WeightWatchers 2004 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2004 WeightWatchers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

commissions were $6.1 million lower than last year as we have continued our franchise acquisition
program, adding two more in 2004. Product sales declined $2.2 million, as did publishing and other
revenue by $1.9 million. Included in the total $22.2 million increase in net revenues is a benefit of
approximately $42.5 million from foreign currency exchange rates. On a local currency basis, meeting
fees and product sales in our international operations increased 5.4%.
For the year ended January 1, 2005, total classroom meeting fees were $629.1 million, an increase
of $21.9 million, or 3.6%, from $607.2 million in the prior year. Attendances declined slightly to
59.9 million from 60.8 million in the prior year. In NACO, classroom meeting fees were $373.1 million
for the year ended January 1, 2005, down 4.9% from $392.4 million in the prior year. Including
acquisitions, NACO attendance for the year was 6.5% lower than the prior year period. NACO organic
attendance declined 12.1%. The organic attendance comparison excludes the additional week in the
2003 fiscal year and any franchises that were acquired during either year. We acquired four franchises
since the beginning of 2003: The WW Group at the beginning of the second quarter 2003, Dallas and
New Mexico during the fourth quarter 2003, the Washington D.C. area during the second quarter 2004
and Fort Worth during the third quarter 2004. The low-carb diet fad, which escalated over the course
of the 2003 fiscal year, and was extended during 2004 by food manufacturers’ heavily marketed
introductions of related food products, has had an impact on our North America business. We believe
that the appeal of these low-carb diets has peaked and the phenomenon is now in decline. The
introduction of our TurnAround program has contributed to the improving attendance trends we are
seeing. The declines in organic attendances versus prior year periods improved from minus 16.7% in
the second quarter to minus 13.9% in the third quarter and minus 8.7% in the fourth quarter.
International company-owned classroom meeting fees were $256.0 million for the year ended
January 1, 2005, an increase of $41.2 million, or 19.2%, from $214.8 million for the year ended
January 3, 2004. The growth in meeting fees was primarily driven by attendance increases in
Continental Europe of 11.4% coupled with the favorable impact of foreign currency exchange rates.
Product sales were $274.6 million for the year ended January 1, 2005, a decrease of $2.2 million
from $276.8 million for the year ended January 3, 2004. While total domestic product sales declined
$19.8 million to $138.4 million from $158.2 million in the prior year, primarily driven by the attendance
decline, internationally, product sales increased 14.8% to $136.2 million. International product sales
rose 2.7% on a local currency basis.
Franchise royalties were $12.5 million domestically and $6.3 million internationally. Total franchise
royalties of $18.8 million were down $6.1 million, or 24.5%, from $24.9 million in the full year 2003.
The decrease resulted from the impact of having acquired four franchises in the U.S. since 2003 and
from the general slowdown in the U.S. business. Excluding the recently acquired franchises, domestic
franchise royalties declined 17.1%, while international franchise royalties rose 1.0%.
Revenue from advertising, licensing and other sources was $43.6 million for the year ended
January 1, 2005, an increase of $8.6 million, or 24.6%, from $35.0 million for the year ended January 3,
2004. Licensing revenue increased $7.0 million, up 72.2% over last year, due to our continued focus on
introducing a range of Weight Watchers branded products worldwide. Revenues from advertising, our
WeightWatchers.com licensee and other sources contributed to the remainder of the increase.
Cost of revenues was $468.2 million for the year ended January 1, 2005, an increase of
$27.8 million, or 6.3%, from $440.4 million for the year ended January 3, 2004. For the year ended
January 1, 2005, the gross profit margin of 51.5% remained above the 50% level, but was lower than
the 53.3% level of the prior year. We made the strategic decision to keep the vast majority of our
NACO meetings open, despite the negative impact on our gross margin resulting from lower
attendances per meeting, due to our expectation of the decline in the low-carb phenomenon. It is our
belief that this expectation is proving to be correct.
22