WeightWatchers 2009 Annual Report Download - page 58

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basis, global in-meeting product sales per attendee increased 4.1% versus the prior year. In NACO, fiscal 2009
in-meeting product sales in total declined 11.0%, or $15.7 million, versus fiscal 2008, to $126.7 million, due in
full to lower attendances, as product sales per attendee in NACO rose 0.9%. Internationally, in-meeting product
sales per attendee declined 7.5% over the prior year but grew 5.1% on a constant currency basis, despite lower
in-meeting product sales per attendee in Continental Europe resulting from our planned run down of inventory in
preparation for the launch of our new program innovation. The growth was driven by the United Kingdom, where
product sales were especially strong, increasing by 12.0% on a constant currency basis. International product
sales in total were $137.6 million in fiscal 2009 versus $162.7 million in the prior year, down 3.5% on a constant
currency basis.
Internet revenues, which include subscription revenues from Weight Watchers Online and Weight Watchers
eTools as well as Internet advertising revenues, grew $10.2 million, or 5.5%, to $196.0 million for fiscal 2009
from $185.8 million for fiscal 2008. On a constant currency basis, fiscal 2009 Internet revenues rose 8.1% versus
the prior year. Online signup growth decelerated in the United States in fiscal 2009 versus the prior year,
reflecting both the impact of low consumer confidence in 2009 and higher online signup growth in the prior year.
Internationally, online signup growth was driven by successful marketing campaigns and promotions.
End-of-period active Weight Watchers Online subscribers increased 12.4%, from 679,000 at January 3, 2009 to
763,000 at January 2, 2010.
Other revenue, comprised primarily of licensing revenues and revenues from our publications, was $80.2
million for fiscal 2009, a decrease of $5.7 million, or 6.6%, from $85.9 million in fiscal 2008. Excluding the
negative impact of foreign currency, other revenue decreased $1.5 million in fiscal 2009 versus the prior year.
Our fiscal 2009 global licensing revenues, which decreased 4.1%, increased 1.0% on a constant currency basis
versus fiscal 2008 on the strength of the U.K. licensing business. Economic conditions have tempered growth in
our licensing business elsewhere during fiscal 2009. In the United States, licensing revenues were impacted by
two historically significant deals. In one case, we restructured a contract with a major licensing partner and
reduced minimum payments. In another case, we had a significant fall off in revenues from a license partner who
recently had an ownership change.
Franchise royalties for fiscal 2009 were $8.4 million in the United States and $4.7 million internationally.
Total franchise royalties of $13.1 million were 19.2% lower in fiscal 2009 versus the prior year, or 17.0% lower
in constant currency. Excluding lost commissions resulting from franchise acquisitions which occurred during
fiscal 2008, franchise royalties for fiscal 2009 declined 14.6% on a constant currency basis versus the prior year,
with demonstrable impact from the weakened U.S. economy.
Components of Expenses and Margins
Cost of revenues was $671.0 million for fiscal 2009, a decrease of $29.8 million, or 4.3%, from $700.8
million for fiscal 2008. The decrease was driven by lower meeting attendances. As noted above, fiscal 2009 cost
of revenues included an aggregate charge of $36.7 million related to the adverse U.K. tax ruling relating to the
self-employment status of the Company’s U.K. leaders which increased 2009 cost of revenues by 5.2% over prior
year, and diluted fiscal 2009 gross profit margin by 270 basis points. Including the impact of the U.K. self-
employment tax ruling in fiscal 2009 and the U.K. VAT ruling in fiscal 2008, the gross profit margins in fiscal
2009 and fiscal 2008 were 52.0% and 54.4%, respectively. Excluding the charge related to the U.K. self-
employment tax ruling, the fiscal 2009 gross profit margin was 54.7%. This compared to the fiscal 2008 gross
profit margin of 54.9% excluding the 50 basis point negative impact of the previously mentioned 2008 U.K.
VAT ruling. On this comparable basis, the 54.7% gross margin in fiscal 2009 was just 20 basis points below
54.9% in fiscal 2008 with the decline resulting from lower attendance per meeting and in-meeting product
promotions. Our variable cost business model prevented deeper margin compression in fiscal 2009 despite the
impact of the global recessionary economy on our volumes and revenues.
Marketing expenses for fiscal 2009 decreased $26.9 million, or 11.8%, to $200.5 million from $227.4
million for fiscal 2008. Marketing expenses as a percentage of revenues declined to 14.3% in fiscal 2009 as
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