WeightWatchers 2009 Annual Report Download - page 62

growth in product sales per attendee. The difficult trends in the economic environment, however, are now evident
in our meeting product sales performance. Global product sales per attendee, which had posted growth versus
prior year throughout most of fiscal 2008, were up only marginally in the fourth quarter of fiscal 2008.
Internationally, product sales increased 5.1%, or $7.9 million, from fiscal 2007 to $162.7 million for fiscal 2008.
In local currencies, international product sales rose 2.3%, as compared with the prior year. In NACO, product
sales declined 3.2%, or $5.8 million, to $177.1 million in fiscal 2008, primarily due to lower attendance.
Internet revenues, which include subscription revenue from sales of Weight Watchers Online and Weight
Watchers eTools, as well as Internet advertising revenue, grew $34.2 million, or 22.6%, to $185.8 million for
fiscal 2008 from $151.6 million for fiscal 2007. End-of-period active Weight Watchers Online subscribers
increased 16.3%, from 584,000 at December 29, 2007 to 679,000 at January 3, 2009. Strong signup volumes in
all geographies, combined with the launch of Weight Watchers Online in France and the Netherlands, contributed
to this growth.
Other revenue, comprised primarily of licensing revenues and our publications, was $85.9 million for fiscal
2008, an increase of $5.7 million, or 7.1%, from $80.2 million for fiscal 2007. Licensing revenues increased $7.2
million globally, or 12.3%, as a result of higher royalties in NACO from our existing ice cream and yogurt
licenses and new product licenses, as well as higher U.K. royalties on various other products.
Franchise royalties in fiscal 2008 were $10.8 million in NACO and $5.4 million internationally. Total
franchise royalties were $16.2 million in fiscal 2008, and were $0.8 million lower than fiscal 2007; however,
excluding lost commissions resulting from our recent franchise acquisitions, franchise royalties rose 1.6%.
Cost of revenues was $700.8 million for fiscal 2008, an increase of $47.5 million, or 7.3%, from
$653.3 million for fiscal 2007. Our reported gross profit margin dropped 110 basis points, from 55.5% in fiscal
2007 to 54.4% in fiscal 2008. Excluding the net aggregate adjustment for the U.K. VAT ruling, our gross margin
was 55.1% for fiscal 2008, a decline of 40 basis points from the prior year. The decline in this adjusted gross margin
was due to start-up costs for Monthly Pass in Continental Europe, lower meeting averages in some of the countries
in which we operate, and lower product sales margins in NACO driven by change in product mix and higher supply
chain costs. WeightWatchers.com, which carries a structurally higher gross margin, continued its trend of year-
over-year gross margin expansion. Excluding the net aggregate adjustment for the U.K. VAT ruling, our gross profit
increased $47.6 million, or 5.8%, to $861.5 million in fiscal 2008 from $813.9 million in fiscal 2007.
Marketing expenses for fiscal 2008 rose $22.1 million, or 10.8%, to $227.4 million, from $205.3 million for
fiscal 2007, with the unfavorable effect of foreign currency exchange rates accounting for $3.3 million of the
increase. We made significant marketing investments in the WW.com business during fiscal 2008 which proved
successful, including using television advertising for the first time in the United Kingdom and Germany, and
increasing our online advertising in all WeightWatchers.com geographies. In the meetings business, our
international geographies experienced an increase in marketing expenses, driven by a combination of more
expensive primetime television media coupled with additional television advertising in Continental Europe,
partially to support the launch of our new programs there. On a reported basis, marketing expenses for fiscal
2008 were 14.8% of revenues. Excluding the net adjustment to revenues for the U.K. VAT ruling, our marketing
expenses were 14.6% of revenues for fiscal 2008, versus 14.0% in fiscal 2007.
Selling, general and administrative expenses were $182.6 million for fiscal 2008, versus $173.0 million for
fiscal 2007, an increase of $9.6 million, or 5.5%. Information technology costs remain the significant driver of
the increase, representing our ongoing investment to upgrade our systems infrastructure. Higher expense in this
area resulted from a combination of increased depreciation as we brought new information technology systems
online, and higher maintenance costs related to new systems already put in service. Expenses of our China Joint
Venture contributed $4.7 million to the increase. On a reported basis, selling, general and administrative
expenses for fiscal 2008 were 11.9% of revenues. Excluding the net adjustment to revenues for the U.K. VAT
ruling, selling, general and administrative expenses were down slightly versus last year as a percentage of net
revenues, at 11.7% for fiscal 2008, versus 11.8% in the fiscal 2007.
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