WW International Inc (WW) 2010 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Weight Watchers International second quarter 2010 earnings teleconference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, you will be 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, August 5th, 2010.

At this time, I would like to turn the call over to Ms.

Sarika Sahni of Weight Watchers International.

Please go ahead.

Thank you, and thank you to everyone for joining us today for Weight Watchers International second quarter 2010 conference call.

With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer.

At about 4.00 pm Eastern Time today, the Company issued a press release reporting its financial results for the second quarter 2010.

The purpose of this call is to provide investors with 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 on the Company's corporate website located at www.weightwatchersinternational.com.

Reconciliations of non-GAAP measures disclosed on this conference call for the most -- directly comparable GAAP financial measure are also available as part of the press release.

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 filing with the Securities and Exchange Commission.

Please refer to these filings for a more detailed discussion of forward-looking statements and risks and uncertainties for such statements.

All forward-looking statements are made as of today and except as required by law, the Company undertakes no 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.

Kirchhoff.

Please go ahead, David.

Good afternoon, and thank you for joining us as we review Weight Watchers International's performance for the second quarter of fiscal year 2010.

After a very difficult first quarter, our second quarter business results improved significantly as we began to see strengthening in our NACO meetings business, and robust growth in our weightwatchers.com business.

While we're not yet seeing consistent growth across all of our markets, the trends we're now seeing are far superior to those of Q1 in which we were experiencing the combined impact of the economy, weather, and less-than-effective marketing.

The NACO and weightwatchers.com businesses both responded very well to newly launched marketing campaigns, with an almost instantaneous uplift on enrollment trends beginning on April 1st.

On a constant currency basis, Q2 revenues grew a modest 1.8% with meeting fees effectively flat, in-meeting product sales down 1%.

Internet revenues growing over 20%, and other revenues declining 7%.

This overall increase in revenue compares favorably to the 4.5% revenue decline we experienced in Q1.

From a volume perspective, combined global online and meetings paid weeks grew by about 8% in the second quarter versus the prior year.

Global paid weeks and our meetings were up about 1% versus the prior year quarter, while paid weeks for Weight Watchers online were up a robust 22%.

Again, this was a substantial improvement versus the paid week trend we saw in Q1 in both the meetings and weightwatchers.com business.

Q2 2010 EPS was $0.73, compared to $0.76 for the same period in 2009.

I will now briefly review our results in our major geographies and businesses.

First, our North American meetings business.

Total NACO revenues were $196 million in Q2, effectively flat versus the same period in 2009.

This compares favorably to the 8% decline we experienced in Q1.

NACO meeting fees declined by 1% versus prior, while in-meeting product sales grew by 5%.

NACO Q2 2010 paid weeks were down about 2% versus the prior year period, as compared to the negative 8% trend from Q1.

Q2 attendances were down 5%, which was a marked improvement from the minus 16% trend we observed in Q1.

As noted on the previous earnings call, Q1 enrollments were extremely soft due to a combination of factors, including the lack of program news, a stale marketing campaign, and unprecedented weather conditions.

The January through March period is traditionally the largest enrollment period of the year for our business.

Meaning that our weak enrollments in Q1 resulted in very weak attendances and paid week levels as we ended Q1.

This effectively put us in a hole that's difficult to climb out of as we move through our seasonally lighter enrollment period for the rest of the year.

On April 1st, our North American team launched new marketing campaigns that sought to tap into the voice of our members in a new and compelling way.

In the case of the NACO meetings business, this campaign heavily featured our new spokesperson, Jennifer Hudson, in a fully integrated PR and advertising campaign.

We saw an immediate improvement in the enrollment activities of our business, which were sustained through the second quarter.

Perhaps most importantly, NACO saw significant improvement in its never member enrollments trends, a source of weakness for us in recent years.

Whereas we had been seeing double-digit enrollment declines in the first quarter, enrollments in the second quarter began to trend ahead of prior year levels.

By the end of the second quarter, we had closed most of the paid week's deficit.

Our attendance deficit, which lags enrollments and paid weeks, had also significantly narrowed.

Suffice it to say, we're very pleased to see the effectiveness and staying power of our new marketing campaign.

It is also encouraging to observe the significant impact that the marketing and advertising can have on enrollment trends, even without the benefit of other initiatives that will be kicking in at the end of this year.

As we noted on our last call, the strength of our brand has always been in the voice of our members and service providers.

We return to those roots in our advertising strategy, and so far, it is paying strong dividends.

As we move into the third quarter, we experience strong enrollment patterns in the seasonally slow month of July, driven by an incremental advertising campaign we've been running the last two weeks.

Again, it's another indicator of how well-executed marketing and promotional programs can absolutely move the enrollment needle.

We have a solid array of marketing initiatives coming onstream in NACO over the course of the rest of the year.

By way of example, we will be launching our third annual Lose For Good campaign at the end of August.

Beyond the fall campaigns, the NACO team is in heavy preparation mode for the launch of this important new program at the end of the year.

On the operational front, the NACO team has also spent the last year rationalizing our network of meetings to allow us to focus our efforts on our stronger locations, time slots, and service providers.

The net effect of this has been an 8% reduction in the total number of meetings in North America.

It is important to note that our enrollments per meeting have been running on a solid positive trend throughout Q2, and now into Q3.

Further, our attendance per meeting has recently moved into positive territory versus the prior year.

We view both of these trends as very positive indicators of the momentum of the business.

This will give us an even stronger foundation from which to build as we move into the second half, and from there on to our new program launch.

Based on current trends, we're revising our volume forecast for paid weeks to be roughly flat on a year-over-year basis for the second half of the year, and are forecasting mid single-digit declines in attendance.

Having a weak Q1 will continue to impact our full year 2010 NACO performance levels, which is to be expected given its seasonal importance.

Nonetheless, the positive momentum that began in Q2 and has been continuing into the third quarter has been a welcome turn.

Now on to the international meetings business.

UK 2010 Q2 meeting revenues declined 6% on a constant currency basis, an improvement over the minus 12% trend in Q1.

Second quarter paid weeks grew at 1%, benefiting from increased monthly pass penetration rate.

Attendance has declined 9%.

Again, an improvement over the weather-impacted Q1 trend.

The UK business continues to struggle with the difficult consumer economy, as well as the lack of program news.

The UK's traditional branded marketing campaign in January this year was not very effective, and the UK is now closely evaluating how best to apply the learnings from NACO on the marketing front.

The UK team believes that the combination of a new grassroots-focused marketing campaign, plus an exciting new program launch will give this market a significant opportunity to drive much improved enrollment growth beginning early next year.

Over the near term, we're now forecasting the current trends have materially changed, and therefore expect low single-digit declines in paid weeks, and the high single-digit to the low double-digit declines in attendance for the remainder of the year.

Moving on to Continental Europe.

Our Continental Europe business maintained momentum on their new program launch ProPoints throughout the second quarter.

Constant currency Q2 total revenues grew 5% versus prior year, a slight improvement over the Q1 trend.

Paid weeks were up a solid 11%, benefiting from strong Q1 enrollments as well as favorable monthly pass penetration rates.

Attendance has increased 3%, comparable to the Q1 trend.

Overall, ProPoints has been very well received by our members in this market.

In terms of organizational earnings, our analysis indicates that our marketing campaigns used to launch the new programs this past January were very effective in significantly improving re-enrollments from lapsed members.

But did not immediately capture the attention of never members.

With the benefit of knowing what worked well and what did not work well in our Continental Europe program launch, our NACO and UK markets are focused on developing advertising to support their upcoming program launches that will be much more effective in attracting never members when they launch this January.

While Continental Europe has more recently started to see some positive word-of-mouth, which has begun to benefit never member growth, something we are working hard on to continue to build.

This does not change the fact that our marketing must work harder to attract never members.

As in the UK, our CE teams have also been motivated by the success of the recent NACO marketing efforts, and they are actively seeking to develop their new marketing campaign for January 2011 that will drive increased never member enrollment.

For the duration of the year, we expect the volume trends in CE to continue roughly at the current level.

Moving on to weightwatchers.com.

Weightwatchers.com has its highest growth quarter in a number of years, with the substantial acceleration of growth in both our more established US business, as well as continued growth in our younger, faster-growing international business.

Q2 Internet revenues were up 20% on a constant currency basis, compared to the plus 10% trend in Q1.

Online paid weeks were up 22% in the second quarter, and end-of-period active subscribers were up an outstanding 26% by the end of Q2.

This compares to the 11.5% growth in our active subscriber base as of the end of Q1.

I'm happy to note that in the quarter, we passed the one million subscriber milestone, finishing Q2 with 1.06 million active subscribers.

In the US, we had sign-up growth rates for online products at levels not seen since we began TV advertising of this product in 2007.

Our online business clearly benefited from a highly effective advertising campaign that conveyed the many positive aspects of the Internet product by leveraging the voice of our very happy subscribers with compelling advertising treatment.

As we enter the third quarter, we're continuing to see robust growth in our global weightwatchers.com business.

For the duration of this year, we're forecasting 20% plus online paid weeks growth.

As always, the technology team continues to be busy on the product development front, with numerous product improvements released -- releases in both our US and international websites.

This past January, working together with the NACO team they launched Monthly Pass for the first time in Canada.

Now, I'd like to turn the discussion over to Ann, who will elaborate further on our Q2 performance.

Good afternoon, everyone.

As David noted, our second quarter operating results point to a marked improvement trend versus first quarter.

Our financial results recap as follows.

Second quarter revenues of $376.7 million, which increased 1.1% on an as-reported basis, were actually up 1.8% on a comparable constant currency basis.

Net income of $56.3 million in the quarter was 4.2% below the Q2 '09 level on an as-reported basis, was down 1.4% when the impact of unfavorable foreign currency is removed.

In addition, Q2 2010 includes increased interest expense of $2.6 million pretax, which accounts for 2.8% of the decline in net income versus prior year in the quarter.

Reported EPS was $0.73 versus $0.76 in last year's second quarter.

A decline of $0.03 in total.

But with $0.02 of negative foreign currency exchange accounting for most the decline.

There are two items related to expense in the second quarter of last year which should be noted.

The first of these is a restructuring charge of $2 million taken in last year's second quarter associated with cost savings initiative.

Which, when removed, increases 2009 Q2 EPS by $0.02.

The second adjustment relates to the adverse UK court ruling we received with regard to leaders' self-employment status.

This ruling resulted in a charge in the fourth quarter of last year.

$1.1 million of which related to second quarter 2009, and which is a similar ongoing impact for each quarter going forward.

Adjusting the second quarter 2009 for comparability reduces Q2 '09 EPS by $0.01.

After adjusting 2009 for both of these items, and 2010 for the negative impact of foreign currency translation, EPS for the second quarter of 2009 is $0.77, as compared to $0.75 in 2010 with higher interest expense of $0.02 included in the 2010 quarter.

Our second quarter 2010 operating income of $112.2 million increased 0.7% on an as-reported basis.

In the operations overview that follows, I'll discuss our operating performance on a currency-neutral basis, and adjusting for the items discussed above.

On this basis, our 2010 Q2 operating income increased 0.9% as compared to the 2009 second quarter level.

Our operating income margin declined 20 basis points.

29.9% on the same basis.

Primarily the result of higher marketing as a percentage of revenue, which I'll review later in this report.

Summarizing improvement in volume trends that we saw in the second quarter, the global paid week growth trend improved markedly versus first quarter performance.

Up 7.7% in this quarter versus the prior year to $36.8 million, as compared to 0.6% growth in the first quarter of this year.

Second quarter global attendance patterns at our meetings followed a similar improvement in trend.

Down 4.4% in the quarter as compared to minus 12% in the first quarter.

Online end-of-period active subscribers increased by 25.8% in the second quarter versus prior year, as compared to an increase of 11.5% in the first quarter of 2010.

Looking at the meeting business, paid week increased 0.8% globally in the quarter.

Driven by an 11.2% increase with Continental Europe.

NACO's improving trend brought meeting paid weeks to a negative 1.8% level.

And UK showed moderate growth, up 1.2%.

In terms of second quarter attendance versus prior year.

NACO was down 4.9%, UK was down 8.5%.

And Continental Europe attendance was up 3.2%.

Global revenues of $376.7 million rose 1.8% in the second quarter.

Lecture income revenues of $214.2 million were 0.2% behind the prior year quarter.

Overall, lecture income for a meeting paid week declined slightly versus the prior year by 1%.

Mainly as a result of globally higher penetration of value priced Monthly Pass, and increased promotional activity.

Second quarter global meeting and product sales were $68.2 million, down 0.9% versus prior.

On a per-attendee basis, global and meeting product sales were up 3.6%, with NACO increasing 9.2% on the strength of promotions and new consumables' product introductions, which were very well-received.

Internationally, product sales [per] attendee declined 2%.

Moving to weightwatchers.com.

Second quarter revenues of $60.6 million, grew 20.3% with strength across all major markets.

Combination of strong retention and sign-up growth.

Paid weeks grew by 22.2%.

Now, turning to a review of the performance of license and franchise commissions, and revenues from our publications.

These revenues of $22.5 million declined 6.2% in total versus the prior year level.

Our licensing revenues of $15 million in the quarter declined 5.9% versus last year.

Domestic licenses declined 5.1%, partially resulting from a change in two of our licensing relationships.

International licensing was down 6.8%.

In the US by way of reference, the largest better-for-you retail category, frozen entrees, is down roughly 10% in the quarter.

Most of the products in the better-for-you category are premium priced, and the category has experienced difficult trends in the current economic environment.

Franchise commissions, which totaled $3.2 million in the quarter, were down 9.6%.

With US franchise commissions down 8.9%.

Second quarter gross margin was 56.2%.

80 basis points improved from last year's second quarter adjusted level.

This gross margin expansion reflected growth in our higher weightwatchers.com business and the positive impact of higher attendance per meeting in Continental Europe, driven by the innovation.

Q2 marketing expenses were $56.7 million, up 6.5% in constant currency.

The increase is the result of heavier investment in weightwatchers.com marketing, which has successfully driven incremental online sign-ups and revenue.

Marketing as a percent of revenue was 15% in the second quarter 2010, as compared to 14.3% in the comparable quarter last year.

Given the positive results of our marketing efforts we've actually increased our marketing in the third quarter, which will lead to a shift in earnings compared to fourth quarter.

Second quarter G&A expenses were $42.8 million.

A 0.3% decrease on an as-reported basis.

In constant currency and excluding $2 million of restructuring charges from the prior year quarter, G&A expenses increased 5.1%.

We gained efficiencies from reductions initiated last year, but these were offset by higher legal fees and higher bad debt expense for a particular, international license.

This percentage of revenue, G&A was 11.4% the second quarter 2010 versus 11% in the second quarter of 2009 [excluding] restructuring charges.

In summary, our consolidated operating income margin was 29.8% in the 2010 quarter, as compared to 30.1% in the prior year as adjusted.

Moving to interest expense.

In the second quarter, interest expense was $19.6 million, up $2.6 million or 15.5% from the Q2 2009 level.

The increase is the result of a higher portion of our debt being hedged, as well as higher interest expense arising from our recent debt extension.

Our effective interest rate in the quarter was 5.03%.

Compared to 4.18% in the second quarter of last year.

Our current projection for interest expense in 2010 is approximately $77 million for the full year.

Our cash flow from operations in the second quarter 2010 was $98 million.

Before interest payments of $17.9 million.

After CAPEX of $5.7 million, we had $92.3 million of free cash available.

We return cash to our shareholders for the payment of our quarterly dividends of $13.5 million and by repurchasing $28.3 million of our stock.

In addition, we made interest payments of $17.9 million.

We incurred $11.3 million of refinancing cost.

And reduced our debt marginally by $7.5 million.

We ended the second quarter 2010, with $1.41 billion of debt as compared to $1.53 billion at the end of the second quarter 2009.

And now I'll turn it back to David.

Thank you, Ann.

The poor performance in the first quarter was a significant disappointment and wake up call for me and my management team.

I've been very pleased and gratified to see the team rise to the challenge, particularly in the all-important NACO market.

The positive impact of the spring marketing campaign is a clear demonstration of our ability to begin moving the business back into growth mode.

While we do not expect the macro economy, particularly low consumer confidence, to provide much wind to our sails over the course of this year, it is highly motivating for the team to feel the confidence of beginning to move enrollment levels forward.

This is particularly true as most of our plan growth-striving initiatives will not begin to provide the positive contribution until we move into 2011.

On this note, I would like to provide a brief update on the status of some of these growth-driving initiatives.

New program launch.

For competitive reasons, we're not yet in a position to share all of the details in the new program beyond what we've shared in prior calls.

However, I can tell you that we've been running ongoing prototype sites for the new program for some time now, and member response continues to be extremely positive.

The more I see this new program in action, the more I believe it is the right program at the right time.

Our job is to fully leverage this as we move into the 2011 winter campaigns in January in our NACO, UK, and Australia markets.

To this end, the focus of the team is now for us to one, optimize training and preparation for our service providers to ensure a seamless transition for our existing members.

Two, support the program launch by developing marketing campaigns to build up our recent success, and seek new ways to capture the public's imagination to drive both never members and lapsed members into our doors starting this January.

Our retail modernization program.

The NACO team continues to make excellent progress in rolling out its retail transformation.

Specifically, real estate.

We have begun the process of systematically renegotiating leases and/or moving to improved locations.

I had the opportunity to see some examples on the ground recently in Tampa, Florida.

And the degree of improved retail visibility is compelling.

As well, our real estate team has done an excellent job in securing attractive terms with landlords, who have been excited to welcome our brand into the prime retail locations.

In numerous cases, we've been able to move from a lower-end strip mall location to grocery store-anchored prime retail locations without any net impact on our cost profile.

In parallel, the rollout of our new center design is progressing.

In recent weeks, we have begun rolling out the new center design in several locations, and they look absolutely fantastic.

Early response from service providers have been extremely positive.

We expect about three-fourths of the work of our national retail modernization to be complete by the end of 2011.

As part of this process, we are fully upgrading, right now, two entire metro markets.

Tampa, Florida; and St.

Louis, Missouri to inform and optimize the rollout to other markets.

By the end of September, the team will complete the upgrade process in Tampa and St.

Louis, transforming all 28 centers in these two markets.

With all of these initiatives moving into place, as well as other initiatives now in the pipeline, we are feeling good about our ability to drive growth as we move into 2011.

As the societal cost of health care has come front and center, and as obesity is increasingly being recognized as one of the biggest preventable contributors to these costs, Weight Watchers is perfectly placed to play a central roll in addressing this critical issue.

One recent piece of evidence of this comes from the International Congress on Obesity, a once every four year event held in Stockholm, Sweden this past July.

During this congress, there was a presentation of the results of a large-scale randomized clinical trial, with over 700 participants that was performed across three different countries.

The UK, Germany, and Australia.

This three year effort was led by a group of premier independent researchers, including those from the Medical Research Council out of Cambridge University.

This study compared the results of a doctor referring an overweight patient to Weight Watchers versus a doctor referring a patient to standard care provided by a nurse in their office.

Over a 12-month period, the Weight Watchers arm lost two times more weight, and delivered two and a half times as many people to a 10% loss compared to the standard care arm.

The results were highly compelling on multiple levels.

First, individuals in the control arm, standard care, received the best case level of health in a conventional medical setting, including getting a program to follow and follow-up visits and coachings from the doctor's office.

In actual practice, due to the many time pressures on physicians and their offices, doctors rarely have the ability to deliver such levels of care.

Given this, the outstanding weight loss performance of Weight Watchers versus the idealized control arm is even more compelling.

Second, one clear implication of this research is that the combination of a doctor plus Weight Watchers, is incredibly compelling.

The doctor is ideally positioned to create a sense of urgency to get the patient started along, with a sense of accountability for the patient wanting to have a better follow-up visit.

Weight Watchers plays the role of week-to-week delivery of the education, leader-led support, and behavior change in a way that would be very difficult, if not impossible, to replicate in a doctor's office.

Third, the study clearly demonstrated the clinical efficacy of Weight Watchers across multiple countries and cultural norms.

While Weight Watchers has performed numerous clinical studies in the US, this study firmly established our clinical efficacy credentials overseas.

Fourth, the lead investigators of this study actively commented on the unique roll of Weight Watchers as a key front-line delivery mechanism of behavior change with our consistent efficacy and high scalability.

This, combined with our relatively low cost, further confirms that Weight Watchers is uniquely positioned as the lead provider of lifestyle-based weight management within the health care system.

Armed with this, we are in an -- we are even better situated to seek and develop opportunities to actively work with both the medical community, and public and private health care systems.

Look for more developments in this area in the future.

Regarding EPS guidance.

Given the seasonality of our business, it is hard to recover from weak volumes in the winter diet season during Q1.

As a result of our difficult Q1, we're maintaining the upper end of our guidance range at $2.50 per share.

However, with our improved volume results in our NACO and dot com businesses, we're raising the lower end of our EPS range by $0.10 to $2.35.

At this time, operator, we would like to take questions.

Thank you.

(Operator instructions)

We thank you for your patience.

Our first question is from Jason Anderson from Stifel Nicolaus.

Please go ahead.

Good evening everybody.

How you doing?

I'm here for Jerry and Bob today.

One thing -- could you update us on the penetration rates of Monthly Pass by market?

And also, is there a -- I doubt 100% would be a ceiling for that.

Is there a ceiling you guys manage to for that?

Ann is going to pull up some of the penetration data, but while she's doing that -- what we've said historically, and what we've been seeing is generally speaking, increases in penetration rates on Monthly Pass, even as we've continued into this year.

At some point, we bump our head up against the theoretical ceiling, which is -- people should have access at some level to the Internet to get full use of the Monthly Pass value proposition.

And there's certainly going to be those people that might not be comfortable using their credit card in a recur billing basis.

And so, I think to your point, it seems unlikely that a 100% penetration is a near-term possibility.

But I do believe what we're seeing is that the value proposition, being able to get unlimited access to meetings, as well as all the Internet tools, is an incredibly compelling package.

Particularly given the value of Monthly Pass.

So, I have every reason to believe that the vitality of the Monthly Pass proposition will continue unabated, and I certainly would expect over time opportunities to further increase penetration, the relative degree of increase in penetration.

is obviously going to vary country to country, depending on where they are at that particular given moment in time.

Okay.

We've had -- sort of significant increases in penetration, if you look at North America, for example, we're up to about 63% of attendances in the second quarter this year, versus [about] a little less than 60% last year at this time.

If you look at the UK, we are going from about 55% to over 60%.

And if you look at Germany, we have a huge penetration of 80% versus 75% prior year.

So, we've increased penetration across the board.

Great, thank you for that color.

And -- doesn't sound like you probably have time to analyze this.

[your other half] results, but on the retail modernization projects, I don't -- have you seen enough to see any results in attendances or enrollments?

And -- it sounded pretty fresh.

But I didn't know how early in the quarter or in this year, you had started that.

The latest version of the design is going to be open to meetings -- is going to be open to members as of Sunday.

So I think it's definitely too early to comment about that.

And the lease renegotiation process.

They're -- they've made fantastic progress, for example, in the St.

Louis and Tampa markets.

It's still a bit early.

And I also think that it would be prudent -- once these new locations and designs are in to give them a chance to settle in, so that we can look at the data.

And have enough of a longitudinal data set so we can get a better sense of what incrementally we think they might be doing for us.

I can tell you that on a very basic level, the sheer retail presence of what they now look like and the locations where we're now being positioned, is a significant improvement from where we were.

Really, Weight Watchers has an opportunity to go from in many places being somewhat invisible to having a nice presence that really pops in an attractive and modern way.

Great.

We'll all be looking forward to hearing results for that.

And one other question here.

On the marketing front.

And I believe you referenced 3Q, possibly more marketing, if I heard that correctly.

Could you give us some more color on 3Q and 4Q '10, and then possibly fiscal '11 on maybe a percent of revenue, should we see an uptick like we saw this quarter?

Yes, if you're looking at 3Q, you'll probably see more of an uptick as a percentage of revenues even than we saw in the second quarter.

In 4Q, that'll come down a bit.

We're not prepared at this point to talk about our marketing expenditure for revenue in '11.

I will say that we're pretty happy with our marketing results, and that's why we're increasing the (inaudible).

Okay, great.

I think it's also worth noting that if you do that, from a P&L impact perspective, one thing to keep in mind is that as we spend incremental marketing dollars, particularly in the back half of the year.

The revenue benefit from those is limited in terms of what we're going to observe in that particular quarter.

Whereas we're going to recognize all the expense of it, obviously as it occurred.

And so these are going to be -- this incremental marketing is going to be going in a way where it is absolutely driving incredibly positive return on investment over the course of that enrollment.

But the revenue benefit and the contribution margin from that enrollment we'll be experiencing for example not just in Q3, but Q4 and frankly going into 2011.

Good points.

And thank you for that.

That's all I had.

Thank you.

(Operator instructions)

Our next question is from Chris Ferrara from Bank of America.

Please go ahead.

Hi, guys, how are you?

Good, Chris.

How are you?

Good, thanks.

So, I'm understanding of course you don't want to give too much detail on the new program, and I get that.

Can you give at least try to give a little color on what you think this new program has that the old ones haven't?

I guess -- obviously qualitatively -- what are the different aspects of it that give you this increased degree of confidence?

Because your confidence seems to have ramped each time you've spoken to us over this year.

Yes, and I apologize for being slightly evasive on this point.

Above and beyond what we've already talked about.

A lot of what I'm seeing from this program, and in a lot of the details of why I think it's so great, are going to be speaking to qualities that we're going to do our best to keep under our hat until we have a chance to really pull our marketing campaigns together.

And that's why, for competitive reasons, I'm hesitant to get into too much detail during the month of -- early August about the specific value of the new program.

Other than to say that it's cumulative effect on member behavior in a really positive and empowering way has just been really exciting to see.

And member satisfaction has been incredibly encouraging.

And I apologize ahead of time that I can't go into too much more detail around that.

Certainly as we get into the next quarter, we'll be able to get into a bit more specificity.

Okay, and I guess - it sounds like what's driven the better recruitment more recently is the Jennifer Hudson campaign in NACO?

And tell me if this is wrong or right.

Should we be thinking about it in the way like that's what helping now, but the true recovery of NACO will really come down to this innovation and how you market it, right?

Jennifer Hudson, and obviously she's your spokesperson, right, and that's going to help, but this specific campaign that's going on right now, that doesn't necessarily translate to success in January, right?

What translates to success there is going to be the success of the innovation, right?

Well, I don't think I would characterize it exactly like that.

Thematically, I understand what you're saying, but I would characterize it a little bit differently.

And the way I would characterize it is that -- if you go back to what we experienced this past Q1.

We own the fact that the marketing that we had on the air had gotten long in the tooth.

It was not really cutting through, it was not compelling, it was not making the right kind of emotional connection with the potential customers.

It wasn't creating the kind of excitement and buzz that's necessary to attract never-members.

We really didn't have any PR to speak of.

And frankly, that was a huge issue for us.

In terms of just not being part of the conversation.

And so, if I look at that, and then I compare the marketing programs we're running right now.

Having marketing that more than punches its weight in terms of advertising.

Having strong and compelling PR, and just this week, Jennifer Hudson is now on the cover of InStyle makeover magazine, which is going to be sitting on the shelves for the next X months.

I think the value of having an A-list celebrity like Jennifer is tremendous in terms of giving us PR cut-through.

And what I would say is that the marketing can continue to deliver in a powerful and incremental way, even as we go into 2011.

I agree with you.

That -- and frankly, even if I didn't have a new program in 2011, I'd be feeling pretty good about my prospects going into Q1.

Clearly on the back of the marketing in terms of making a significant improvement versus the trend that we saw.

Now, layer on top of that the news value of having a major new program.

Layer on top of that, beginning to see very early benefits of the retail efforts that are going to be continuing into 2011.

And then there's other things that we're continuing to work in the pipeline that are also going to be contributing to the NACO enrollment story.

And so, what I see is initiatives that layer on top of each other, and that are going to have continuing and sustaining strength.

As opposed to something that gives us, say a three or four month pop and then goes away.

That's helpful.

I appreciate that.

Can you quantify or put numbers around the bump-up in recruitment trends, and can you remind me what a comp was that we're looking at, just to get a sense of just how big this is?

I understand that the attendances follow this, and you put yourself at a disadvantage with the first quarter, but can you just try and put some numbers around recruitment has looked like more recently?

Yes, I'll -- I'll futz around it a little bit.

As you know, we don't release specific enrollment numbers.

Because of the nature of the metric and it has its own complexities in terms of getting like-on-like comparability.

As I referenced in the last call, and it's consistent with this, and as you heard me say in my prepared remarks.

We bumped up on enrollment, slightly positive is the way we're characterizing it.

I'm not sure if I want to dimensionalize it in terms of numbers.

But slightly positive for the second quarter.

And then certainly seeing a continuation on trend in Q3.

And I don't know if there was something you wanted to add to that.

A significant change in the --.

And that was versus being down double-digits in the first quarter.

So, I mean -- sorry, to answer the question, if you are looking at a before and after, It went from double-digit down to slightly positive.

So, the net bump was pretty pronounced.

I got you.

But the -- so down, it sounds like -- the recruitment trends in Q1 would have eventually led to a further deceleration in attendance.

Now, you've gone slightly positive.

How do I think about slightly positive with a big new advertising campaign with an A-list celebrity?

I get the change from Q1 to Q2.

I'm just -- I'm trying to dimensionalize it, I don't want to -- I get that this stuff takes a little longer to turn around, and you're not going to go from no momentum to massive momentum.

but is that -- if we think about the absolute, not just the change from Q1.

Forget Q1 for a second.

Is Jennifer Hudson driving low -- like just modestly positive recruitment trends a good thing, or is that just okay?

Well, no, I think it's a great thing.

Because again, as you heard me mention, it's not the only thing we're doing.

It's one thing that we're doing, and it's already by itself in isolation, having an impact.

And I think the other thing that you heard me mention in my prepared remark is that most significantly, it had an impact on nevers.

And you've -- Chris, you've been on these calls for more quarters that you can count.

And as you know, never-enrollments have been a source of ongoing weakness.

And if there's one thing that's been dogging us, it has been turning the trend on nevers.

And to sort of see -- and keep in mind it's also not like the spring campaign has an enormous amount of media weight behind it.

To again see the change and the shift in trends, we found to be incredibly compelling.

Frankly, re-joins will tend to follow nevers in future periods, obviously.

And so, what this campaign has shown us is that marketing specifically for Weight Watchers meetings can absolutely be driven.

It can be driving increased interest by people who have never darkened our doors before.

And this is a very important point to us.

I think the other thing I want to point out is that if you look at just the overall participation in the brand, and frankly look at it on a global level.

Is that our total paid weeks are up 8% versus the prior year period.

Which is, I would argue, fairly -- a fairly significant uptick in interest, and better than, frankly, what you're probably seeing in most other consumer categories of product.

You know, the online business has absolutely been on fire.

I don't know how else to put it.

What's interesting about the online business is that their advertisements did not rely on a celebrity.

It leveraged that same concept of word-of-mouth and word of our members, but it did it in a different way.

But it did it in a way that had the same kind of authenticity and was incredibly compelling.

And what we're seeing is that the collective impact of both of those things is that consumer -- net consumer interest in Weight Watchers absolutely increased in a significant and measurable way in the second quarter on the back of marketing by itself without the benefit of all these other things we're talking about.

That's really helpful.

I appreciate all the color as always.

Thanks, guys.

Sure.

Thank you.

I would now like to turn the meeting over to Mr.

Kirchhoff.

Thank you for joining us today, and I look forward to speaking with you again at our next quarterly earnings (inaudible).

Thank you.

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