Nutrisystem 2009 Annual Report Download - page 17

ITEM 1A.RISK FACTORS
You should consider carefully the following risks and uncertainties when reading this Annual Report on
Form 10-K. If any of the events described below actually occurs, the Company’s business, financial condition
and operating results could be materially adversely affected.
Risks Related to Our Business
Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our
marketing expenditures and our ability to select the right markets and media in which to advertise.
Our marketing expenditures were $147.0 million, $175.0 million and $178.7 million in 2009, 2008 and
2007, respectively. Our future growth and profitability will depend in large part upon the effectiveness and
efficiency of our marketing expenditures, including our ability to:
• create greater awareness of our brand and our program;
• identify the most effective and efficient level of spending in each market, media and specific media
vehicle;
• determine the appropriate creative message and media mix for advertising, marketing and promotional
expenditures;
• effectively manage marketing costs (including creative and media) in order to maintain acceptable
customer acquisition costs;
• acquire cost-effective national television advertising;
• select the right market, media and specific media vehicle in which to advertise; and
• convert consumer inquiries into actual orders.
Our planned marketing expenditures may not result in increased revenue or generate sufficient levels of
brand name and program awareness. We may not be able to manage our marketing expenditures on a cost-
effective basis whereby our customer acquisition cost may exceed the contribution profit generated from each
additional customer.
Our sales can be adversely impacted by the health and stability of the general economy.
Unfavorable changes in general economic conditions, such as a recession or prolonged economic slowdown,
may reduce the demand for our products and otherwise adversely affect our sales. For example, economic forces,
including general economic conditions, demographic trends, consumer confidence in the economy, changes in
disposable consumer income and/or reductions in discretionary spending, may cause consumers to defer
purchases of our program which could adversely affect our revenue, gross margins, and/or our overall financial
condition and operating results.
We rely on third parties to provide us with adequate food supply and certain fulfillment, Internet,
networking and call center services, the loss of any of which could cause our revenue, earnings or
reputation to suffer.
Food Manufacturers. We rely solely on third party manufacturers to supply all of the food and other
products we sell. In 2009, approximately 19% and 18%, respectively, of inventory purchases were from two
suppliers. If we are unable to obtain sufficient quantity, quality and variety of food and other products in a timely
and low-cost manner from our manufacturers, we will be unable to fulfill our customers’ orders in a timely
manner, which may cause us to lose revenue and market share or incur higher costs, as well as damage the value
of the Nutrisystem brand.
13