使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen welcome to the Weight Watchers International fourth quarter and full year end 2009 earnings conference call.
During the presentation, all participants will be in listen-only mode> Afterwards, you will invited to participate in a question-and-answer session, and instructions will be given at that time.
As a reminder, this conference call is being recorded today, February 25th, 2010.
At this time, I would turn the call over to Sarika Sahni of Weight Watchers International.
Please go ahead.
- Director of IR
Thank you, and you to everyone for joining us today for Weight Watchers International's fourth quarter and full-year earnings conference call.
With us on the call are David Kirchoff, President and Chief Executive Officer, and Ann Sardini, Chief Financial Officer.
At about 4:15 PM Eastern Time today, the Company issued a press release reporting its financial results for the fourth quarter and full year 2009.
The purpose of this call is to provide investors some further details regarding the Company's financial results, as well as to provide a general update on the Company's progress.
The press release is available at www.weightwatchersinternational.com.
Before we begin, let me remind everyone that this call will contain forward-looking statements.
Investors should be aware that any 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.
The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
I would now like to turn the call over to Mr.
Kirchoff.
Please go ahead, David.
- President and CEO
Good afternoon, and thank you for joining us as we review Weight Watchers International's performance for the fourth quarter and full year 2009.
Overall, our Q4 results slightly exceeded our earlier expectations, as we saw moderating trends during the quarter in several of our business units, on both a volume and profitability basis.
While our business continued to be adversely impacted by the global recession, particularly in the US, our actions helped moderate negative trends in the fourth quarter, most notably in our international meetings businesses, and in our Weightwatchers.com business.
In particular, we saw significant improvement in the trends in our Continental European business, following the soft launch of the new program Pro Points.
As I begin to review our financial results, for comparability I would like to remind everyone of several key items impacting 2009 and 2008.
First, fiscal year 2008 had 53 weeks, compared to 52 in fiscal 2009.
The majority of the impact of this extra week in 2008 was in the fourth quarter.
In order to provide comparability in our results, we'll be providing comps in which we compare our fiscal Q4 2009 with the comparable 13-week period in Q4 2008.
Second, reported Q4 2009 profitability was adversely impacted by our taking of a $37 million accrual to reflect our recently-announced adverse ruling regarding tax withholding for our leaders in the UK.
The EPS impact for this for both the fourth quarter and full-year 2009 was $0.33, of which are approximately $0.29 relates to the prior periods of 2001 to 2008, and approximately $0.04 related to fiscal 2009.
The ruling relates to our long-held position that our leaders in the UK are independent contractors and not employees.
We plan to appeal this ruling.
Third, in fiscal year 2008 we recorded charges to reflect the adverse ruling in the UK with respect to VAT.
Q4 2008 included a $9.2 million benefit from a partial reversal of the accrual of the UK VAT ruling, resulted in an EPS benefit of $0.08 and last year's 2008 quarter.
On an as-reported basis, total Company Q4 2009 revenues declined by 10% versus the same period in 2008.
After adjustments, revenues declined by only 1%, with continued softness in NACO offsetting improved results in the International Meetings and the WeightWatchers.com businesses.
The international business benefited from a combination of improving volume trends and favorable currency effects.
On a constant currency and adjusted basis, Q$ 2009 revenues declined 5.2%.
Global meeting fees were down 14.2% on as reported basis, and declined 2.9% on an adjusted basis.
Meeting product sales declined 4.6% as reported, but grew 6.4% on a comparable basis.
As reported, Q4 global paid weeks and our combined meetings and online businesses were down 1%, but were up 5% on a comparable basis.
In our meetings, as reported global paid weeks were down 5%, but were up 4% on an adjusted basis for the quarter.
After adjustments, we saw meetings paid weeks growth in each of our geographies, including slight growth in NACO.
As reported, attendances were down 15% globally, but were down 6% on a comparable basis.
In our WeightWatcher.com business, we saw revenue growth of 10%, paid weeks growth of 8%, and end-of-period active subscriber growth of 12% in the fourth quarter compared to the same period in the prior year.
For the full year 2009, total revenues were $1.4 billion, a decrease of 9% versus 2008.
After adjusting for currency, and without the impact of the 53rd week, as well as the prior year's impact of the adverse UK VAT ruling, which was recorded in 2008, total revenues for the year declined 5%.
For the full year, combined paid weeks for the meetings and online businesses were flat as reported, and increased by 1% on a comparable basis.
For the meetings business, full year paid week declined 4% as reported, and were down 2.7% on an adjusted basis, while full year attendances declined 10% as reported, and 8.5% on a comparable basis.
For the Internet business, full year paid weeks grew 10%.
As reported, Q4 2009 operating income declined 50%, largely a reflection of the Q4 charge for the UK self-employment case.
Without the impact of the UK VAT accrual reversal in last year's quarter, and the self-employment case this year, Q4 2009 operating income declined by 4%.
After adjusting for the impact of the extra week in Q4 2008, Q4 2009 operating income grew 5%.
Excluding the net UK charges, operating income margins grew 110% basis points versus the comparable 2008 period, driven by 160 basis-point improvement in gross margins.
For the full year 2009, after accounting for the restructuring charges, the self-employment case and the VAT ruling, full-year operating margins were flat at 28.5% versus 2008.
I think it is important to highlight that we were able to effectively hold onto our operating margins, despite a drop in revenue, as a result of one, careful cost controls, and two, the flexibility of our variable cost model.
As reported, Q4 EPS was $0.24 versus $0.62 in the comparable period in 2008.
Excluding the impact of the UK self-employment case, Q4 2009 EPS was $0.57.
This compares to $0.48 for Q4 2008, after adjusting for the benefit of the VAT accrual reversal, and the extra week in last year's quarter.
After adjusting for the self-employment tax ruling, the VAT reversal and the extra week, the underlying EPS was up 19% in the fourth quarter, driven by higher operating income and lower interest expense.
For the full fiscal 2009 year, as reported EPS was $2.30 compared to $2.60 for 2008.
Without the impact of the adverse UK self-employment tax ruling, and restructuring charges associated with our cost-saving initiatives, 2009 full year EPS was $2.68.
Excluding the impact of the extra week, as well as adverse VAT ruling, 2008 EPS was $2.71.
On this comparable basis, 2009 full year EPS was down 1% versus 2008.
I will now briefly review our results in our major geographies and business units.
First, our North American Meetings business.
Total Q4 2009 NACO revenues were $158 million, a decrease of 16% versus as reported Q4 2008 revenues.
Without the impact of the extra week in 2008, NACO revenues declined by 9%.
For the full year, NACO revenues declined 12% on as reported basis, and declined 10.5% on a comparable basis.
NACO paid weeks declined 7% in Q4 2009 versus Q4 2008 on as reported basis, and increased 1% on a comparable basis.
This reflects a significant improvement versus the 11% decline we observed in Q3, and reflects the benefits of the mix shift of toward Monthly Pass, largely, but not completely, driven by the BOGO promotion in Q3.
Q4 2009 NACO attendances declined by 18% on an as reported basis versus Q4 2008, and declined by 10% on a comparable basis.
During the months of October and November, we have seen improving trends in both paid weeks and attendances in the NACO business, reflecting some improvements in enrollment trends, as well as the benefit of a continued mix shift toward Monthly Pass.
By the end of November, year-over-year NACO attendance trends have moderated to minus 7%, while paid weeks were up low single digits.
However, December was a much more challenging month for NACO, as we began to lap the soft launch of the Momentum program in 2008.
Enrollment patterns during the last three weeks in December 2009 were considerably softer than the spike we had observed in the comparable weeks in 2008.
As we discuss later, it clear that the Momentum launch continued to benefit our business more in the early parts of 2009 than we had earlier thought.
Similar to Q3 trends, NACO in-meeting product sales per attendance were up a solid 6%, despite the pressures of the economy.
However, as a result of lower attendance, total NACO in-meeting product sales fell by 2.5% in Q4 2009 versus Q4 2008 on a comparable basis, and were down 13% on an as reported basis.
Now on to the international business unit.
Overall, the international meetings business resulted -- results showed continued improvement in trends in Q4, building on the improving volume trends we had seen in Q3, and also benefiting from favorable year-over-year currency exchange rates.
While revenues were down 7% on as reported basis, last year's Q4 revenues were upwardly skewed by a VAT accrual reversal in the UK and the extra week in Q4 2008.
Excluding these effects, international revenues were up a strong 10% in Q4, driven by more favorable currency exchange rates this year.
In the UK, Q4 2009 as reported revenues were down 19% versus Q4 2008.
However, on a constant currency and adjusted basis, UK revenues were up 10%.
On as reported basis, UK paid weeks wer up 1% and attendances declined 8%.
However, after adjusting for extra week in Q4 2008, UK paid weeks and attendances were up 10% and 1% respectively.
The relative softening of the UK results in Q4, versus the very strong trend we observed in Q3, reflects the impact of lapping the launch of the Discover program in this market in December of 2008.
This pattern is very consistent with what we observed in NACO during similar weeks.
Product sales per attendance were up significantly in Q4 2009, on both an as reported and constant currency basis.
The UK licensing business also remained strong, despite the challenges of the economy, and apparently unaffected by the intensifying competition in grocery trade.
Perhaps the most exciting news from the fourth quarter was in our Continental European Meetings business, where we saw significant improvement in the attendance trends, driven by the late November launch of the new Pro Points program.
On an as reported basis, paid weeks and attendances were down 5% and 11%, respectively.
However, after adjusting for the extra week in Q4 2008, paid weeks were up 5% and attendances were down 3%, as compared to the minus 11% trend we observed in Q3 of this year.
CE revenues were flat on an as reported basis.
On a constant currency basis, and excluding the extra week in last year's fourth quarter, revenue declined by only 2%.
In late November, Continental Europe soft launched a new program called Pro Points.
For the first time since we launched points over 10 years ago, we have completely revamped the points formula to reflect the cumulative advancements in nutritional science and understanding that have taken place over the past decade.
The Pro Points program also incorporates a host of other enhancements and changes designed to improve livability, and a continued push toward healthier, more satisfying food choices.
The changes were wide-ranging and significant, and they required a high degree of operational execution across literally every management function, from training to marketing to supply chain.
The CE management team did an ascending job launching the new program, and were able to minimize the cost impact of the significant changeover.
The enrollment trends we saw in CE in December were universally strong, even in countries where we were experiencing the most difficult challenges.
Response from both members and service providers has been great.
As we'll discuss later, the positive consumer response of this new program launches has continued in CE during the first part of Q1 2010.
Moving on to WeightWatchers.com.
Results for WeightWatchers.com in Q4 largely mirrored the improving trends that we have observed in Q3.
Q4 Internet revenues were up 10%, paid weeks for our Weight Watchers online program were 8%, and end-of-period active subscribers were up 12%.
Growth in Q4 was driven by improvements in our US business, as well as continued robust growth internationally.
Important milestone in the WeightWatchers.com business in the fourth quarter included of a Pro Points version of our online subscription product in our CE countries, including Germany, France and the Netherlands.
We also launched Weight Watchers online for the first time in Sweden during this period.
Now I would like to turn the discussion over to Ann Sardini, who will elaborate further on our Q4 and full year performance.
- CFO and PAO
Thank you, David, and good afternoon, everyone.
First, to recap.
Our fourth quarter 2009 results are summarized as follows an as reported basis, before adjustments for comparability.
Consolidated Company revenue was $311.3 million, and decreased by 10.%.
Operating income of $52 million declined 49.7%.
Net income of $18.7 million was 60.7% below the 2008 level.
And EPS of $0.24 versus $0.62 last year.
But as David noted throughout his remarks, our fourth quarter 2009 and 2008 results included a number of items that distorted the comparison between the quarters.
In summary, these were as follows.
In the fourth quarter of 2009, we recorded a $36.7 million charge to cost of revenues associated with an adverse UK tax ruling which we received in February 2010 regarding the self-employment status of our leaders in the UK.
The $36.7 million accrual represents $25.2 million for assessments made for the year's April 2001 through April 2007, and an additional $11.5 million in accordance with GAAP, for years beginning April 2008 to the end of fiscal 2009, which have not yet been assessed.
The amount accrued for 2009 alone, which would be similar in 2010, was is $4.2 million.
There were also two items of magnitude that impacted our fourth quarter 2008 results which [affect] comparability.
As you may recall, in 2008 we also received a negative UK tax ruling with respect to value-added tax or VAT.
While this ruling caused us to reduce revenues in the second quarter fiscal 2008 based on the then-assessed amount, our assessments for period prior to 2008 were reduced later in the year, resulting in a fourth quarter 2008 benefit to revenues of $9.2 million.
Secondly, as we guided in our last earnings call, our fourth quarter 2008 benefited from an extra week.
This year's fourth quarter was a normal 13-week quarter, but because our fiscal year ends on the Saturday closest to December 31st rather than on that actual date, in some years there will be 14 weeks in the fourth quarter, as was the case in 2008.
This year's fourth quarter began on October 4th, 2009 and ended in January 2nd, 2010.
For comparability in the fourth quarter operational review, were comparing to last year's 13 weeks ended on January 3rd, 2009.
The extra week in the fourth quarter of 2008, which ran from September 28th through October 4th, and is excluded for purposes of comparability, increased revenues in Q4 2008 by approximately $21.3 million, and operating income by approximately $7.8 million.
Q4 2009 revenues adjusted for the items above and also excluding $12 million from a favorably impact of currency translation, decreased by 5.2% versus the reported decline of 10.1%.
Our net income, which was $18.7 million on as reported basis, 60.7% below the 2008 level, is actually up 16.7% in constant currency after adjustments.
Earnings per share, which was $0.24 Q4 2009 and $0.62 in Q4 2008 on as reported basis, are also up year-over-year in constant currency as adjusted to $0.57 in Q4 2009, an increase of 16.6% over $0.48 in the year-ago quarter.
In the operations overview that follows, I will discuss our performance on a currency-neutral basis, and I will exclude the adjusted items discussed above.
Or fully adjusted 2009 Q4 operating income was $87.2 million in the fourth quarter 2009, an increase of 1.9% as compared to the 2008 fourth quarter level.
Our operating income margin expanded versus prior year by 190 basis points to 28.2%.
Cost-saving initiatives and lower marketing spend were the drivers of the expansion.
Now summarizing some of the operational trends.
In the meeting business, paid weeks rose 3.5% globally in the quarter on a comparable prior-year year basis.
Internationally, meeting paid weeks were up 7.9%, reflecting increasing Monthly Pass penetration in those markets.
NACO meeting paid weeks rose 1.2%, mostly on success of the BOGO promotion.
Lecture income revenues of $184.1 million in the fourth quarter were 6.6% behind the prior year quarter.
While lecture income revenue was higher than prior year in the International Meeting business, the global rise in paid weeks did not translate to higher lecture income revenues globally, because of the BOGO promotion and NACO, which diluted lecture income by giving a free month to all Monthly Pass enrollees.
Global meetings fees per attendee increased by 1%, partially as a result of a 4.7% higher average fee per attendee internationally, driven by increasing acceptance of Monthly Pass.
In NACO, meeting fees per attendee increased by 0.6%, despite the promotional pricing for our US Monthly Pass product to BOGO.
Attendance declined 6.4% globally, with NACO attendance down 10.2%.
International attendance fared better in the quarter virtually flat to prior, off 0.6%.
Fourth-quarter global in-meeting product sales were $48.7 million, up 0.8% versus prior.
On a per-attendee basis, global in-meeting product sales were up 5.8%, with NACO increasing 5.4% on the strength of new products introductions and promotions.
Internationally, product sales per attendee were strong as well, growing 4.2% on the strength of the UK's 9.6% growth, which was partially offset by the Continental Europe inventory depletion, in advance of its November program innovation launch.
Moving to WeightWatchers.com, where strength across major markets, especially internationally, drove fourth quarter revenues in this business up 6.4% over prior year.
Paid weeks grew by 8.2%, and the period active on-line subscribers also increased by 12.4% versus Q4 2008 to 763,000.
Now turning to a review of the performance of our other revenues, which include licensing, franchise commissions and revenues from our publications.
Other revenues of $23.4 million declined 11.7% versus the prior-year level.
Franchise commissions which totaled $2.6 million in the quarter, were down 21.8%, with US franchised commissions down 21.7%, reflecting a deeper impact from the economy than NACO experienced.
Our licensing revenues of $16.4 million in the quarter declined 2.6% versus last year.
NACO's underlying growth, excluding the change in the Applebee's and yogurt relationships, were 7.7%.
International licensing was down slightly, minus 1.1% versus prior year, with the UK maintaining strong performance, which was offset by declines in Continental Europe.
Fourth quarter gross margin as adjusted was 53.6%, 160 basis points improved from last year's fourth quarter adjusted level.
This gross margin expansion reflects the positive impact of our operational cost saving initiatives, and growth in our higher-margin WeightWatchers.com business.
In addition, we took the opportunity in 2009 to rationalize the meeting base in some of our international countries, closing weaker meetings and building on stronger meetings for a better meeting experience for our members.
This has resulted in better economics for our service providers, and for us, with gross margins in the process.
Q4 marketing expenses were $36.9 million, a 13.2% decrease versus the prior-year level, partially as a result of advertising rate efficiencies.
In the US, national TV advertising rates reset in September each year.
In September of 2009, we were able to achieve lower media rates, down approximately 5% to 6%, which reduced our fourth-quarter marketing expense, and which will continue to have an impact into 2010.
Marketing as a percent of revenues was 11.9% this year, as compared to 12.1% last year.
Q4 G&A expenses were $43.2 million, including $0.4 million of restructuring charges, a 5.5% decrease from the prior year level, as a result of cost-saving efforts undertaken throughout 2009.
As a percentage of revenue, G&A was 13.7% in the fourth quarter 2009, excluding restructuring charges, versus 13% in fourth quarter 2008.
As noted on prior calls, 100% of our China joint venture is consolidated into our operating income, and our partner (inaudible) 49% share of the operating loss, is reflected as non-controlling interest in the line item before net income.
The operating loss of the venture was $2.9 million in the quarter, mainly a combination of G&A and marketing, as compared to $2.8 million in the fourth quarter last year.
In summary, our fully-adjusted consolidated operating income margin was 28% in the 2009 quarter, as compared to 26.9% in the prior year.
The 110-basis point increase in [OI] margin was the result of higher gross margins and lower marketing as a percentage of revenue.
Interest expense in the fourth quarter 2009 was $16.3 million, down $8.1 million or 33% from the Q4 2008 level, from a combination of lower interest rates and lower debt outstanding.
We paid down $194.5 million of debt during fiscal 2009.
Our average effective interest rate declined 158 basis points to 4.29% from 5.87% in fourth quarter of last year.
In terms of cash flow, we generated $348.2 million of cash from operations in 2009, before interest payments.
After capital expenditures of $23.4 million, we had $324.8 million free cash available to service our capital structure.
We make interest payments of $82.7 million, paid our quarterly dividend totaling $54.1 million for the year, and reduced our debt by $194.5 million.
We ended the year with $1.453 billion of debt, as compared to $1.648 billion at the end of fiscal 2008.
I will now turn it back to David.
- President and CEO
Thank you, Ann.
As we enter into to 2010, we expect to face another challenging year, particularly in our US Meetings business.
While there are some indications that the economy may be beginning to improve in certain sectors, frankly we have not felt it in our US market.
On the plus side, it seems that the near panic that gripped the consumer during the first part of 2009 has subsided into dull acceptance.
However, the fact remains that unemployment is still at recent historic levels, investment retirement portfolios are still depressed, and there's little evidence of a meaningful recovery in home values.
Reflecting all this, consumer confidence is at historic lows, and as a result we expect the US consumer to remain cautious throughout much of 2010.
I will now review our early 2010 results, growth strategy and full-year volume forecast for each of our major business units.
NACO has seen the most difficult set of circumstances of any of our major markets and business lines during the first six weeks of this year.
Our business here has been significantly affected by three major factors.
One, the continued drag of the consumer economy, as just noted.
Two, we are comping the launch of the Momentum program last year.
As we continue to analyze the trends of 2009 and 2010, it is increasingly clear that while the Momentum program was not able to overcome the effects of economy in Q1 2009, it did bring meaningful benefits to our enrollment trends and propensity to attend trends in our Monthly Pass installed base during Q1 2009.
In comparison, NACO does not have the benefit of a new program innovation in Q1 of this year.
Three, weather.
While winter storms create problems for our Meeting business every year, the series of storms we have seen this year in many major US metro markets has been unprecedented during my tenure at Weight Watchers, and will significantly dampen our first quarter results.
By way of example, not including today, weather closures in NACO were up 68% in the first six weeks of this year versus the same period last last year.
Notwithstanding the difficult near-term volume conditions in our NACO business, we recognize that we have a fundamental challenge of attracting members through our doors, particularly never-members.
We're confident that the plans and initiatives that we have in motion will enable us to redefine and reinvent our service business, and thereby to fully reverse our enrollment trend, and to put our NACO business back on a positive long-term growth trajectory.
Obesity continues to be one of the most vexing health issues facing the US and broader industrialized world.
In this country alone, nearly 150 million Americans adults are overweight or obese, and obesity accounts for nearly 10% of the total health care budget.
By all accounts, its impact on health care costs will get worse not better, unless fundamental changes are made by each individual dealing with the weight issue.
We firmly advocate the fundamental belief that there is no way to systematically address obesity without individual lifestyle change.
There is no way to systematically address lifestyle change without the critical tool of intensive behavioral therapy.
To provide particular change, the only logical model is one that is clinically effective, sustainable, cost-effective and scalable.
The community-based model, such as Weight Watchers, is the only model that can reliably address each of these four criteria.
While we are have great optimism about the role that the emerging technologies can contribute to the behavior change toolkit, we do not believe that the need for face-to-face interaction delivered in a group model can be replaced.
Therefore, it is our fundamental opportunity an obligation to present a group support that addresses today's consumer's expectations.
For our current members, the satisfaction with Weight Watchers is as high as ever.
However, it is clear that the Weight Watchers meeting has not kept pace with consumers' expectations of it, in its convenience, modernity, and other barriers to participation.
It is also clear to us that all the barriers to participation that do exist, can and will be shed.
In short, we have the opportunity and mandate to reinvent the Weight Watchers service experience in a profound and fundamental way.
We began down this path in 2008, and we have made considerable strides in the past two years.
2010 will be critical year for NACO, as we now begin to put in place and operationalize the key elements of this reinvention process.
While it will be 2011 before we begin seeing the benefits of these changes, let me be clear in stating that our objective is nothing short of building a new Weight Watchers Meetings business that will return NACO back to a long-term secular growth trend, and position Weight Watchers to more effectively contribute to stemming the obesity epidemic impacting our society.
While not all conclusive, some of the current initiatives which will become more visible as we progress through this year include, one, improving our retail presence to increase the visibility, modernity and convenience of the brand.
Real estate; we expect to renegotiate or move half of our 825 fixed location center network by the end of 2010.
During 2009, we completed an exhaustive statistical analysis of our real estate footprint, and have found numerous areas for improvement.
Far too many of our locations lack visibility, convenience or, frankly, are in undesirable locations, and we have the opportunity, particularly in the current commercial real estate market, to upgrade many of these locations without materially altering our economic model.
We hired an experienced real estate executive to the NACO team, and recently signed a national contract with Cassidy Turley as our US broker.
Center design; we are finalizing the design of our pilot centers to improve branding, weighing confidentiality, and front-of-store retail appeal.
We'll be ready to begin rolling out these new designs by the Summer of this year.
Open hours; toward the end of 2009, we began to expand the hours of most of our centers, and will continue increasing open hours as we improve locations and retail brand appeal.
The value of increasing hours will be improving our ability to convert foot traffic into enrollment, and to significantly increase convenience for our members.
Two, as I noted above, it is impossible to offer a holistic behavior modification solution without the benefit of physical interaction, which clearly requires a physical place.
The changes above will create a new and exciting physical place that can serve as the community nexus that holds a widening range of service offerings and innovation.
We are now actively working on developing new concepts and pilots to test new obesity service approaches that will allow us both to extend our offering to existing members, as well as increase the range of segments we serve.
While I'm not yet prepared to discuss the specifics of these new initiatives, rest assured that we are actively working to fill the service innovation pipeline.
Three, one innovation that I can reference more specifically is the new program that will be launching in NACO in late Q4, that will improve upon the points program launched in CE, and that will be one of the most significant program launches in over 12 years for the NACO market.
We fundamentally believe in the points approach, and its ability both to educate and to provide a clinically-demonstrated behavioral tool that is critical for lifestyle change.
We've built a considerable equity in points, and we will look to build upon it as we finalize our new program.
We have a major opportunity to fully revamp the successful framework with a major and comprehensive evolution that will result in a new state-of-the-art points program.
We'll have more to discuss about this as the year progresses.
Four, while variables such as weather and lapping last year's program have impacted our Q1 volume results in NACO, we also believe that our popular Hungry Marketing campaign as now run its course.
Accordingly, our marketing team is writing plans to launch an exciting new advertising campaign concurrent with the upcoming Spring [value] season.
This, along with other marketing initiatives, should enhance our ability to drive near-term enrollment improvements as we move further into this year.
I'm confident that the cumulative and combined effect of all these initiatives will have the same kind of transformative effect on our meetings experience that points had on the ease of use of our program.
Since many of these initiatives will not be implemented until later this year and beyond, we are conservatively forecasting another tough -- a year of tough conditions for NACO, with a view toward recovery in 2011.
Therefore, for 2010 we're forecasting a mid double-digit attendance decline for Q1, moderating to a low double-digit decline for the full year.
International; we expect the near-term performance of International Business to be a tale of two very different sets of circumstances.
Starting with the UK, we have seen a challenging start to 2010 as a result of, one, like the US the UK tough economic conditions, and does not have the benefit this year of a new program to bolster enrollments and attendance patterns.
Two, weather.
Winter weather was particularly unkind to the UK, where we experienced unprecedented snow during the first two weeks of January.
Over the course of the first two weeks of January, we had to close over 20% of our meetings.
And due to difficult conditions, we estimate that we lost almost half of our normal enrollments.
More than any other market around the world, the UK heavily depends on enrollments during the first week two weeks of January, and while enrollments have significantly improved since those first two weeks, it will take some time for us to recover that lost attendance and enrollment base.
Therefore, we expect UK volume trends to improve as we proceed throughout the year, but are anticipating a tough Q1.
Accordingly, we are forecasting low single-digit declines in attendances and paid weeks for the full year.
The UK will continue to focus on the high-quality marketing and service execution that served it well throughout 2009, as it simultaneously works on several key initiatives that should bring much stronger growth in 2011.
Like NACO, the UK is readying for the launch of its new program in late 2010 with similarly high expectations.
Continental Europe; results during the first six weeks in 2010 were much stronger than what we've seen in our English-speaking markets.
While we have also seen the negative impact of weather, most notably in Benelux and Germany, and the economies continue to be weak across most of CE, these drags have been more than compensated by the vibrant trends we have seen resulting from the continued strength of the Pro Points launch.
Many of our CE countries are experiencing stronger volume trends than they have seen in the past five years.
Accordingly, our CE managers will continue to focus heavily on maximizing the gains from this new program throughout the year, while also continuing to pursue their long-term, more fundamental innovations to the core service offering.
While we are excited about the early response we're seeing to the Pro Points program, we are still early on in the launch, and have not yet built above -- built the above-plan enrollment trends into our forecast.
Therefore, for the full year we are forecasting attendance and paid weeks growth of low single-digits and mid single-digits, respectively, although we believe there could be upside in these forecasts.
It is important to note that this growth will come despite a 4% meetings base consolidation.
It is also important to note that this trend compares to a minus 10% trend in 2009, reflecting a significant shift in momentum.
WeightWatchers.com; we fundamentally believe in the role that technology can and will play in the weight management behavior chance process.
We were pioneers on the Internet back in 2000, and we continue to drive an aggressive technology agenda ten years later.
In 2009, we fully embraced social networking, with a complete revamp of the online community tools, including blogs, self-formed communities, challenges and other innovations.
In 2009, we launched our most ambition mobile platform to date, with the IPhone launch in September of last year.
Our view of this application was not to create sizzle for marketing, but to create steak albeit a healthy cut, for our online subscribers and Monthly Pass members.
We set out with the intention of creating a completely new and complementary way of helping people stay on plan by letting them keep the points plan in their pocket.
As of the end of January, we had over 500,000 downloads of the application.
The iPhone application now accounts for over 13% of our total points tracker transaction volume, and has quickly become the program weapon of choice for hundreds of thousands of members.
These innovations are a benefit both to our WeightWatchers.com online subscribers, as well as our meeting members who use Monthly Pass.
The WeightWatchers.com team will be continuing its heavy product development phase, with continued efforts in mobile technology and social networking.
Further, it plans to continue its aggressive international push, with Weight Watchers online launches in several new countries this year.
We expect another strong year for WeightWatchers.com in 2010, benefiting from continued growth in the international portion of the business, as well as continued solid performance in the US.
We're forecasting Weight Watchers online paid week growth for 2010 similar to the 10% we delivered in 2009.
Finally, China.
We continued to make good progress in developing our China model through 2009.
We now have three fully viable centers, two in Shanghai and one in Nanjing.
We expect to begin more aggressively pushing out the operating template in 2010, with expectations for more meaningful growth beginning in 2011.
Considering the current trends we're seeing in our NACO meetings business, it is clear that 2010 will be a challenging year for Weight Watchers from a financial perspective, but a productive year as we build-out the elements of our longer-term growth platform.
We are very bullish on our prospects for 2011, as we see multiple elements coming together.
One, the new programs; two, a revamped service model; and three, hopefully an improving economy.
Therefore, the key challenge for 2010 will be to ensure that the initiatives necessary for the 2011 return to growth are executed in a superior manner.
With this in mind, while we will continue to focus aggressively on cost management and promotional effectiveness in 2010, we are making a conscious decision not to reduce our infrastructure in a way that inhibits growth in 2011.
To this end, we are providing a fairly conservative financial forecast for 2010.
Consistent with the aforementioned volume forecast in each of our business units, we are forecasting global paid weeks and attendances for our Meetings business to decline by low single-digits and high single-digits, respectively.
Accordingly, we are forecasting single-digit revenue declines and single-digit OI declines.
While we are anticipating volume declines, we should be able to significantly moderate gross margin impact, as we also rationalize our meetings base to focus our energies on our stronger locations and time slots.
We expect 2010 EPS to be negatively impacted by the operating income declines, and we're forecasting a 5% increase in our aggregate interest expense, as we expect to seek at some point this year to extend the maturities on some portion of our debt.
With all of this in mind, we are forecasting full year EPS of $2.25 to $2.50.
At this time, Operator, we would like to take questions.
Operator
(Operator Instructions)
We do have a question from Jerry Herman with Stifel Nicolaus.
Please go ahead.
- Analyst
David, I'm wondering if you can you help us with the competitive landscape, in addition to the economic impact?
I'm wondering what you're seeing there.
It appears that we're seeing a little bit more of your competition talking about the use of coaches and consultants.
I'm wondering if any way that might be cannibalizing your methodology in any way?
- President and CEO
We are certainly not unfamiliar to the pattern of our competitors trying to draft off of our proven methodology and the strength of our brand.
They have been doing it for years.
We think that is of course a testament to the strength of our model.
I think that if I look at the competitive landscape in general, I guess my comment would be that it felt to me, somewhat anecdotally because all the data have not come in, but there certainly seemed to be quite a bit of volume in terms of noise from the overall weight management category.
That is not just the commercial competitors we're all familiar with, but just a wide range of things, from cookie diets to cleanses and all sorts of other good stuff, or in this case probably not so good stuff in terms of weight loss.
So I think our feeling is that with all this increase in noise, our expectation is that over time it will continue to be the case, if not amplified; I think it is one of the reasons why we are feeling that with all the gains and improvements and enhancements we have made in terms of the quality of our marketing programs, we think we have an opportunity to once again up the volume, in terms of the impact that our marketing programs have.
It is important to note that includes on one hand, traditional brand-building advertising, but I think it also has a lot to do with the fact that we have a huge asset in the millions of people who have had fantastic success with Weight Watchers.
I think the opportunity for us is to harness that, both in our traditional marketing communications but I think, most significantly, to find a way to couple that even more effectively in PR, to make the very clear point that while all these competitors are out there claiming to be like us, and claiming to have elements that resemble us, there is only one Weight Watchers, and there is only one Company out there that has our model, and opportunity for us is to drive that message home.
- Analyst
Just a question about the actual centers, and the lectures in fact.
Can you quantify what the CapEx impact is going to be with the center revamp, as well as what sort of expenses might flow through there?
Also related to the UK ruling on the contractors versus employees, has there been any noise in the US with regard to a similar treatment?
- President and CEO
Let me take the last question first, which is the US is not a self-employed model, and so the US does not face the same kind of threat of a tax authority going after us that was the case in the UK, so it's a completely different labor model.
In the US, the people that work at Weight Watchers are employees, primary part-time, they are not considered contractors.
In terms of your first question in terms of the centers, it is a great question and let me try to help dimensionalize it a little bit.
When we talk about revamping the centers, first off, you heard me talk about real estate, and you heard me say, we have an opportunity particularly in this environment to lock in leases, in which we're able to either negotiate better rates in locations that we like, or to upgrade locations in probably a way that is fairly cost-effective, particularly if you consider the improvements in visibility and branding and marketing benefit, and everything else we get.
And so that's why earlier in our remarks, from a real estate perspective we don't anticipate it having any kind of material effect on our economic structure.
In terms of open hours, yes, our plan is to be open longer, but what we are finding so far is we have been gradually increasing hours, is that we have an opportunity to do things like increase product sales and potentially over time increase enrollments in a way that makes it fairly easy to cover the incremental labor expense.
Again, we don't see a long-term impact on our economic structure.
If you look at the centers themselves, think of it this way, first off, one hand we have all lot with this 825; on the other hand, they are small.
The average size of a center in NACO is 1,600 square feet.
You know, we are not talking about 10,000 or 25,000 square-foot boxes.
So 1,600 square feet does not require an enormous amount of money to do a complete upgrade and fit-out to.
Historically, our fit-outs for a typical center might be anywhere, say -- call it $20,000 to $25,000 a pop, and if you look at the new approach to the new design we're taking, and we are still looking to finalize an achieve scale economy and everything else, we believe that we can bring these centers in at say closer to $50,000.
So call it an incremental $25,000 to $30,000 per center.
One of the reasons we're able to do it at a relatively low price point per center, if you will, is because we are doing it, effectively, an accelerated pattern.
So historically, when we would upgrade our centers in NACO, we do it over a nine-year period.
But in this case we are doing it over a three-year period, which allows us to accelerate and get scale on purchasing [kits], and that is the approach of many who use value engineering to get a beautiful-looking centers at very effective rates.
Furthermore, as we do the real estate strategy, we are looking to go from three years to five years on our leases, which also allows us to extend out depreciation.
So if you look at kind of all the puts and takes, there is -- structural economics effectively remains basically unchanged.
If you take that, coupled with the fact that we are no longer going to be having to invest at the same level of capital in IT systems, now that most of our Oracle work and our ERP work is behind us, that also has the benefit of helping to somewhat ameliorate the impact of CapEx.
One of the reasons that is exciting is that if I look at kind of the net effect of this effort, it is a fairly substantial and -- incredibly substantial, I believe, based on what I continue to see from the pilot centers that we're running, improvement in terms of the experience, look and feel, but we are going to be able to do it in a way is not going to have any sort of material effect on the structural economics of the business.
- Analyst
And then just one last one for Ann before I turn it over, and relating to David's comment about interest burden for the full year, maybe just a clarification there.
I know in your annual report last year you gave a very good sensitivity analysis, and I'm wondering if we can talk either about a sensitivity analysis or specifically the 5% comment?
- CFO and PAO
The interest expense that we are expecting for 2010 is about $70 million on the year.
Part of that is because we are anticipating that we're probably going to do an extension to smooth out some of our payments on our debt.
So that is what you should expect to see, with about $19 million in the first quarter, just to clarify that for you.
- Analyst
Thanks very much.
I will turn it over.
Operator
Thank you.
The next question is from Chris Ferrara with Banc of America - Merrill Lynch.
Please go ahead.
- Analyst
David, I was wondering, you are talking a lot about changing locations of centers and more open hours, and stuff like that.
I guess I'm trying to understand, as you see it, the weakness in attendance, particularly in North America, how much of that hinges on the need to have your name, the Weight Watchers name, out there more, versus just needing to shake up dieting, like you [pointed it] back in 1999?
How do you balance those two?
Because it sounds like a lot of the dialog is around some of these shorter-term fixes, and I just want to get a sense from you of how much you think -- like how big a deal you think those shorter-term or -- sorry, more marketing-type pitches are, relative to just the need to get something new out there?
- President and CEO
Chris, I would say that I partially agree with you, because I agree with the point that you are making, which is upgrading -- substantially upgrading our retell infrastructure does have a marketing benefit.
Having more visible locations and having sort of more obvious external branding appeal is a very useful thing to have from a marketing point of view just in terms of increasing overall brand impression and kind of points of contact.
What I would characterize differently is that I actually believe that if you look at the net effect of sort of what it is going to feel like to go to a Weight Watchers center when we're done with the process, versus what it feels like right now, it represents a fairly substantial shift in consumer perception.
Again, I go back to the barriers to participation.
If you look at the reason -- when people tell us that they're concerned or they say I'm -- I know Weight Watchers, I trust it, I have friends who have lost weight, I'm just not sure if it is what I want to do right now, a lot of what they're telling us is that there's some of these continuing misperceptions how modern the brand is, and part of that is exacerbated when they show up or see or hear about a center, that it would look like it was sort of decorated circa 1985 and it's behind a strip mall you've never been to, or sometimes even in an industrial park.
So if you look at getting past that -- and furthermore, I will share with you an interesting insight, is that when we have things like open hours, what we find is that people are able to sort of -- if they miss the meeting, they simply show up and have a weigh-in, and they can talk to somebody briefly.
If you look at that, it fundamentally creates kind of a different feel for the Weight Watchers experience.
It creates a completely different level of flexibility, in a way that people as they're going through their chaotic lives, have a new outlet and a new way of participating and staying with the program, and it really goes a long way in terms of opening up what it means to participate in Weight Watchers.
I think even more, if you look at what you get once you have this new retail infrastructure, it's one of the reasons I referenced -- you know, I was being a little bit vague about some of the things that are coming behind this, but it creates a new holding container that allows us to start doing much more aggressive service innovations in terms of the ways that we deliver the behavior modification we do in our meeting centers and our locations.
If I then take that, and I take what is going to be a very substantial upgrade and shake up of the current program, if you will, while building on all the things that make it great, I look at the cumulative effect, even the Weight Watchers of 2011, even more so the Weight Watchers of 2012 and beyond, it is going to feel very different.
That is why we believe that if you look at the cumulative effect of all these things, we believe it is going to have the kind of transformative effect that you are referencing, when you talk about the way that points first shook up dieting, back when it was launched in the late 90s.
- Analyst
Thanks.
And I guess where did you derive that confidence from?
Some of the companies I'm accustomed to are more like CPG companies, right, where you have a scientist in a white coat trying to come up with a new molecule that cleans you shirt better, something like that.
There is an inherent difference in how you guys innovate, I guess, and I'm curious for your thoughts on that.
Because at this point your NACO attendance is the lowest it has been since prior to the [Waco] deal, right, in 2000; it's 20% below peak, so -- but you sound pretty confident that you think that this new program is going to really turn things around.
So I guess I want to get a sense of how far through the development process is this, and why is it different than the last few innovations that we have seen?
- President and CEO
There's a couple different things in there.
First off, you asked why am I confident.
If you ask me why I'm confident of this overall program, the first thing I would say is it's very different than a CPG, which is an industry I'm familiar with based on my own past experience, where you have the product and then you have the way that you market it, and the lab coats and everything else.
What you'll tend to see in service businesses, particularly if you look at things like retail, that if you follow the retail trade and then you have a retailer saying that they're doing a complete and total revamp of their store network, the expectation of the analyst following that retailer would be to expect a significant shift in volume trajectory; it's sort of standard fare.
So I would suggest you is that some of these things that we are talking about, I think it is easy to underestimate the kind of impact they have in terms of consumer impression.
And I think it is important to understand also, I mean, if I look at the sheer quantity of market research that we have done, we know why people like us and we know the barriers to participation, and we know that the things that we're doing are going to be addressing those barriers to participation, and so therefore from my perspective it is simple math.
So from that point of view, if you look at service industries, because sometimes there is sort of speculation that somehow the need for kind of going to a place is going away.
I don't believe it.
I don't believe it, first off, because I know from clinical research it simply does not work in behavioral therapy for most people if they don't have the benefit of a face-to-face interaction.
There were people a number years ago who said universities were going to be going away because of online education, that bank centers or bank locations were going to be going away because of ATMs.
None of that really happened.
The consumer finds a new equilibrium; they begin to recognize what they get from face-to-face, and then you eventually get people recognizing that.
I really believe that providing the modern version of the Weight Watchers meeting and service experience, and all the innovation that comes with that, is substantial.
I also believe that when you couple that, not one in isolation, but when you couple that with a significant program innovation -- this is a more significant program innovation, knowing what I know I know about it -- than ones we've launched in the past, I have absolutely no doubt that as we start putting these things into place, that they will have the kind of impact on the business that we think that they are going to have.
- Analyst
Thanks, I appreciate you taking the time.
Operator
Thank you, our next question is from Greg Badishkanian with Citigroup.
Please go ahead.
- Analyst
This is actually Alvin Concepcion in for Greg.
Just a question, you mentioned weather impacted NACO so far in the first quarter.
Historically when weather has been an issue, is there pent-up demand such that customers just start to dilate or extend out, or do you just sort of lose those sales?
- President and CEO
I think the sad reality is a couple of them come back, but -- actually, what I would say is it depends when.
So for example in the UK, impulse purchases matter.
Impulse purchases in any category matter, and if you lose an impulse purchase, by the very definition that impulse is gone and therefore that opportunity is lost.
Our biggest period for impulse purchasing is obviously in the winter.
In the case of the UK, if you looked at the first two weeks of January, it really was sort of cruel fate that we got hit when we did, because if I'm just being honest, a lot of those customers probably will not be coming back to us for some period of time.
They went off and did whatever other things they were going to do, and we're going to just have to catch them next time around.
So weather -- and the thing about weather is -- I tried to make a promised myself when I first assumed this role over three years ago that I wasn't going to talk about it, because some weeks you have good weather and some weeks you have bad weather, and it seemed like a ridiculous thing to keep going on about, but I cannot ignore the fact that the weather we have been seeing this year has been absolutely ridiculous.
I have absolutely no doubt that if you look at the trends that we are seeing in NACO in Q1, weather plays a significant role, and if you look at the impact of weather had in the UK in January, it was very real.
Over time, I believe that we're going to have an opportunity to bring those customers back in, but unfortunately particularly with respect to Q1, at this point it is what it is.
- Analyst
Okay.
Just wondering if you could provide a little bit color on your centers in China?
I know it is early, but what has the response been like there, and what are some of your learnings so far ?
- President and CEO
Here's the thing in China, which is that if you're going to do business in China, you have to recognize that you're going to try 20 different things, and most of them aren't going to work but a few are.
You have to have a high appetite for experimentation, because there are enough differences in the culture, and the way the consumer operates, and the infrastructure and the environment and everything else, that you can't just take a template that you have in a Western country and plop it in China and think it is going to work.
So what the team has been doing in China throughout 2009 is trying different retail operating models.
The fact that they now have three fully-functioning centers that are operating at a pretty high level of performance, particularly sort of early versions, we find to be incredibly encouraging.
What I find to be most encouraging is that we now have meetings in China with over 40 people per meeting attending.
That is the kind of meeting average that we would typically see in a mature market; and when I see that, I see a real Weight Watchers meeting happening; and when I see that, I see the beginning of templates that can start to get rolled out.
We don't everything we need to know in continuing to build out the business in China, but we are starting to move up the learning curve, and we are going to continue to push hard on that in 2010.
- Analyst
Lastly, do you see an opportunity to create a product to address increasing childhood obesity, and if so, what is that opportunity like for you?
- President and CEO
We are incredibly attuned to the fact that childhood obesity is getting the attention that it deserves.
The First Lady has chosen this to be her signature issue, and has a lot of support from the White House.
Weight Watchers is a big believer in the fact that it can find a way to contribute to childhood obesity on a number of different dimensions, and let me just leave it at that.
- Analyst
Thank you.
Operator
Our next question is from Ken Goldman with JPMorgan.
Please go ahead.
- Analyst
Good afternoon, everyone.
A question on how you balance I think what is very smart strategy of getting people back into the meeting rooms -- that is your unique advantage, right?
With the tendency of individuals in the United States right now to not want to go to meetings, and to really do of their work, so to speak on the iPhone, at home on the Internet.
That is a tough balance, because I think there's the opportunity on the Internet for you to gain some market share and to make some money, but I think by your -- and correct me if I'm wrong -- by your own admission, that is not as effective as having them go to the meetings all the time.
I know they are complementary, so it's not either/or, but I'm just curious how you think about that in terms of your marketing and how you want to work with the consumer in those different formats going forward?
- President and CEO
What we have seen is that -- over and over again is that the kind of person that is gravitating toward online does tend to be somewhat different and have a somewhat different set of needs than the kind of people that are gravitating toward our meeting.
So we have always believed that Weight Watchers online was primarily incremental product in terms of the consumers that it was bringing in based on everything we observed.
A little bit less weight to lose, looking for a little bit less intensive form of behavior modification, kind of wired in a different way.
What I find interesting, I was just in a meeting out in Connecticut a couple of weeks ago, and there was a guy, which I am always glad to see, who was having great success going to the meeting, and he had gone last year as well with not maybe quite as much success, but he is going gangbusters this year, and the leader asked him, you know, what is working for you this year?
He said, well, I'm tracking for the time.
She said, well what were you doing last year?
He said I wasn't tracking, I was sort of vaguely following the program, and she said, well what changed?
He said the IPhone.
He said it made it really easy to do it.
It is right in my pocket, there's always a reason to track.
But he's the same guy who was also saying that he couldn't do it without the benefit of the weigh-in, and the support of the group and everything you learn from the Group.
So for him, he didn't want to have to choose; he wanted it all.
He wanted all the tools and all the resources.
So what we find is that our most efficacious product is actually both.
When I see social networking, I don't see it as a replacement to meetings, I see it as a complement to meetings.
When I see tools like the iPhone and the Internet, I don't see it as a replacement to meetings, but I see it as a complement to meetings.
I continue to believe that it is going to be forever.
The gold standard is going to be behavior therapy methodology that relies both on the benefit of face-to-face interaction, and the accountability and support that goes with it, along with the convenience and connectivity that you get from technology.
And what I love about the fact that -- of what we have at Weight Watchers in terms of our assets, is we don't have to arbitrarily choose.
We can let the Internet business grow to some tastes, and we can continue to support its growth in an aggressive way, and at the same time we'll also invest heavily in our face-to-face service, because we fundamentally believe in it as a behavior therapy methodology.
So our view is that the right strategy is to push both, and where possible find ways to connect the two.
- Analyst
That's helpful.
Looking back about nine months ago, one of the feelings, rightly or wrongly, out there was maybe 2009, it is fair to give Weight Watchers a pass, they had a marketing campaign that was designed for non-recessionary times, and perhaps they got blind-sided by what was happening to the consumer.
But I think to sort of -- I'm a little bit surprised, I guess, that guidance is so low for next year.
I would have thought that 2010 at least would have been close to flat, given that you had almost a year to prepare for recessionary times.
Is it wrong for me to think, hey, why does this have to be a lost year?
Why could you not design marketing program a little bit more in line for where the consumer is right now, so that you can get some volume back; and then maybe in 2011, when your centers are ready to roll, you can really drive more attendance by plugging a lot more money into marketing?
I would not expect you to market a lot more this year, given that your centers are not ready, but am I wrong to think about, hey, why does 2010 have to be such a disappointing year perhaps?
- President and CEO
Okay, a couple of things.
If you look at the beginning of 2010, again, it is a fundamental reality, is that we are comping against a new program last year which we don't have this, and so there's no doubt that that's impacting results, particularly in the important first quarter, which has knock-on effects throughout the year.
As we noted, we do expect things to moderate over the course of the year.
If I look at the marketing and the advertising we're doing, it is not like I believe that there is a variant of it that is so perfect for a recession that I believe it would have resulted in a fundamentally different outcome.
I do believe that it's -- I think it is fair that on some level that there is a version of our marketing and an evolution of our marketing program that will allow us to do a better job in terms of driving near-term results, and we're working hard to push against that, so that we can start clawing back a little bit of the hit that we took in Q1.
But nonetheless, I think that the reality is that some of the things that we are fundamentally doing with particularly the economy, which has not gotten any better, and the things that we believe that are necessary to completely sort of change around people's perception of the meeting experience, we're just not going to have the benefit of it being in place.
So we are incredibly confident and positive that the strategy that we are talking about right now, which is a strategy that we started talking about last year, that these types of things will have the kind of impact on the results that we think that they're going to have.
But in truth, I will admit to, in the first quarter, being a little bit surprised by the magnitude of some of the hits that we saw, and with the benefit of hindsight of course we are scrambling to sort of think through are there different ways that we could have and should have marketed, and that we can potentially apply throughout the course of this year, but I believe that a lot of this is, for us, continuing to sort of ride out what is obviously a difficult environment; but to do it in a way that we're going to do the things that are going to lead not to sort of an aspiration of flattening out, but rather an aspiration of significant and sustained growth going forward.
- Analyst
Thanks very much.
And that, as always, for the detail, both backward-looking in forward-looking.
It is very helpful in understanding the Company.
- President and CEO
Sure.
Thanks.
Operator
Thank you.
The next question is from Michael Binetti with UBS.
Please go ahead.
- Analyst
Ann, maybe could you help us dimensionalize the impact on the gross margin in the quarter from maybe some of the different push and pull in there?
Maybe looking at the mix shift, the higher-margin businesses, versus the BOGO, maybe versus the closure of some of the weaker meetings that you guys talked about?
- CFO and PAO
Going into 2010, specifically?
- Analyst
In the fourth quarter, I guess, and then maybe in 2010, how you see it as well?
- CFO and PAO
Let me start a little bit with the 2010, because I think everybody will need that for their modeling, and then we'll kind of backtrack a little on the fourth quarter.
If you look at -- David talked through the volume and revenue guidance, which I will just remind everybody of.
We are talking about negative single-digit revenue change, we are talking about paid weeks being negative low-single, and attendance being negative high-single.
When that attendance, particularly, piece happen, you will see some compression in the gross margin.
The attendances per meeting will be a little bit lower.
To your point, the change in the geographic mix, with NACO not doing as well, more towards the international, which has somewhat lower margins, so we'll see some growth margin compression.
We're not talking about significant, but maybe 100 basis points, something like in that neighborhood, of compression there.
In terms of the G&A and the marketing, with the negative revenue, you will probably see some decrease there in terms of -- or some increase there in terms of percentage of revenues for G&A and marketing combined.
On the cost side, we'll continue to be prudent managing our costs, focus on reducing where we can, but we're not anticipating another major restructuring similar to what we had in 2009.
We will continue to invest in our marketing, and will see some slight increase there, given the innovation and dot.com marketing success, so will see something there.
Just to finish up in terms of interest expense, I think I answered, we're looking at about $70 million right now on a full-year basis for interest expense.
We may end up refining that because, as you probably recall, be put an amendment in place to our debt covenants in June of last year that allows to extend some of our maturities on some of our tranches, and we'll probably do that at some point this year, which may affect what the interest is -- interest expense is within 2009.
That is kind of the picture for 2010
In terms of 2009, the fourth quarter, you did have an impact from the BOGO, but generally speaking, between the cost initiatives that we put in place throughout the year, the meeting compression a little bit in the international that pushed up the gross margin, and the dot.com performing well, and it having a higher gross margin, that is what you are seeing in terms of the dynamics of the gross margin.
- President and CEO
I think one other point I might add in, and this goes back to the earlier question in terms of sort of -- even the gross margin compression and some of the things that Ann talked about, is that our belief is fundamentally that, notwithstanding the current challenges that we're dealing with in 2009 now going into 2010, that we do not believe that meetings are necessarily in a point of secular decline, but meetings are in need of being revamped, and it is going to put them in a point of ongoing growth.
So with that in mind, we made the very conscious decision, as we said before, to make -- to basically hold on to our infrastructure where appropriate.
Now in appropriate places, we can look to do some meeting consolidation, purely as a function of sort of coalescing our membership base around stronger locations and time slots.
But I think that we're making, again, the conscious decision not to shrink our meeting infrastructure significantly, because although we recognize that there's a near-term margin hit in some of the compression that Ann is referencing, that it would be the wrong thing to do in preparation for what we see is a pick-up in growth as we go back into 2011.
- Analyst
Okay.
If I can follow-up with one quick final question, I know you walk through a couple numbers, and I think I missed the actual number, but I'm focusing a little bit on the location chances that you are making.
I'd really like to know if there is any kind of financial metrics you can give us related to the investment of the new locations for one, but secondly, maybe the lift that you're seeing on average as you move to these new locations; a lift in attendance, a lift in revenues?
And what kind of hurdle rates of return on the investment you're using to justify the decision, so we can think about that versus your corporate rate, and where that may trend as we work through our models and long-term forecasts?
- President and CEO
For whatever it is worth, you might find the script helpful -- the transcript helpful, because I ran through a bunch of the networks -- sorry, a bunch of the metrics on the first question.
But to sort of recap that, real estate, again we believe that the new locations themselves are going to be effectively economics-neutral, and that we would only be -- that we believe that we are going to be able to significantly upgrade many locations with no change in rent, because the environment in which we signed the lease three years ago versus the environment today, that we have a number of locations where we'll be able to get lower-cost leases; and so those locations where we actually decide to pay up, those will offset those, and in some cases where we pay up there would be an expectation in terms of increased foot traffic, resulting in higher enrollment levels and everything else.
So we're going to be carefully doing our analysis on that.
Because the change-over in locations is going to start happening shortly, we don't yet have the data that we can share back to you to sort of show you kind of the proof in analysis and metrics.
But we are pretty confident and comfortable that we'll be able to achieve that.
In terms of center economics, the cost of these fit-outs, again those were some of the CapEx numbers that I referenced earlier, in which the variables that you will want to consider is capital cost per center of what we used to spend, i.e.
$20,000 to $25,000, versus what we'll be spending on the new designs, i.e $50,000; a period of depreciation, historically three years, now five years as we extend out leases; and the rate of change.
So historically, maybe turning the system over a nine-year period of time, and in this case accelerating it to a three-year period of time.
So those are the metrics that are in play.
- Analyst
Thank you.
Operator
Thank you.
There are no further questions registered at this time.
I would now like to turn the meeting back over to the presenters.
- President and CEO
Thank you for joining us today, and I look forward to speaking with you on our next call.
Operator
Thank you.
The conference has ended.
Please disconnect your lines at this time, and we thank you for your participation.