WeightWatchers 2010 Annual Report Download - page 51

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margins, and created a stronger foundation from which to grow. In addition, during 2009, the management team
s
in Continental Europe prepared for the launch of a major new innovative program, Pr
o
P
oi
nt
s
,
which launched in
the fourth
q
uarter of fiscal 2009.
F
or fiscal year 2010, meeting paid weeks, benefiting from enrollment growth early in the year and a
n
increase in Monthly Pass penetration, grew
6
.9% versus the prior year, while attendance in Continental Europe
declined 1.
6
% versus the prior year. In the first half of 2010 the Continental European market experienced
meeting attendance growth as a result of the Pr
o
P
oi
nt
s
program, which drove an influx of returning members t
o
o
ur meetings who were attracted by the new program. The marketing of this new program, however, was not
successful in capturing the attention of new members and, as a result, attendance began to decline
.
W
eightWatchers.com
The continued success of WeightWatchers.com resulted in the number of Online paid weeks more than
doubling over the period from 2006 through 2010, from 2
5
.2 million to
5
2.
5
million, a compound average growth
r
ate of over 20%. End-of-period active Online subscribers totaled over 1 million at January 1, 2011. This success
r
esults from a combination of new subscribers in the United States and launches of WeightWatchers.co
m
subscription products in new markets globally. Currently, Weight Watchers Online has a presence in the United
States, Canada, United Kingdom, Germany, France, Netherlands, Sweden, Belgium, Spain, Australia and China
.
W
eightWatchers.com has also continued its product development efforts with the launch of an iPhone
®
a
pp
lication in Se
p
tember of 2009 and the launch of an iPa
d
®
application in early 2011
.
I
n addition to generating revenues from its subscription based offerings, WeightWatchers.com also provides
a means for companies to advertise on our website. This advertising revenue has increased at a compound annual
growth rate of 38.1% from fiscal 2006 through fiscal 2010
.
Gross Margi
n
The Company has maintained an annual gross margin of
5
0% or more since fiscal 2001. In the period from
2006 through 2010, our gross margin ranged from a high of
55
.
5
% in 2007 to a low of
5
4.4% in 2010. Ou
r
meetings staff is usually paid on a commission basis and space is rented as needed in most instances. When i
t
becomes more cost effective to do so, in various geographies (particularly, North America), we rent centers at
r
easonable rates with relatively short lease terms. Moreover, we adjust the number of meetings according t
o
demand, including seasonal fluctuations. This variable cost structure has enabled us to maintain high margin
s
even as we have experienced a decline in the number of attendances per meeting. When attendances per meetin
g
grow, our gross margins typically improve. As WeightWatchers.com continues to grow, we expect margins to
continue to expand in this business which is primarily comprised of fixed costs.
Operating Margin
I
n the period from 2006 through 2010, the Company consistently generated operating income margins o
f
26% to 30% or more, with a high of 31% in 2006 to a low of 26% in 2009. We maintained strong operating
income margins in 2006 and 2007, 31% and 30%, respectively, even while making significant investments i
n
strengthening our management teams, particularly in North America and Continental Europe, increasing our
investments in marketing and information technology, and, beginning in 200
6
, expensing stock-base
d
compensation. In fiscal 2008, the Company had an operating income margin of 28%, including the significant
impact of the charge associated with the adverse UK VAT ruling received in that year, along with the start-up
costs of our China Joint Venture. In fiscal 2009, the operating income margin of the Company dropped to 26%
,
due to a decline in gross margin and due to the charge associated with an adverse UK tax ruling relating to th
e
self-employment status of our UK leaders. In fiscal 2010, the operating income margin of the Company wa
s
27%, including significant investment for the preparation and launch of the significant ne
w
P
o
int
s
Plu
s
program
35