Nutrisystem 2009 Annual Report Download - page 34

2008 and $727.6 million in 2007. The decrease in 2009 is primarily attributable to the decline in customer starts
due to the weakening economy. Revenue is primarily generated through customer starts and the customer
ordering behavior, including length of time on our program and the diet program selection. Critical to increasing
customer starts is our ability to deploy marketing dollars while maintaining marketing effectiveness. Factors
influencing our marketing effectiveness include the quality of the advertisements, promotional activity by our
competitors, as well as the price and availability of appropriate media.
Overview of Distribution via a Television Home Shopping Network
We distribute our proprietary prepackaged food through QVC, a television home shopping network. In
2009, this channel represented 5% of our revenue as compared to 6% of our revenue in 2008 and 5% in 2007. On
the QVC network, we reach a large audience in a 50-minute infomercial format that enables us to fully convey
the benefits of the Nutrisystem diet programs. Under the terms of our agreement, QVC viewers purchase
Nutrisystem products directly from QVC and are not directed to the Nutrisystem website. Retail prices (including
shipping and handling) offered on QVC to consumers are similar to prices offered on the website. We generate a
lower gross margin (as a percent of revenue) on sales through QVC relative to the direct channel, but QVC sales
require no incremental advertising and marketing expense and, management believes, exposure on QVC raises
consumer awareness of the Nutrisystem brand. Net sales through QVC were $28.5 million in 2009, $41.6 million
in 2008 and $41.1 million in 2007. The decrease in QVC sales can be primarily attributed to the weakening
economy and the decrease in consumers’ discretionary spending.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Year Ended December 31,
2009 2008 $ Change % Change
(in thousands)
REVENUE ........................................... $527,731 $687,741 $(160,010) -23%
COSTS AND EXPENSES:
Cost of revenue .................................... 243,690 326,453 (82,763) -25%
Marketing ........................................ 147,017 175,027 (28,010) -16%
General and administrative ........................... 77,389 87,605 (10,216) -12%
Depreciation and amortization ........................ 16,294 8,508 7,786 92%
Total costs and expenses ........................ 484,390 597,593 (113,203) -19%
Operating income from continuing operations ........ 43,341 90,148 (46,807) -52%
OTHER INCOME (EXPENSE) ........................... 407 (1,145) 1,552 136%
EQUITY AND IMPAIRMENT LOSS ..................... (4,000) (9,458) 5,458 58%
INTEREST INCOME, net ............................... 106 454 (348) -77%
Income from continuing operations before income taxes . . . 39,854 79,999 (40,145) -50%
INCOME TAXES ..................................... 10,818 33,572 (22,754) -68%
Income from continuing operations .................... 29,036 46,427 (17,391) -37%
LOSS ON DISCONTINUED OPERATION, net ............. (246) (174) (72) -41%
Net income ....................................... $ 28,790 $ 46,253 $ (17,463) -38%
% of revenue
Gross margin ......................................... 53.8% 52.5%
Marketing ............................................ 27.9% 25.4%
General and administrative ............................... 14.7% 12.7%
Operating income from continuing operations ................ 8.2% 13.1%
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