WeightWatchers 2010 Annual Report Download - page 67

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in-meeting product sales in total declined 11.0%, or
$
15.7 million, versus fiscal 2008, to
$
126.7 million, due i
n
f
ull 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 i
n
p
reparation for the launch of our new program innovation. The growth was driven by the United Kingdom, wher
e
p
roduct 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.
I
nternet 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
f
rom
$
185.8 million for fiscal 2008. On a constant currency basis, fiscal 2009 Internet revenues rose 8.1% versu
s
the prior year. Online sign-up growth decelerated in the United States in fiscal 2009 versus the prior year
,
r
eflecting both the impact of low consumer confidence in 2009 and higher Online sign-up growth in the prio
r
y
ear. Internationally, Online sign-up growth was driven by successful marketing campaigns and promotions.
End-of-period active Weight Watchers Online subscribers increased 12.4%, from
6
79,000 at January 3, 2009 t
o
76
3,000 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 th
e
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 basi
s
versus fiscal 2008 on the strength of the UK licensing business. Economic conditions have tempered growth i
n
o
ur licensing business elsewhere during fiscal 2009. In the United States, licensing revenues were impacted b
y
two historically significant deals. In one case, we restructured a contract with a major licensing partner and
r
educed minimum payments. In another case, we had a significant fall off in revenues from a license partner who
r
ecently had an ownership change
.
F
ranchise royalties for fiscal 2009 were
$
8.4 million in the United States and
$
4.7 million internationally
.
T
otal 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
f
iscal 2008, franchise royalties for fiscal 2009 declined 14.
6
% on a constant currency basis versus the prior year
,
with demonstrable impact from the weakened US economy
.
C
omponents o
f
Expenses and Marg
i
n
s
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 cos
t
o
f revenues included an aggregate charge of
$
36.7 million related to the adverse UK tax ruling relating to the
self-employment status of the Company’s UK leaders which increased 2009 cost of revenues by
5
.2% over prior
y
ear, and diluted fiscal 2009 gross profit margin by 270 basis points. Including the impact of the UK self-
employment tax ruling in fiscal 2009 and the UK VAT ruling in fiscal 2008, the gross profit margins in fiscal
2009 and fiscal 2008 were
5
2.0% and
5
4.4%, respectively. Excluding the charge related to the UK self
-
employment tax ruling, the fiscal 2009 gross profit margin was
5
4.7%. This compared to the fiscal 2008 gross
p
rofit margin of
5
4.9% excluding the
5
0 basis point negative impact of the previously mentioned 2008 UK VAT
r
uling. On this comparable basis, the
5
4.7% gross margin in fiscal 2009 was just 20 basis points below
5
4.9% in
f
iscal 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 globa
l
r
ecessionary economy on our volumes and revenues
.
M
arketing 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
51