WW International Inc (WW) 2010 Q4 法說會逐字稿

Ladies and gentlemen, welcome to Weight Watchers International's fourth quarter and full year 2010 earnings teleconference call.

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

Afterward, you will be invited to participate in the question and answer session, and instructions will be given at that time.

As a reminder, this conference call is being recorded today, February 17, 2011.

At this time, I would like to turn the call over to Sarika Sahni of Weight Watchers International.

Please go ahead.

Thank you, and thank you for everyone for joining us today for Weight Watchers International fourth quarter and full year 2010 conference call.

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

At about 7 AM eastern time today, the Company issued a press release reporting its finance results for the fourth quarter and full year 2010.

The purpose of this call is to provide investors with some further details regarding 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 to the most comparable GAAP financial measure are also available as part of this press release.

Before we begun, let me remind everyone that this call will contain toward-looking statements.

Investors should beware 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.

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

All forward-looking statements are made as of today and expect 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 the turn the call over to Mr.

Kirchhoff.

Please go ahead, David.

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

Well, we began 2010 with a weak first quarter.

We steadily improved results each subsequent quarter, and I'm please to report that we ended year on a much more positive note.

Benefiting from the successful launch of an important new program in North America and the other English-speaking markets as well as increasing strength in our weightwatchers.com business, we saw meaningful acceleration of our business in Q4, 2010.

Our North American business showed particular strength with solid growth in attendances for the first time since the recession began in late 2008.

It was worth noting that we saw solid growth in both our North American meetings enrollments and online sign ups.

On a constant currency basis, Q4 revenues grew 15.6% over the prior year period with meeting fees up 8% and meeting product sales up 25% and Internet revenues growing 32%.

This increase compares very favorably to the 3.5% total revenue growth we saw in Q3 of 2010.

From a volume perspective, combined global online and meetings paid weeks grew by 13% in the fourth quarter versus the prior year period.

This 13% growth is a further acceleration to the plus 11% year-over-year growth we reported in Q3.

The increase in Q4 paid weeks was driven principally by rapid growth in our Weight Watchers Online subscription business, as well as further strengthening in our North American meetings business.

Global paid weeks in our meetings were up about 3% versus the prior period in Q4 while paid weeks for Weight Watchers Online accelerated further for the third consecutive quarter to plus 33% versus the prior.

Q4 2010 EPS was $0.66 compared to $0.24 for the same period in 2009.

Included in the Q4 2010 result was $0.02 of benefit from the reversal of a prior year VAT accrual.

Included in the Q4 2009 result was a $0.32 accrual for unfavorable tax ruling in the UK regarding the self employment status of our leaders in that country.

After adjusting for these two items, Q4 2010, EPS was $0.64 compare to $0.56 for the same period in 2009, an increase of 14%.

Suffice to say, we're gratified that our fourth quarter results were able to deliver EPS for the full year of $2.56, above the original full year EPS guidance range of $2.25 to $2.50 that we provided this time last year.

Ann will provide a full year recap in remarks.

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

First, our North American meeting business.

Total NACO revenues were $180 million in Q4, up 14% versus same period in 2009.

This is a significant improvement over the slight growth we saw in Q3.

NACO meeting fees grew by 9% versus the prior year period, benefiting from higher meeting fees per paid week as well as volume growth.

In meeting product sales grew by 46%, driven by the heavy sales of enrollment products associated with the new program launch.

NACO Q4 2010 paid weeks grew 4% versus the prior year period with steady increases in our membership base commencing with the program launch in late November.

NACO attendances for Q4 increased 7%.

Again, a significant improvement over the negative 4% trend we saw in Q3.

To put our Q4 results in context, it is useful to review some of the key steps we have implemented so far to reenergize our NACO business since the weak Q1 performance.

One, revamping our marketing strategy.

As we noted in our Q1 call, we recognized that our marketing messages were simply not cutting through to our target audience and that they did not reflect the core energy and underlying vitality of our brand.

We went back to the fundamental voice of our brand, the voice of our members.

We sought to capture the uniqueness and authenticity of our members experience by working with a high-profile celebrity, Jennifer Hudson.

Like so many of our members, Jennifer has had terrific success on the Weight Watchers program, and she has been able to convey the power of the Weight Watchers experience in a compelling and authentic way.

Two, launching a major new program platform from which to grow.

We made the decision to capitalize on 10 years of advancement in nutritional science while building on the strong equity of points, completely revamping our highly successful program of 13 years and rebuilding the points plan from the ground up.

On November 29, we launched this new program, Points Plus in our US market.

While base on the familiar methodology of budgeting and tracking, this new program is much more directly encourages and nudges our members to make healthier and more satisfying choices.

Three, focusing our meeting network.

Reflecting the impact the recession had on our volumes, we further consolidated our meeting work in NACO to focus our energy on our strongest locations, time slots, and leaders.

Consequently, in Q4, our meetings base was 11% smaller than same quarter in 2009.

This, combined with attendance growth, increased the average number of the attendances per meeting by 20%.

Busier meetings create a more lively experience for our members, improve compensation for service providers, and ultimately deliver higher gross margins for the Company.

The results of these efforts have been clear.

Since 2003, the one area of our business that we have continued to struggle is to improve our ability to bring never members into meetings.

This had been a drag on the top line of our business despite our success and significantly increasing retention, revenue per enrollment and product sales.

With the launch of our new marketing campaign on April 1, we saw an immediate improvement to our never member enrollment trend.

This trend improved further in Q3.

When we launched Points Plus in late November, we saw another market upward shift in the enrollment trend.

Prior to the program launch, never member enrollment growth had already moved into positive territory.

After the program launch, even before we turned on our advertising for the new program, it increased dramatically.

This happened as we saw an explosion of press coverage in the new program launch across a wide variety of both national and local media.

The significance of our program change was readily apparent as evidenced by front-page coverage by The New York Times.

It's worth noting that the rapid growth we saw in enrollments happened without any meaningful investment in advertising during the seasonally quiet period.

Beginning the week after Christmas, we brought these marketing program news and PR elements together with the launch of a new campaign centered around Jennifer Hudson as well as some of our members who were beta testers of Points Plus.

The advertising we've created is having some of the highest impact I have seen during my career at Weight Watchers.

This, combined with higher media weight has resulted in further acceleration of NACO enrollment levels as we enter the new year.

In addition to the expected strong influx of rejoining members, this campaign succeeded in driving robust never-member enrollments in the new year, something we did not see last year when we launched Pro Points in continental Europe, which did not follow the same program life strategy.

We continued to be very please with the execution of the launch of Points Plus.

It was a significant change for many of our members as we fully changed our weight loss system, literally over the course of a weekend.

I could not be more proud of the exceptional manner in which our management team and service providers have helped members successfully manage a transition.

And perhaps the best news of all, our new program launch has seemed to accomplish what no previous nutritional program has been able to achieve.

We have our members proactively eating a higher proportion of non-processed foods, particularly fruit.

The principal design intent of the Points Plus innovation was to find a way to more directly encourage our members to make healthier, more sustaining choices.

All early evidence suggests that in this regard, it has been a major success, and early weight loss results for our members is good.

Now, onto the international meetings business.

As noted on the last call, the UK team made the decision to significantly limit marketing this last fall prior to the launch of its new program, Pro Points.

This led to soft volume trends in the third quarter as well as the weeks prior to the November launch of the new program.

And combined with difficult weather during the program launch, overall Q4 volumes were soft.

Fourth quarter paid weeks were effectively flat while attendances declined 11%.

However, with regards to revenues, any softness in volume was more than offset in the quarter by very strong sales of in-meeting products.

Q4 UK meetings business revenues grew 18% versus the prior year period on a constant currency and comparable basis.

Product sales grew a robust 35% on a constant currency basis as members snapped up enrollment products for the new program.

As with NACO, the UK team has done an exceptional job in preparing and executing the launch of its major new program.

Response from members has been terrific.

By the end of the year, the program had already achieved solid notoriety and awareness of the new program was high, even before the January advertising campaign.

The UK then launched its own advertising campaign in January, which drove significant growth in enrollment levels and building attendances in the new year.

It's important to keep in mind that the UK is copping against terrible weather for the first two weeks of January 2010.

Nonetheless, the business is growing nicely, even without the benefit of the weak weather impact at comps.

Moving on to continental Europe.

Overall, the CE meetings business revenues contracted 8% on a constant currency basis in Q4 versus the prior year period, driven by softer volume and in-meeting product sales.

Paid weeks for the fourth quarter were flat to prior while attendance declined 15%.

As noted in our Q3 call, our French business had been particularly weak due to the competitive impact of a fad diet that has achieved high notoriety in that country.

Recognizing the need to set the record straight on fad diets, the French government just published its study that seriously called into question the efficacy and safety of the Dukan diet while giving Weight Watchers strong marks.

The rest of Europe was somewhat soft, but not nearly to the same degree as France.

As noted on prior calls, our CE business did not see the kind of launch to its new program we're now seeing in NACO in the UK.

As a result of a marketing campaign that did not break through and a lack of widespread PR in support of the new program, CE never saw the growth in never enrollments in its most important markets, France and Germany.

While we did get an initial surge of returning members, partially driven by our ability to target direct marketing towards them, the failure of the new program to attract never members is indicative of the fact that the launch never created meaningful buzz around the brand.

Failure to achieve buzz and attract never enrollments, in turn, limited the ability of the new program to create building word of mouth and sustaining momentum behind the brand.

In other words, the program launch never truly achieved liftoff.

Benefiting from the learnings of the CE launch, our English-speaking markets are now having a very different experience with their program launch.

We continue to see CE as a good long-term growth opportunity for the Weight Watchers brand.

While we did miss the opportunity with our last program launch to create real excitement and drive further interest and awareness around our brand, we continue to believe that our approach towards sustainable weight loss through education and behavior modification is the right solution in CE.

The formula for bringing this brand to its full potential will require different communication strategies than what we have been deploying of late, and we believe that some of our recent learnings in other markets can be applied here.

Moving onto weightwatchers.com, the weightwatchers.com business further accelerated in the fourth quarter.

Q4 Internet revenues were up 32% on a constant currency basis versus the prior year period, even stronger than the plus 22% trend we experienced in Q3.

Paid weeks for the Weight Watchers Online product were up 33% for the fourth quarter versus the prior year period, and end-of-period active online subscribers were up 38%.

Prior to the Points Plus launch in November, US sign-up volume for the online product was vigorous, comparable to levels seen throughout Q3.

Immediately following the program launch, signup volumes ramped up significantly.

The rapid increase in the growth rate was contemporaneous with the same rapid increases in the growth rate that we saw in our NACO meeting enrollments.

In January, we launched new advertising spots for the Weight Watchers Online product in the US.

We have been pleased to see even further acceleration of our Weight Watchers Online product growth throughout January and February.

While we're seeing robust growth across virtually all of our Internet geographies, the fastest growth has been in our most developed market, the US, where new subscribers continue to make the largest and fastest growing part of our online signup volume.

Throughout Q4, our weightwatchers.com technology team continued to push aggressively in product development, including new country launches for Belgium and Spain.

We also launched our first iPad application.

As I will discuss later, we plan to further ramp up the product development pace as part of our strategy to build on the momentum in this highly profitable business.

Now, I would like to turn the discussion over to Ann who will elaborate further on our Q4 and full-year 2010 performance.

Thank you, David.

Good morning, everyone.

As you've heard, we have exceeded the top end of our guidance range provided during our third quarter call by $0.07 on an adjusted basis and $0.09 on an as-reported basis.

The increase is attributable to the new Points Plus program success in driving enrollment, online sign ups and product sales beyond our expectations during the soft launch stage in North America and the other English-speaking countries.

Before hearing some of the details of our fourth quarter results, I'll provide a recap of our full-year 2010 performance.

On a full-year reported basis, 2010 revenues were $1.45 billion, a 3.8% increase versus 2009.

Paid weeks rose 7.8% over the prior year level, the monthly pass global installed base rose 16.5% to over 1.2 million members by year end.

And online end of year actives grew 38.2% to $1.05 million.

From a global perspective, the 2010 year, which got off to a slow start, began to see improving trends in the second quarter.

The strengthening was driven by the NACO meeting business and accelerating growth in weightwatchers.com.

Both of these business saw success in driving membership growth from their spring and fall advertising campaigns.

Partially offsetting growth in these businesses was weak performance in the UK and a slowdown in growth in continental Europe.

As noted by David, the fourth quarter saw a surge in performance on the strength of the program innovation launches in meetings and online in North America, UK, and Australia.

On a full-year basis, 2010 operating income as reported rose 9.4% to $390.3 million, including a $6.5 million charge related to the settlement of the California labor litigation.

But there are certain adjustments required to present these results on a more comparable basis.

In 2009, there were two significant non-recurring items which reduced operating income in that year by $38 million and which should be adjusted out for comparison purposes.

First, as a result of the adverse court ruling we received regarding the self employment status of our UK leaders, a charge was recorded into 2009 operating income related to periods prior to 2009.

This non-recurring charge reduced 2009 operating income by $32.5 million, net income by $22.7 million and EPS by $0.29.

2009 operating income also included $5.5 million of non-recurring restructuring charges associated with cost savings initiatives, reducing EPS by a further $0.04.

Of lesser impact, the 2010 full-year includes the benefit of a $2 million partial accrual reversal of a charge taken in 2008 for a negative UK back tax ruling.

The charge, which was estimated and related to prior periods, has now been actualized.

This benefit increased 2010 EPS by $0.02.

When these adjustments are made, adjusted full year 2010 operating income declined 1.6% to $388.3 million from $394.6 million in 2009.

As previously noted, the 2010 results include a $6.5 million charge related to the settlement of the California labor litigation.

Net income for the full year 2010 was $194.2 million, up 9.5% and EPS of $2.56 rose 11.3% over the $2.30 prior year level.

After the adjustments noted above, full-year 2010 net income decreases by 5.1% versus the prior year level and EPS declined by 3.6% to $2.54 as compared to $2.64 in 2009.

And finally, the full-year 2010 delivered $281.4 million of cash flow from operations, exceeding the 2009 level of $265.5 million.

Now, shifting to a look at some of the details of our fourth quarter results.

Our fourth quarter revenues reached $356.7 million, an increase versus prior of 14.6% on an as-reported basis and 15.6% on a comparable constant currency basis.

Constant currency revenues grew 12.9% in the meeting business and 31.7% in the weightwatchers.com business.

While net income of $48.9 million in the fourth quarter 2010 was $30.2 million above the Q4 2009 level on as an as-reported basis, an EPS of $0.66 rose $0.42, two of the adjusting items noted above impacted the fourth quarters of both years.

Fourth quarter 2010 included the $2 million pretax UK VAT related accrual reversal, which benefited EPS in the quarter by $0.02.

Fourth quarter 2009 included $35.6 million of pretax expense related to the UK leaders self employment status, ruling for periods prior to Q4, 2009.

This charge reduced Q4 2009 EPS by $0.32.

On a comparable basis, after adjusting for these items, net income in the fourth quarter of 2010 grew by 9.2% over the prior year level to $47.6 million from $43.6 million in the prior year quarter.

And earnings per share on this basis were $0.64 in the quarter, an increase of 13.8%, or $0.08 versus $0.56 in the prior year period.

Looking at our operational performance, our Q4 2010 operating income of $96.3 million increased 91.8% versus the fourth quarter of last year on an as-reported basis, but increased 9.8% to $94.3 million on a comparable basis after the previously-noted adjustments.

Adjusted operating income increased 11% on a currency-neutral basis.

In my remarks that follow, I'll discuss our operating performance variances on a currency-neutral-adjusted basis.

While Company fourth quarter revenues grew 15% over prior, marketing and operational costs associated with the new program launches resulted in a reduction in our operating income margin versus prior.

The OI margin in the quarter was 26.6% as compared to 27.6% in Q4 2009, a decline of 100 basis points.

The cost factors will be discussed in more detail later in this report.

But first, summarizing global volume trend in the fourth quarter.

Global paid weeks continued on a growth trajectory for the fourth consecutive quarter, reaching $34.6 million in Q4 2010, an increase of 13% versus prior.

Global attendance was nearly flat with prior in the quarter, down 0.8%, reflecting the impact of the new program launch in November.

The launch drove NACO attendances up 6.8% for the quarter, which serve to offset attendance shortfalls elsewhere.

It's worth noting that nearly flat global attendance in Q4 compares with declines of 4.4% and 4.8% in the second and third quarters and 12% in Q1.

The online end of period active subscriber base rose 38.2% in the quarter versus prior to $1.05 million, continuing the strong trend experienced through 2010.

Looking now at the meeting business, meeting revenues comprised meeting fee revenues and in-meeting product sales were up 10.6% in the quarter to $254.7 million.

Meeting fee revenues were $194.6 million, 6.7% ahead of prior, a combination of paid weeks growth and less promotional activity in the fall campaign, particularly in NACO.

We also had some pricing actions, notably in the UK.

In-meeting product sales were $60.1 million globally in the quarter, up 25% versus prior end total and up a strong 26% on a per attendee basis.

NACO's product sales per attendee increased 36.7% and UK's rose 52.3%.

The new program launch in those geographies drove existing as well as new members to purchase program guides and kits which is are typically sold primarily to new enrollees.

Revenues in weightwatchers.com business grew 31.7% the fourth quarter to $62.4 million on the strength of 33.2% paid weeks growth.

The online business was strong in sign-ups and retention across all major markets.

Our other revenues, which are comprised of licensing, franchise commissions and revenues from our publications, were flat in the fourth quarter at $23.3 million.

Licensing revenues of $14.9 million decreased 3.7% in the fourth quarter versus last year.

UK licensing was up 6.2% in the quarter on the strength of increased distribution and some new products.

Elsewhere, licensing in the Better for You product category continues to be negatively impacted by changes in consumer discretionary spending habits.

Domestic licensing decreased 5.9% in the quarter.

Franchise commissions, which totaled $2.7 million in the quarter, were up 3.9% with US franchise commissions up 10%, bolstered by the new program introduction.

As I noted earlier in my remarks, our revenue growth over prior year did not result in margin expansion as a result of expenses associated with the launch of the new program.

The gross margin was 52.9% in the fourth quarter, 70 basis points below last year's Q4 adjusted level.

In the meeting business, the provision of new program meeting materials to all attendees, as well as the impact of product discounting, pre-innovation of clear inventory and during the innovation to promote the purchase of enrollment products reduced gross margin.

A boost in meeting averages in NACO offset part of the margin compression as did growth in the highly-scalable weightwatchers.com business.

Now that most of our current members have received their new program materials, we can expect year-over-year gross margin improvement as we move into 2011.

The operating income margin declined a further 30% versus -- 30 basis points versus prior beyond the 70 basis point gross margin decline to 26.6% from an adjusted 27.6% in Q4 '09 as a result of stepped-up marketing.

Our marketing investment increased 27.4% above the prior year quarter level to $46.5 million, primarily for increased media weight, both in anticipation of the January hard launch of the new program in NACO and to drive strong online sign-ups in weightwatchers.com.

We made the decision to increase our marketing investment in the quarter despite the negative impact on margin, but because of the benefit it would have on strengthening the business in 2011.

Marketing as a percent of revenue was 13.1% in the fourth quarter 2010 as compared to 11.9% in the fourth quarter of last year.

G&A expenses, on the other hand, declined as a percentage of revenue by 100 basis points to 12.9% in the fourth quarter of 2010 versus 13.9% in the prior year quarter.

G&A expenses were $45.9 million, a 6.7% increase over last year, primarily driven by higher bonus compensation due to improved business performance and by continued development of mobile applications.

Moving now to interest expense, which was $18.9 million in the fourth quarter, up $2.5 million or 15.5% from Q4, '09 level.

This was primarily result of the extension of debt maturities which we put in place during 2010.

Our effective interest rate in the quarter was 5% as compared to 4.29% in the fourth quarter of last year.

Our debt balance at the end of 2010 was $1.365 billion as compared to $1.45 billion at the end of 2009.

And net debt to EBITDA at the end of 2010 was 3.1 times.

Our cash flow from operation in the fourth quarter 2010 was $64.3 million before interest payments.After capital expenditures of $6.3 million, we had $58 million of free cash available.

We returned cash to our shareholders through payment of our quarterly dividends of $13 million and by repurchase 29.7 million of our stock, leaving us with 73.4 million shares outstanding at year end.

In addition, we made interest payments of $17.8 million and reduced our debt by $23.8 million.

Now I'll turn it back to David.

Thank you, Ann.

This time last year, we knew we that were facing a weak first quarter, but we also knew that we had coherent strategy for revitalizing the business.

Starting with the spring marketing campaign, the NACO meetings business was stabilized and the weightwatchers.com business started accelerating.

We finished the year with robust growth, both in NACO and our NACO and dot-com businesses, as well as building momentum in the UK.

We've entered 2011 with our best January in years.

We're seeing terrific enrollment volume in our NACO, UK, and Australian business, and we've seen even further acceleration of the weightwatchers.com business.

In short, the Weight Watchers brand is showing a level of vitality and resonance in these markets that we have not seen in years.

As we look forward, we're very much focused on building on momentum in this business by continuing to press toward on our strategy to bring Weight Watchers to a new level of performance.

To this end, our strategy in 2011 will focus on, one, building on our marketing success.

The fundamental goal of collective marketing effort is to allow us to build social relevance.

What we mean by social relevance is a state in which Weight Watchers is always top of mind in conversations that the average consumer has about weight loss.

This will come from continuing to have a combination of high-impact advertising, integrated PR, product news and innovation and effective promotions.

As we are successful in bringing more new members and subscribers into the brand, and as they experience weight loss success, our word of mouth should build and further help us to bring more people into the brand.

Two, rolling out our retail transformation.

In 2010, we completed the full-market transformations of two major metro markets, Tampa and St.

Louis, in which we systematically improved the quality of retail locations and center branding and design.

We've been able to accomplish the real estate upgrade without a corresponding increase in lease expense due to a more efficient meeting location network and more favorable rent terms executed by a new real estate team.

We now have several months of data to compare these two markets versus control, and I'm happy to report that they're showing an incremental enrollment lift of 15% to 20%.

In fact, we've seen the same percentage lift in both before and now subsequent to the Points Plus launch.

On this basis, we believe that the ROI in these incremental investments will be very strong and will provide a meaningful source of both growth in improvement to the visibility and modernity of the Weight Watchers brand.

We're now actively rolling out this initiative throughout our NACO system and expect to largely complete this task over the next 18 to 24 months.

Three, aggressive products and service innovation.

We believe that there are many more ways to make our proven and now improved program even more livable, accessible and effective.

To this end, we're working on a variety of service and program innovation concepts that we believe will add significant value to the member experience.

Further, we plan to accelerate our technology product development efforts to increase our mobility offerings, product usefulness and community connections.

By way of example, our iPhone application has already been download 1.5 million times and has become a convenient new way for people to keep themselves in engaged in their programs.

We have our first android application in development for a spring launch, and we're already working on our next iPad application.

We're increasingly seeing the power of bringing technology together with our traditional face-to-face interaction to deliver a truly effective, ubiquitous and compelling weight management offering that no competitor can match.

Four, positioning Weight Watchers as a health care solution.

As we noted many times, the societal health impact of obesity can no longer be ignored.

We believe that there is no other weight management solution that matches our combination of A; a lifetime-based sustainable solution.

Our orientation toward education, behavior modification provided in a supportive environment is unmatched.

B; clinically demonstrated results with more than 60 publications over the past 15 years.

C; cost effectiveness delivered through our affordable community-based meetings business and our online offering.

And D; a fully-scaled solution capable of having a population-wide impact.

Our network of over 45,000 global meetings being led by over 12,000 leaders, each of whom is a successful member is unique.

We have the right product for the right time in leading the fight against obesity.

We bring a unique set of assets to healthcare partners, including doctors and payers.

We are committed to developing the capabilities necessary to tailor our offering to this audience or to partner to achieve the same.

As an example, we began our partnership with Merck to bring Weight Watchers to the doctor's office in a pilot this January.

We see more opportunities ahead.

Guidance.

In providing guidance for the year, we expect to see a considerable improvement in our financial performance compared to 2010.

Despite very difficult weather this January in the US, we have seen robust growth in enrollment, attendances and paid weeks in our NACO meetings business.

This has also been the case in the UK and Australia.

While our comparable from Q1 2010 is very soft, we find the absolute numbers we're seeing to be encouraging and the strength we've seen since our program launch is continuing.

In particular, we're seeing the highest rate of never enrollment growth that we have seen in years.

As we begin to lap the revitalized NACO and weightwatchers.com advertising beginning in April, we expect to see some moderation in the trend.

But to be sure, we're anticipating solid volume growth in our two largest meeting businesses, as well as weightwatchers.com through 2011.

From a volume perspective, we're forecasting attendance and paid weeks growth in the high teens to low 20s for NACO in Q1 and the mid-teens for the full year.

For the UK, we're forecasting low-to-mid-teens attendance and paid weeks growth for the full year.

For CE, we're forecasting high single digit to low double digit declines for the full year as we look to move beyond our competitive issues in France and to find the right marketing strategy to elevate the brand to the same kind of status it enjoys in our other markets.

Weightwatchers.com was a big growth story in 2010, and we expect it to be an even bigger story in 2011.

We are forecasting 60% to 70% subscription month growth in Q1 and 40% to 50% growth for the full year.

We expect the financial contribution from this high-margin business to become even more meaningful in 2011.

We believe the volume growth across our meetings and online businesses will translate to 15% to 20% revenue growth for the year.

In turn, we expect to deliver EPS of $3.50 to $3.85 in 2011.

Once we have the fall-winter campaign and the early part of the spring campaign behind us, we will be able to further refine this full-year forecast.

Before we take questions, I would like to turn the discussion back to Ann to share some additional thinking for those modeling fiscal 2011.

So, a few notes on 2011 for those of you who are modeling our business.

I'll first recap David's guidance on revenues.

We expect 15% to 20% revenue growth in 2011, driven by full-year paid weeks growth in each of our businesses as follows.

In online, 40% to 50% paid weeks growth.

In the meetings business, paid weeks growth of mid-teens for NACO and positive low-to-mid-teens for the UK.

But high single-to-low double-digit decline in the continental Europe eating business.

We expect gross margin expansion in the range of 200 basis points this year from a combination of three drivers.

Higher meeting averages and the lack of innovation related cost in the meeting business.

Higher relative growth in the high gross margin weightwatchers.com business and gross margin expansion within the highly-scalable dot-com business.

In terms of marketing, we plan to continue to invest through the year and anticipate full-year marketing as percent of revenues to be similar to prior year, following roughly the same quarterly pattern.

G&A expense as a percent of revenues for the year should be only slightly below prior year levels.

We plan to reinvest the benefits of scale into new initiatives and capabilities such as developing our selling infrastructure to support our healthcare initiative.

And finally, we're projecting interest expense of $63 million for the year with $18 million in Q1 and approximately $15 million in each subsequent quarter.

So, turn it back to David.

Thank you, Ann.

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

Thank you.

(Operator Instructions)

Thank you for your patience.

And the first question is from Chris Ferrara from Bank of America Merrill Lynch.

Please go ahead.

Hello, good morning, guys.

Hello, Chris.

Hi, Chris.

So, North American attendance, I think you said high-teens attendance in Q1.

How -- I guess, first, how much visibility do you have into that number at this point, and how much of -- what do you think the weather affect was in the first quarter, right?

Because it really was pretty nasty.

I know the year-ago comp weather was pretty nasty too, but if you can just give a little insight into how much visibility you have on that, and what the weather impact was, that would be great.

First off, the guidance for Q1 was high-teens to low-20s.

In terms of the visibility we have to that attendance forecast, we now have the benefits of six weeks of volume numbers in our back pocket, so we feel very good about the visibility we have for the first quarter.

To your point, January was a pretty rough weather situation, with one storm in particular knocking out half the country.

Honestly, we actually had enrollment growth in that week, despite horrific weather conditions, so it's indicative of the kind-of quarter NACO is having right now.

There was some weather in the past -- in the prior year as well, but --

More into what I was going to say is that more of the weather that we saw in 2010 was in February.

And so, the weather story for Q1 was bad weather in 2011 in January, comping not much bad weather in the previous January, and relatively better weather in February; so far, anyway.

February of 2011 comping worse weather in February 2010.

Great.

And I guess, in the UK, the numbers -- it looks like you're looking for a pretty big inflection point, and I understand, I guess, what you're saying, what's going on in the business, but can you talk a little bit about -- I guess a little more color on why the UK will inflect so much over the next quarter?

It's really the same story.

The UK -- one of the things coming out of -- when we did the program launch in CE, and having the benefit of our experience and our learning in that market is that we really did come to the conclusion that we needed to be much more aggressive, much louder, much more forceful about the combination of both injecting energy into the brand more aggressively, and doing a better job of tying that into this news of significant program change and program improvement.

So, the UK really followed the same script as NACO, and they did a really nice job in terms of using the grass roots to build excitement about the new program during their soft launch.

But then they came out with a really good and aggressive advertising message beginning in the new year, and what we've seen is, therefore, a response on enrollment activity, and we believe that's going to be both in form of rejoins as well as nevers.

Okay, great.

And then, just on product sales also -- I guess, is there any way to parse out how sustainable -- obviously, a very big number is this quarter for a lot of the product sales per attendee -- I get why with the new innovation.

Is that going to continue the whole year through?

And then, not to get too far ahead of ourselves, but how should we think about next year?

This is going to be an unusually high product sales per attendee year I suspect, right?

And maybe that higher year-over-year trend moderates through the rest of the year.

Is that the right way to think about it?

Yes, I think that the biggest pop that we got in product sales per attendance was frankly in Q4.

And that's really where you're selling products, both to people who are enrolling in the program in December, which was really good enrollment growth, but it's a relatively smaller number of people, given our seasonality, but also selling enrollment products to our existing member base.

And so, I think if there's an aspect of product sales that is specifically associated with the launch of the new program, it's most noticeable in Q4 of 2010.

Really, the enrollment growth that we're -- the product sales growth that we're expecting to see throughout 2011 is more a direct function of our ability to drive enrollments.

And so, to the extent that we're able to be successful in continuing to build momentum and look to drive-up enrollments again in 2012, product sales would actually follow that.

Got it.

Thanks a lot, guys.

I appreciate it.

Yes.

Thank you.

The next question is from Greg Badishkanian from Citigroup.

Please go ahead.

Great, thanks.

You had great momentum with the new program, good success, and I'm just wondering -- maybe just a little color on when it first came out versus January, February.

Has that momentum continued, excluding the weather impacts?

What type of trends have you seen there?

Honestly, it's -- when you look at the -- if you're asking if you compare December versus January and February, the thing that's interesting when you look at December is that it's such a relatively low volume in absolute numbers in terms of enrollments, that you're going to see a little bit more volatility.

But that being said, even with whatever pops we saw, and we did see after the soft launch, principally in December -- frankly, if anything, that momentum has continued just as strongly in January and February because, keeping in mind, in January, February versus December, we also have the benefit of all the advertising is now sort-of hitting in full force.

We're operating with -- we made the decision to significantly invest in marketing media weights, and so we're up, give-or-take, 15% media weights in January, for example, and we're seeing an immediate return on that marketing investment.

And so, really, what we have working for us in January, February is basically the customer acquisition engine firing on all cylinders, and so therefore, we're seeing continued sustained momentum.

Right.

And I think you mentioned that marketing spend would be pretty consistent as a percentage of sales in 2011.

If you increase that, do you think you'd get an even greater return, or is it just conservative to kind-of keep the marketing spending as a percentage of sales?

Well, I think if you think about the revenue forecast we gave of 15% to 20% for the year, and marketing staying consistent as a percentage of sales, that's a pretty sizable step-up in marketing investment.

And what we're doing is we're staying pretty focused and disciplined about making sure that we're spending marketing in a smart way that drives response and pays back against the standards that we've historically kept as a company that prides itself on sort-of being good and disciplined in the way it approaches direct-response marketing.

To the extent we can find new ways of profitably investing in marketing, we'll always look for those opportunities.

You saw that a little bit at the end of 2010, where we made the decision -- even though we knew it was going to be a profit hit for 2010, we made the decision to step it up a bit toward the end of December because we knew it would pay back and, in fact, it did.

Right.

And just in terms of the incremental profitability for each new customer that you sign on, you don't have to necessarily open up a new -- set up a new meeting for that member.

So, how do you think about the incremental profitability and contribution from those new customers?

There's a very different way of looking at incremental profitability, although they lead to the same result for Weight Watchers Online product versus meetings, but as you know, there's a variable cost component to Weight Watchers meetings, which would be the -- principally, the acquisition cost of the customer, as well as variable expense related to compensating our service providers, et cetera.

The contribution after that, that works across a largely much more fixed-cost base, which is rent for the meeting location, fixed overheads, field management costs, things like that.

And so, yes, in fact, that's why Ann was guiding a 200-basis point improvement for the year in gross margin percentage to reflect those scale economics.

In addition, reflecting on the fact that the way to think about the incremental contribution of the Weight Watchers online product is you have revenue expected for the subscription cycle less acquisition costs, then goes to cover our largely fixed-cost base of our software development company that's internal to us.

And so, on one hand, we're looking to step-up the pace of product innovation and technology investment, but whatever we step that up doesn't even come close to the fact that those incremental customers we're going to be bringing in through Weight Watchers Online are going to be highly profitable to us.

Great.

Well, congrats on a very successful new program launch, and good luck with the continued success.

Thanks.

Thank you.

Thank you.

(Operator Instructions)

The next question is from Jerry Herman from Stifel Nicolaus.

Please go ahead.

Thanks, good morning everybody.

Hi, guys.

Hi, Jerry.

Hi, Jerry.

First question is with regard to never members, and I was hoping, David, that you could perhaps quantify what sort-of influence they had in any way you choose, whether you talk about their contribution to paid weeks or attendances, or some other metric that will help us frame that influence.

Well, I think that -- let me speak to it first conceptually because, again, that is a very different story, for example, than what we saw in CE.

Never members, when you're getting those, the first thing is that it is indicative of, effectively, buzz that's happening around the brand.

And for example, I was in a meeting in Baltimore yesterday -- Weight Watchers meeting -- and I met a woman who had never been to Weight Watchers before, but she had seen Jennifer Hudson on Oprah, and she was just so blown away by her story and the story of her family all doing Weight Watchers, that she came in and she's since lost a nice amount of weight.

And now she has gotten a number of her friends to join with her.

And so, when you start seeing more and more of those stories anecdotally, to me, it's a good indication of the fact that Weight Watchers is being discussed a lot.

It's -- another indication I can give is that when we first launched this program in late November, the sheer number of calls I was getting from just random people I knew who were asking me about the new program, the fact that we got front-page coverage in The New York Times and everything else, it all go backs to the fact that Weight Watchers has a lot of buzz and noise.

And the best way I can characterize our launch so far is that, in a manner of speaking, the new program and the brand kind-of went viral.

And so to us, that's a good indication of the momentum and energy level coming behind it.

In terms of the specific metrics around mix and everything else, the nevers versus rejoins, I think the most important thing for me to convey is that the growth rate on nevers was very high, and it was certainly higher than anything we had seen in many, many years.

What I would say is that it's still relatively early days into the new year.

As much as we have six weeks behind us, it's still going to take us a while to sort through data and impact and everything else, but all indications are quite positive right now.

When you look at your guidance for volume growth in the first part of the year and for the full year, is it, in-fact, fair to say that the predominance of that growth is from never members?

Let us let the year unfold a little bit and give you a little bit more specificity around that, particularly as we present our full Q1 results, but what I would say is, absolutely the volume that we're showing is heavily influenced by nevers, but it also reflects a nice degree of rejoin enrollment growth.

The other point I would make about momentum in the business is that the nevers we bring in this year are going to help us build our ability to bring in even more rejoins in subsequent years.

So, bringing in never members is sort-of the gift that keeps giving, both for 2011, but frankly, for 2012 and beyond.

The answer here might be related to the question just discussed, but in particular, it's about online and the huge reacceleration there -- or acceleration there, and I'm wondering if you can give us some additional color in terms of what's driving that.

It's always been a growth business, but now it's growing faster than ever from a larger base.

Yes, and it's been terrific to watch.

I think that the first thing I would say overall is that if you look at -- what has really been great to see is that all boats rising.

So, it's been terrific to see just really sort-of vibrant, strong enrollment growth in meetings, combined with even faster growth in the online business.

So, everything is sort-of relative, but it's kind-of -- both those businesses are sort-of pushing forward very nicely for the first six weeks of this year.

And to me, the interest in volume around both those lines of business is a reflection of the vitality around the brand itself, and the fact that it's -- it is -- there's never been a time in which I can remember with more people signing-up to do the Weight Watchers program out of January than what we're seeing right now.

So, from that point of view, we feel very good about it.

Now, the fact that it's growing even at faster pace against what was already a big business is terrific.

I will point out the fact that if you look at Q1 of 2010, our active -- our volume growth for that quarter versus the prior year was 10%.

Weight Watchers Online does start having somewhat tougher comps as it goes into Q2, Q3 and Q4, but nonetheless, we still see very good growth prospects for that business over the course of the year.

And is there a greater propensity of nevers to enroll online?

We're seeing great never participation, in both the meetings and with online.

Okay, great.

And then, a clarification on your comments about the revamped retail centers.

I just want to be clear in so much as you said that the attendance or the volume trends increased 15% to 20% in those revamped centers.

Did I hear that right?

That's correct.

Okay, great.

And then this last, final question, and I'll turn it over.

Can you give us an update on some of the corporate relationships, either for meetings delivered through corporate relationships, or maybe a little bit more color on Merck and CVS?

Yes, let me talk first-off about our corporate business.

And first-off, I'll mention the fact that our at-work business, which had also been a bit soft in terms of getting new at-work meetings started in 2009 and early 2010, is off to a great start this year.

So, we're seeing a very high level of interest by folks who are interested in bringing Weight Watchers into the work site.

We have a nascent, but we think very important new organization being built within NACO, which is going to be our healthcare organization that really focuses against this opportunity.

We've got a couple of very strong executives that are leading the charge there, and I think as you heard Ann mention, some of the increases that we're forecasting, for example, in G&A, while we expect to get a lot of scale benefit in our cost structure, we will be reinvesting some of that, for example, in G&A, back into additional selling resources, so that we can really start to scale that business up.

In terms of Merck, as I mentioned, we started a pilot the beginning of this year that covers a relatively smaller percentage of the country, in which people from their sales organization are now actively calling on doctors and talking to them about, first-off, how to talk to their patients about obesity, and specifically, the role that Weight Watchers can play, and the clinical evidence and everything else around Weight Watchers.

Doctors have always been very responsive to the uniqueness of the Weight Watchers approach, which is based on education and behavior modification, with a compliance mechanism in the form of weigh-ins -- confidential weigh-ins.

And so, that model has always had a lot of appeal to doctors, but I think giving them the clinical data, sharing with them the information, giving them then something they can turn around and hand to a patient, the initial receptivity that we're hearing is quite strong.

So, we're very excited about the start of this, and the notion is that as we continue to see the evidence of this first phase unfold, it creates the option to take this program national, coming into the fall.

And I think that the specifics around the press release that went out -- I think it was yesterday, around CVS Caremark -- I think is a reflection of the fact that we see just so many different opportunities to work with different players in the healthcare space, to find different ways of collectively having an impact that they want to see, and that we want to see, in terms of having a measurable push against obesity as a health issue in this country.

We think there's numerous opportunities like that to partner-up and to work with other people towards this greater good.

Great, thanks very much.

I'll turn it over.

Thank you.

There are no further questions registered at this time.

I'd like to turn the meeting back over to Mr.

Kirchhoff.

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

Thank you.

The conference has now ended.

Please disconnect your lines at this time, and thank you for your participation.