragera la communauté et l'enthousiasme tout au long de notre saison d'hiver.

Merci de nous rejoindre à l'appel aujourd'hui. Et avec cela, nous allons maintenant appeler l’opérateur pour un Q & A.

Questions et réponses:

Opérateur

Je vous remercie. Nous allons maintenant commencer la séance de questions-réponses. (Instructions de l’opérateur) La première question de ce jour viendra d’Edward Yruma de KeyBanc Capital Markets. S'il vous plaît aller de l'avant.

Edward YrumaKeyBanc Capital Markets – Analyste

Hé, bonsoir et merci pour la question.

Mindy F. GrossmanPrésident et chef de la direction, administrateur

Salut Ed.

Edward YrumaKeyBanc Capital Markets – Analyste

Salut comment allez-vous. Alors quelques brèves de ma part. D'abord, merci d'avoir fourni au moins un peu de réflexion sur la manière de cadrer l'opportunité financière pour 2020. Je sais que par le passé, lorsque vous recrutez des membres, les marges de contribution se situent autour de 50%.

Je sais que vous ne donnez pas de conseils, mais y en a-t-il qui pourraient faire en sorte que l'année prochaine soit différente, une Et puis deux, évidemment beaucoup à discuter sur la nouvelle innovation – sur le programme. Lorsque vous songez à diriger le programme, en quoi ce lancement diffère-t-il de ce que vous aviez peut-être fait en 1917 et peut-être d'un point de vue financier, s'agit-il d'un lancement plus vaste et pouvez-vous nous dire comment nous devrions penser à la soulèvement de lui? Je vous remercie.

Nicholas P. HotchkinDirecteur financier, responsable des opérations, Amérique du Nord et président, Marchés émergents

Ecoutez, Ed, d’abord sur le plan économique, nous avons le même excellent modèle commercial que celui que nous avons toujours eu et des marges supplémentaires très élevées avec la croissance et nous nous attendons certainement à cela en 2020.

Mindy F. GrossmanPrésident et chef de la direction, administrateur

En ce qui concerne l’innovation du programme, ce qui nous enthousiasme le plus, c’est qu’en raison de sa nature personnalisée, nous pensons que cela séduira non seulement les nouveaux clients, mais aussi les clients inutilisés, mais également notre base existante, ce qui nous donne une très grande satisfaction. large éventail de personnes à qui le programme s'adressera et dans un environnement où les gens recherchent plus de personnalisation et de personnalisation. Et nous pourrons y parvenir avec des essais cliniques d'efficacité et d'efficacité significatifs dans tous les domaines du programme. Je pense que vous voyez que nos efforts de marketing sur toutes les plateformes sont cohérents. Nous pourrons donc lancer notre programme Innovation par l’intermédiaire de tous nos canaux de marketing et avoir l’impression que nous serons un message très clair en 2020.

Edward YrumaKeyBanc Capital Markets – Analyste

Génial, merci beaucoup les gars.

Opérateur

Notre prochaine question aujourd'hui sera posée par Alex Fuhrman du groupe Craig-Hallum Capital. S'il vous plaît aller de l'avant.

Mindy F. GrossmanPrésident et chef de la direction, administrateur

Salut Alex

Alex FuhrmanCraig-Hallum Capital – Analyste

Bonjour Mindy salut, Nick, merci d'avoir pris ma question. Je voulais poser quelques questions, il semblerait que vous ayez pu tester ou lancer votre nouveau programme au plus tôt dans quelques-uns de vos plus petits marchés, curieux de savoir comment cela s'est passé, s'il y a eu des enseignements intéressants tirés de ce déploiement initial.

Et puis, en y réfléchissant un peu plus largement, il semblerait que ce soit un peu plus tôt dans le calendrier que lorsque vous avez lancé Freestyle, il y a quelques années. Je suis simplement curieux de savoir si cela avait pour but de donner aux gens plus de temps pour s’ajuster, comment vous pensez au moment du lancement du nouveau programme de régime et comment cela se répercutera-t-il sur la saison occupée du mois ou des deux prochains ?

Mindy F. GrossmanPrésident et chef de la direction, administrateur

Oui, Alex, nous avons adopté une approche très structurée et disciplinée pour le lancement et nous avons clairement voulu tester des pilotes sur certains marchés pour nous assurer que toute notre technologie activait notre messagerie. Vous constaterez donc clairement cela dans le monde entier, chacun de ces programmes étant diffusé lundi dans le monde entier, ce qui suscite beaucoup d'enthousiasme.

En ce qui concerne le calendrier, les équipes travaillent sur cette question depuis très longtemps et nous sommes plus avancés que nous ne l’avons été. Nous sommes donc convaincus que nous devons nous rendre sur le marché et que nous sommes en mesure de galvaniser notre base de membres existante est un réel point positif. Mais l'essentiel de nos efforts de marketing, y compris nos efforts de marketing de masse à grande échelle, a vraiment lieu après Noël.

Alex FuhrmanCraig-Hallum Capital – Analyste

Génial, c'est vraiment utile. Je vous remercie. Et puis, Mindy, je pense que vous avez mentionné dans les remarques préparées que vous êtes assez confiant que vous pourrez conserver des augmentations de rétention que vous avez vues récemment que vous pourrez conserver. ceux à travers la saison d'hiver. Vous vous demandez simplement si vous pouvez préciser d'où vient cette confiance, est-ce quelque chose que vous voyez dans les chiffres aujourd'hui ou est-ce que cela est également lié au déploiement prochain du nouveau programme?

Mindy F. GrossmanPrésident et chef de la direction, administrateur

Oui, je pense que c'est vraiment important, et comme vous l'entendez chaque fois que je parle de rétention, je me concentre de manière maniaque sur l'engagement et nous mesurons cela dans chaque aspect de l'entreprise. numériquement; s'engager physiquement et suivre et s'engager dans la communauté ainsi que beaucoup d'efforts et de ce que nous avons fourni aux personnes de l'écosystème de la nutrition, des activités, de la mentalité, de notre programme WellnessWins et de la communauté ont tous contribué à cela. Donc, la mesure de l'engagement que nous constatons est à son plus haut niveau et cela nous donne confiance avec le fait que nous avons le nouveau programme et que nous aurons beaucoup de bruit sur la productivité de cela.

Alex FuhrmanCraig-Hallum Capital – Analyste

C'est génial, merci beaucoup, Mindy.

Opérateur

Notre prochaine question aujourd'hui viendra de Olivia Tong de Bank of America. S'il vous plaît aller de l'avant.

Olivia TongBank of America Merrill Lynch – Analyste

Grand merci. Bonne après-midi. Tout d’abord, sur le marché des tests, pouvez-vous nous dire quelques mots sur la manière dont vous mesurez les performances, sur les indicateurs de performance clés qui influencent vos décisions. Et ensuite, si la nouvelle innovation modifie les prix?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

So, a lot of the things we're testing our — we know the efficacy of the program, right. So what we're really testing, if you could imagine globally around the world, all of our technology changes. So we're making sure that that's going to be a seamless experience for people that they will be on-boarded into whatever new program.

So most of the attention is really being paid to the execution of the program, not necessarily marketing efforts, which really launch going forward. But we're very pleased with what we're seeing. Now that we truly operate as a global organization, I think you've heard us talk a lot about tests in markets from our group virtual coaching that now we'll be rolling out globally. So we're really leveraging our capabilities to test, accelerate and roll out, and this is another great example of that.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

And Olivia, like on the price side, no broad — no price change — no change to our strategy there. As you've heard us say many times, our focus is really on delivering value to our members to attract more people to the brand and to have them stay longer and that's what we'll plan to do this winter.

Olivia TongBank of America Merrill Lynch — Analyst

Got it, thanks. It's very helpful. Just two follow-ups there, first on the meeting biz. I guess I was a bit surprised how challenged it was this quarter and how does that in any way influence you as you prepare for the launch. What does it mean as you prepare that meetings to accelerate that dramatically. And if you could talk about things that you're doing to sort of prop that up.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, so, just to say, this was the least deceleration in a very long period of time. So we feel that we're making great progress in our studio business and we've said that we see that returning to growth. So I just need to clarify that.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Studio sign-ups, recruitment during the quarter was down year-over-year, but in the single-digits and a marked improvement from Q2 and Q1, and revenue, yeah, it's still down 13% in constant currency in Q3. Bear in mind that fall campaign happened in September. So our strongest month, we got some of that revenue in Q4 and a decent improvement from down 17% in Q2. So good progress in the studio business, a lot of focus, but obviously we're delighted that we're going to have a new program to shout about here on Monday.

Olivia TongBank of America Merrill Lynch — Analyst

Génial. Just one last thing in terms of external partnerships. There is a shortage that you have of external partnerships, whether it's lifestyle services, workouts, food, Amazon, etcetera. The one area that you haven't partnered so far is pharma. So what's your thought there and partnerships overall going forward?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, so I mentioned on the call, our health solutions business, which is our B2B or as I call it B2B2C business to recruit. So we're doing a lot of work there particularly in areas of diabetes and other areas. So we continue to look at partnerships across the spectrum and we'll be sharing with everyone those that will be moving forward with into 2020.

Olivia TongBank of America Merrill Lynch — Analyst

Great, thank you.

Opérateur

Our next question today will come from Jason English of Goldman Sachs. Please go ahead.

Jason EnglishGoldman Sachs — Analyst

Hey, good evening, folks.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Hi, Jason.

Jason EnglishGoldman Sachs — Analyst

Hello. Thanks for (Indecipherable) me in. I guess I wanted to come back to a couple of questions Olivia had. First, on the meeting subs are building off the topics. The meeting subs, the guidance for year-on-year growth in the fourth quarter, if I heard that correctly, is that based on what you've seen so far this quarter or is it based on an expectation of what the new program will bring?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Ouais. So we expect studio recruitment to turn positive year-over-year during the fourth quarter.

Jason EnglishGoldman Sachs — Analyst

And is that recruitment or is that — would you expect that to translate into overall subs being up year-on-year?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

No, we're talking recruitment. Sorry, as we launched new program sometime during the quarter, we anticipate to turn positive.

Jason EnglishGoldman Sachs — Analyst

Got it. That's helpful.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Ouais. And as Nick mentioned, obviously with the campaign we saw sequential improvement across the business. The one thing I want to talk about and Nick talked to it in his discussion on the studio business as a whole, what we're very focused on is really meeting people where they are. And in today's environment, giving them the support they need, how they want their support. So, every member we have has our digital experience.

And we still have one-third approximately of our members who still want that face-to-face physical experience and we want to support them, but we're looking at opportunities to do that while also exposing the brand to new customers, like the studio that we have with Kohl's in DeKalb and some of the pop-ups that we'll be doing that Nick mentioned.

What we're also very excited about is the launch in 2020 a virtual group coaching, so now, we'll be able to give people a digital experience, virtual group coaching, one-on-one coaching, and if they want, the physical experience of coming together, and then lastly, the community activation. So, we'll really be able to meet people where they are and how they feel they need the best support.

Jason EnglishGoldman Sachs — Analyst

So, it sounds exciting. One quick follow-up on the pricing strategy question. I understand as we look at revenue per sub or revenue per user that there is a mix component here of the digital outpacing meetings. But even when we cut through that and just look at the rev per sub for meetings, it continues to fall quite a bit year-on-year. I know this was a topic on the last quarter call too and you mentioned that the pricing comps sort of promo comps actually ease in the back half, suggesting that we should see an abatement of that. But we're not really seen an abatement. What's driving that compression and what appears to be pricing for meetings?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Ouais. You're right, Jason, that if you look at — compare paid weeks on the studio side versus revenue per studio, you see some price realization in Q3. No real changes to promotional strategy, a good driver of it is our focus on driving people to sign up initially for longer-term retention plans. But that's the — a key driver of it.

Jason EnglishGoldman Sachs — Analyst

Okay, got it. Thank you very much.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Je vous remercie.

Opérateur

Our next question will come from Linda Bolton Weiser of DA Davidson. Please go ahead.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Hey, Linda.

Linda Bolton WeiserD.A. Davidson — Analyst

Hi, how are you? I just wanted to know, can you give us any color on how the sign up or ticket sales rather are going for the Oprah Tour, are they kind of in line with expectations or above or what and —

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Ouais.

Linda Bolton WeiserD.A. Davidson — Analyst

And —

Mindy F. GrossmanPresident & Chief Executive Officer, Director

I am sorry. We're very excited about the response. They are very much ahead of expectations. We've had incredible press conversations about it. People are very excited to experience what it is we will be delivering to those markets. And as I said we're touching hundreds of thousands of people across those markets but the messaging and amplification will be that much more. So we're very pleased.

Linda Bolton WeiserD.A. Davidson — Analyst

And then my second question was just on the competitive landscape because you have mentioned some of the issues last diet season had to do with competition, like Keto, for example. Are you anticipating anything like that in this upcoming diet season, is there anything you can sort of get ahead of the competition, or anticipate a little bit better if there is some sort of competitive threat and how are you kind of rank ordering Noom in the competitive landscape, is that as threatening or less threatening or how do you rank that versus Keto? Je vous remercie.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Ouais. So how I would say is, there is always going to be competition and we are acutely aware of who that competition is and what they're doing and what we're focused on, is what we are doing to be able to accelerate our business and differentiate what we do, not only for named competition, but people thinking they can get healthy themselves.

We are very excited clearly about our new program Innovation because we think it's going to fill a need that we don't feel currently exists today, that we've been working on through our science teams and we've been very pleased with all clinical trial results that we'll be able to articulate the efforts we're making around all the enhancements in our digital assets which you've heard us talk about, the increased engagement that we're seeing as a result of that.

So I think we are not — I think we're going into the season eyes wide open, but very clear about what we have that is distinct and differentiated.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

I think that's right. I'd like many things about this quarter, obviously reaching over 10 months retention milestone, returning to global recruitment growth, but the response of folks to a market-leading digital ecosystem, seeing each segment having double-digit increases versus prior end of period, those digital subscribers shows the response to our digital assets.

Linda Bolton WeiserD.A. Davidson — Analyst

Je vous remercie.

Opérateur

And our next question today will come from Michael Lasser of UBS. Please go ahead.

Michael LasserUBS — Analyst

Good evening. Thank you.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Hi, Michael.

Michael LasserUBS — Analyst

Hi, Mindy. So given the momentum of the business had and the fact that you will be launching the new program, Mindy, is there a subscriber growth number as you look out over the next few quarters that you would be disappointed with if you didn't achieve or the market is already, assuming that you're going to get back to full subscriber growth, both within the meetings business, but is there a level of growth that you would be disappointed with?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Hi, Michael, look, obviously we're not providing guidance today other than saying based on this momentum, not only on recruitment but on retention, we've got great tailwinds heading into next year. We're excited about this new program. Certainly like any definition of success, next year has recruitment subscribers revenue and profit growth in 2020.

Michael LasserUBS — Analyst

And my follow-up question is, you are in this cycle now where you are having an innovation that will drive growth every couple of years by new program launches. Is there any eye toward trying to make the business just a bit more sustainable independent of program launches and how do you achieve that goal?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, Michael. That is a great question. Certainly we feel that innovation based on what we're seeing in science and technology and consumer behavior is something that we're known for and we have to continue innovating, but innovation goes beyond a food program. And many of the things that we're doing in other areas of the business, whether it's science applied to activity and what we're doing there, we have pilots around sleep, we're focused on mindset.

So the key is for us to have a continuous flow of innovation, not just the nutrition side although we know how critical that is (Indecipherable) for weight loss. But the team's focus is to be able to constantly be delivering enhanced innovations and results to create greater engagement and recruitment; absolutely.

Michael LasserUBS — Analyst

Without providing specific guidance, if we're talking a year from now or when we're talking a year from now, do you think you'll be at that point where you'll just have constant innovation coming and not — obviously not just on the food side?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Well, that's certainly our goal and what we're focused on in different area of the business. This is one of the first conversations I've really had about our health solutions business. I think we mentioned on the last call that we have created a third tech hub in Toronto that is servicing that business and other areas of personalization and AI. So we're constantly iterating on innovation and I think that's going to be important in all the segments of our business.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

It's a great question, Mike. Like we've shown recently at that go 2017, there can you grow in the second year of a food plan innovation and look, that's why we're so focused on engagement and retention. That's why we're so focused on multiple growth levers, like what Mindy just mentioned, health solutions. We're excited about partnerships, new demographics, emerging markets too.

Michael LasserUBS — Analyst

Thank you very much.

Opérateur

Our next question will come from Brian Nagel of Oppenheimer. Please go ahead.

Brian NagelOppenheimer — Analyst

Hi, good evening.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Good evening.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Hi, Brian.

Brian NagelOppenheimer — Analyst

So, I've got a — the first question I want to ask is on the new product innovation. So, Mindy, you've discussed a lot here. It's obviously launching soon, you've tested, I'm sure you're pleased with what you've seen with the test. The question I have is how flexible is this or how many — are there levers you could pull that if you launch it next week and you're not getting the response you expected or it's underperforming, there is ways you could tweak it into the year end and prepare maybe better for the dealers in the early part of next year?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

The innovation itself, thousands and thousands of people have gone through this. So it works. So we have no concerns about the program and the innovation itself. So I think that's important. If what you're asking is how we're amplifying it, that we're always constantly iterating (Indecipherable). One of the things we're excited about going into 2020, it's very clear, very simple, it's the new program, the efficacy what it does and the ease, simplicity and the results. That's a very clear message that we believe will resonate. But to be clear, the program itself has been received extremely well.

Brian NagelOppenheimer — Analyst

That's helpful. The second question I have, not sort to be a nitpick, but I guess it's more for Nick, the product margins in the quarter were down, if I did the math correct, in excess of 1,000 basis points. I think you had guided to 300. Is there some call out there as to why the product margins were so — particularly weak here in Q3?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Yeah, well, like — let me answer in a couple of couple ways, Brian. Within the overall context, the business performed pretty much exactly the way I would have hoped in Q3, frankly if not, as you saw in our POS ahead of our expectations despite negative foreign exchange. So, on the gross margin side, we expect to be down 300 basis points year-over-year and we've said about 100 of that was driven by year-over-year inventory reserve changes. And then, on the consumer product sales side, going sequential improvement. They've been a real weak spot in the first half of the year. So think consumer product sales down 4.6% in Q3 and we're forecasting to return to growth in Q4. I feel pretty good about the consumer product sales trajectory also as people get their hands on our broad new assortments.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, just to give some context on the product sales side, if you remember we reformulated, created and expanded 100% of all of our products. So starting in January what you saw in our distribution channels of our studios and e-commerce are all the new products. So we've had to scale and expand those assortments globally starting with the first of the year. So as Nick mentioned, we are now where we can see increases in the product sales and because of the work we did and what the new products are, we're now actually able to distribute those products outside our own platforms and that's what's exciting and that's where we'll have an opportunity in each market.

Brian NagelOppenheimer — Analyst

Got it. Thank you very much. Good luck with the upcoming launch.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Je vous remercie.

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Je vous remercie.

Opérateur

And our next question today will come from Michael Swartz of SunTrust Robinson Humphrey. Please go ahead.

Michael SwartzSunTrust Robinson Humphrey — Analyst

Hey, good evening guys. I wanted to touch on the national television advertising program you started running later in the quarter. One point of clarification. Did you have a similar ad campaign, national television ad campaign, last year at that time. And then I guess Mindy, with regards to how maybe the response rate from consumers or the response from consumers, did that come in relative or above your expectations. Is there anything quantitative you can provide us about maybe how well that did and how well that continues to do into the fourth quarter?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, so if you remember, last year we had a summer campaign that ran into the beginning of the third quarter, that included TV and we didn't have fall TV at the end of the quarter. And a lot of the learnings we did shift. So we didn't have TV early and then we had TV as part of fall, but obviously took a lot of the learnings that we did post January and a lot of the new campaigns and what we saw in September with the fall campaign was very positive response, hence the recruitment that you saw. Does that makes sense?

Michael SwartzSunTrust Robinson Humphrey — Analyst

Yeah, that's helpful.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Okay, good.

Michael SwartzSunTrust Robinson Humphrey — Analyst

And maybe sliding over to Nick, just with regards to your EBITDAS guidance for the year, you maintained it — remind us, does that guidance add back the $6 million in charges that you guys saw in the first quarter?

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

(Indecipherable) add back the restructuring charges, I don't believe so. It does not; it adds back D&A and stock-based compensation.

Michael SwartzSunTrust Robinson Humphrey — Analyst

Okay, great. Je vous remercie.

Opérateur

And our last question today will come from Kara Anderson of B. Riley FBR. Please go ahead.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Hi, Kara.

marqueB. Riley FBR — Analyst

Hi, good afternoon. This is actually Mark on for Kara.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Hi, Mark.

marqueB. Riley FBR — Analyst

Good afternoon. Mindy, you talked about testing some pop-ups in high traffic areas. I'm wondering if you could elaborate on what type of high traffic areas you will be targeting and then maybe some of the aspects you're hoping that will enhance the brand.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Yeah, we're finalizing all of those elements, but as we've seen, when we show up, what we want to do is be able to attract audience that may not be familiar with the brand. So, how can we give them an environment where there is a coach that they can understand a program, they could almost like have a, you know, Apple Genius Bar, an interface with our products. So we are looking forward to doing some different things than we've done in the past for winter.

marqueB. Riley FBR — Analyst

And then depending on the success, this could be rolled out to maybe a longer-term permanent strategy?

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Absolutely.

marqueB. Riley FBR — Analyst

Great, thank you very much.

Opérateur

And ladies and gentlemen, this will conclude the question-and-answer session. At this time I'd like to turn the conference back over to Mindy Grossman for any closing remarks.

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Well, thank you everyone for being on the call and I just want to reiterate that driven by the strong execution and our focus, the creativity of our global teams, the subscriber growth trends are gaining momentum and we feel it's positioning us well for a strong start to 2020. We're excited to be launching our new program globally on Monday; so our most customized weight loss program ever. Our coaches and guides are certainly advocates and evangelists for the new program and I think it will have broad appeal among current, returning and first-time members and it will also be amplified by our most integrated marketing campaign that certainly will have a strong call to action.

And then from January to March, we will be spreading our message of wellness in the nine city tour, the WW presents Oprah's 2020 Vision: Your Life In Focus. So I want to thank you again for joining us today and I truly hope you'll join Oprah and me at one of our tour stops this winter. So, thank you.

Opérateur

(Operator Closing Remarks)

Duration: 61 minutes

Call participants:

Corey KingerVP, Investor Relations

Mindy F. GrossmanPresident & Chief Executive Officer, Director

Nicholas P. HotchkinChief Financial Officer, Operating Officer, North America & President, Emerging Markets

Edward YrumaKeyBanc Capital Markets — Analyst

Alex FuhrmanCraig-Hallum Capital — Analyst

Olivia TongBank of America Merrill Lynch — Analyst

Jason EnglishGoldman Sachs — Analyst

Linda Bolton WeiserD.A. Davidson — Analyst

Michael LasserUBS — Analyst

Brian NagelOppenheimer — Analyst

Michael SwartzSunTrust Robinson Humphrey — Analyst

marqueB. Riley FBR — Analyst

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