WeightWatchers 2012 Annual Report Download - page 63

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currency, which decreased other revenues for fiscal 2012 by $1.8 million, other revenues were 7.8% lower in
fiscal 2012 compared to the prior year. Franchise commissions and sales of products to our franchisees declined
in the aggregate by 22.4%, or 21.9% on a constant currency basis, in fiscal 2012 versus the prior year. Our by
mail product sales and revenues from our publications also declined in the aggregate by 14.3%, or 12.9% on a
constant currency basis, in fiscal 2012 versus the prior year. These declines were primarily the result of
comparing against the prior year which had the benefit of the new program launches in our English-speaking
markets in late fiscal 2010. Global licensing revenues increased by 3.0%, or 4.4% on a constant currency basis, in
fiscal 2012 versus the prior year. A one-time termination fee in the second quarter of fiscal 2012 which was
included in licensing revenues primarily accounted for the increase. Excluding this one-time termination fee of
$2.0 million from licensing revenues, global licensing revenues in fiscal 2012 increased 1.1% on a constant
currency basis versus the prior year.
Components of Expenses and Margins
Cost of Revenues and Gross Margin
Excluding the impact of the settlement of the UK self-employment matter, cost of revenues in fiscal 2012
would have been $758.6 million, a decline of $13.4 million, or 1.7%, from $772.0 million in the prior year. Cost
of revenues declined at a faster pace than revenues due to the shift of revenue towards the higher margin
WeightWatchers.com business. As adjusted for the settlement, gross profit in fiscal 2012 of $1,068.2 million
increased $21.1 million, or 2.0%, from $1,047.1 million in fiscal 2011. Adjusted gross margin in fiscal 2012 was
58.5%, as compared to 57.6% in fiscal 2011. Gross margin expansion was primarily the result of the shift of
revenue towards the higher margin WeightWatchers.com business. This margin expansion was partially offset by
a decline in the meetings business gross margin. This decline in the meetings business gross margin was
primarily driven by the impact of higher costs associated with our future growth initiatives and lower average
number of members per meeting.
Marketing
Marketing expenses for fiscal 2012 were $343.5 million, an increase of $51.2 million, or 17.5%, versus
fiscal 2011. Excluding the impact of foreign currency, which decreased marketing expenses for fiscal 2012 by
$4.4 million, marketing expenses were 19.0% higher in fiscal 2012 compared to the prior year. Included in our
fiscal 2012 marketing expenses were investments in two initiatives: first time Online TV marketing campaigns in
several of our international markets and marketing the Weight Watchers Online product to men in the United
States. In addition, we invested in TV advertising for Continental Europe’s meetings business, which also
contributed to the increase in marketing expenses in fiscal 2012. The increase in marketing expenses also
reflected the impact of higher volumes on online advertising costs. Marketing expenses as a percentage of
revenue were 18.8% in fiscal 2012 as compared to 16.1% in the prior year.
Selling, General and Administrative
Selling, general and administrative expenses were $228.5 million for fiscal 2012 versus $208.5 million for
fiscal 2011, an increase of $20.0 million, or 9.6%. Excluding the impact of foreign currency, which decreased
selling, general and administrative expenses for fiscal 2012 by $2.5 million, fiscal 2012 selling, general and
administrative expenses increased by 10.8% versus fiscal 2011. The increase in expenses was primarily related to
investments in growth initiatives, including NACO’s corporate business, technology for the development of our
mobile and customer relationship management platforms and additions to staff in support of these initiatives.
Lower bonus expense globally related to business performance partially offset this increase. Selling, general and
administrative expenses as a percentage of revenue for fiscal 2012 increased to 12.5% from 11.5% for fiscal
2011.
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