WeightWatchers 2011 Annual Report Download - page 55

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WeightWatchers.com
The continued success of WeightWatchers.com resulted in the Internet business growing at a compound
annual growth rate of 27.4% in fiscal 2011. This growth was driven by growth in Online paid weeks from
31.0 million in fiscal 2007 to 89.1 million in fiscal 2011, a compound average growth rate of over 30%. End of
period active Online subscribers totaled over 1.6 million at December 31, 2011. This success resulted from a
combination of new subscribers in the United States and the United Kingdom and launches of
WeightWatchers.com 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. WeightWatchers.com has also continued its product development efforts with the
launch of an iPhone®application in September of 2009, the launch of the Android™application in April 2011
and the launch of an iPad®application in late 2010. During fiscal 2011, we launched the iPhone®and iPad®
applications in the United Kingdom, Australia and Canada. In addition, in December 2011 we launched, in the
United States, a Barcode Scanner application for the iPhone®and Android™platforms that allows subscribers to
use their smart phones to quickly determine the PointsPlus values for any branded product in the grocery store.
In 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 increased at a compound annual
growth rate of 20.7% from fiscal 2007 through fiscal 2011.
Gross Margin
The Company has maintained an annual gross margin of 50% or more since fiscal 2001. In the period from
fiscal 2007 through fiscal 2011, our gross margin ranged from a high of 57.6% in 2011 to a low of 54.4% in
2010. Our meetings staff is usually paid on a commission basis and space is rented as needed in most instances.
When it becomes more cost effective to do so, in various geographies (particularly North America), we rent
centers at reasonable rates with relatively short lease terms. Moreover, we adjust the number of meetings
according to demand, including as a result of seasonal fluctuations. This variable cost structure has enabled us to
maintain high margins even as we have experienced a decline in the number of attendances per meeting. When
attendances per meeting grow, our gross margins typically improve. Conversely, as WeightWatchers.com
continues to grow, we expect margins to continue to expand in this business as WeightWatchers.com is primarily
a fixed cost business.
Operating Margin
In the period from fiscal 2007 through fiscal 2011, the Company consistently generated operating income
margins of 26% to 30%, with a high of 30% in fiscal 2011 and a low of 26% in fiscal 2009. We maintained
strong operating income margins in fiscal 2007 of 30%, even while making significant investments in
strengthening our management teams, particularly in North America and Continental Europe, increasing our
investments in marketing and information technology, and, beginning in fiscal 2006, expensing stock-based
compensation. In fiscal 2008, the Company had an operating income margin of 28%, including the significant
impact of the charge associated with an 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%,
primarily due to a decline in gross margin and a charge associated with an adverse UK tax ruling relating to the
self-employment status of our UK leaders. In fiscal 2010, the operating income margin of the Company was
27%, including significant investment for the preparation and launch of the PointsPlus program in the United
States and Canada and ProPoints program in the United Kingdom and Australia, increased marketing for our
WeightWatchers.com business, and a charge associated with the settlement of a California labor litigation. In
fiscal 2011, the operating income margin of the Company was 30%, the highest in five years. This was despite
the increased marketing in WeightWatchers.com stemming from the initiative focused on building awareness and
relevance of the Weight Watchers brand with the male demographic, as well as expenses in support of growth
initiatives, including technology for the development of our mobile platforms and additions to staff in support of
business development. These higher expenses were more than offset by the efficiencies we gained from higher
average attendance in our meetings and the impact of the higher margin WeightWatchers.com business becoming
a larger component of our revenue mix.
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