Nutrisystem 2010 Annual Report Download - page 3

Dear Fellow Stockholders:
In 2010, we continued our incessant focus on helping our customers achieve their weight loss goals and make healthier lifestyle
choices through education, support and empowerment. Nutrisystem customers lost an estimated ten million pounds in 2010 and we remain
committed to doing everything we can each and every day to support them. We also continue to understand that the health risks of obesity
are serious and the number of overweight or obese people continues to grow both in the U.S. and around the world. We believe that we
have a unique, proven solution that can help millions of Americans improve their health.
We achieved solid financial results in 2010 despite continued challenges from both the economic and competitive landscapes. We
generated net income of $33.6 million, or $1.12 per diluted share, on revenues of $509.5 million. This represented a 16.8 percent
improvement in net income and a 21.7 percent improvement in earnings per diluted share, despite reduced revenues during the year. This
performance indicates the power of the Nutrisystem business model: even when revenues are pressured, we can carefully manage costs
and optimize marketing investment to drive strong profitability.
As we entered 2010, we experienced media rate pressure in the first quarter due to decreased media inventory and higher demand in
the television advertising market. Every January, we are very reliant on heavy media levels to drive demand and create momentum for
new starts and eventually fuel the reactivation funnel. Even with that rocky start to the year, we were able to manage the business
effectively and efficiently to deliver comparable revenues and year-over-year profitability improvement in many key metrics. We
experienced new customer growth in both the first and second quarters in 2010, with the second quarter performance being the strongest
we have experienced since 2007. As demand trends softened in the second half of the year, we once again flexed our cost containment
efforts and marketing efficiency to optimize financial results for the full year. Our real-time visibility into demand trends and the
flexibility of our business model continue to enable us to build a stronger and more resilient business while we continue to create value for
our shareholders.
In 2010, we continued to invest in growth initiatives that we believe will better position us for longer-term growth, such as:
• A new Nutrisystem Culinary Council was created consisting of five prominent chefs from across the U.S. who are excited to
participate in providing consumers great food experiences that also deliver healthy weight loss. They will be creating healthy
and flavorful dishes that could potentially be added to the Nutrisystem menu to help give our customers even more variety than
ever before.
• We also revamped our frozen food offering to enable the 2011 launch of a new frozen food configuration with a more attractive
price/value relationship for consumers.
• Lastly, we continued investing in our e-commerce platform throughout 2010. Investments in conversion improvements,
publishing applications and testing platforms enabled us to drive improved performance while making the site more intuitive
and appealing to our users. We’ve increased support of the Nutrisystem D business and launched a dedicated site for health care
professionals to continue reaching out to primary care physicians and diabetic educators. In addition, during 2010 we launched a
new food forum, web family plan program, and our dedicated mobile site and iPhone app.
When we announced our financial results for 2010 earlier this year, we let shareholders know that we were expecting 2011 to be a
year of reduced revenues and net income, largely due to intense competitive pressures. At that time, we also outlined a plan to preserve
shareholder value and set the stage to re-energize growth in future years.
Our top objective is to continue to deliver profitable results in 2011. When market dynamics came into focus in early January, we
moved quickly to maximize customer interest by launching our most aggressive price offering ever for the Nutrisystem program. This had
a major impact on demand, leading to year-over-year improvements in new customer growth. As a result, to date, we believe we are
preserving market share to the greatest extent possible. We also plan to continue to evaluate returning capital to our shareholders in the
form of the quarterly dividends and stock buybacks.
At Nutrisystem, we strongly believe in our mission to support our customers, and to assist them in achieving success in weight loss
and improving the quality of their lives. We have a proven and efficacious product, a strong brand and unique business model, and a great
team.
I thank our employees, management team, Board of Directors, and stockholders for their continued support.
Sincerely,
Joseph M. Redling
Chairman, President and Chief Executive Officer