WeightWatchers 2012 Annual Report Download - page 69

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subscribers, up 50.5% from approximately 1.1 million at the end of fiscal 2010. Online paid weeks increased
67.6% in fiscal 2011 versus the prior year. This increase in Online subscribers and paid weeks was driven
primarily by continued strong marketing campaigns starting in the second quarter of 2010 in the United States
and the United Kingdom, markets which also benefited from the new program launches at the end of fiscal 2010.
In addition, sign-ups grew in Continental Europe, reflecting the effectiveness of our marketing efforts in online
channels in these markets.
Other Revenues
Other revenues, comprised primarily of licensing revenues, franchise royalties, revenues from the sale of
products by mail and to our franchisees, and revenues from our publications, were $147.6 million for fiscal 2011,
an increase of $14.4 million, or 10.8%, from $133.1 million for fiscal 2010. Excluding the impact of foreign
currency, other revenues were 8.2% higher in fiscal 2011 than the prior year. The new programs in our North
American and UK markets also benefited our other revenues. Franchise commissions and sales of products to our
franchisees grew in the aggregate by 17.2%, or 16.0% on a constant currency basis, in fiscal 2011 versus the
prior year, accounting for $4.1 million of the total increase in other revenues on a constant currency basis in
fiscal 2011 versus the prior year. Our by mail product sales and revenues from our publications also rose in the
aggregate by 18.3%, or 15.4% on a constant currency basis, over the prior year. Global licensing revenues in
fiscal 2011, however, were up by 1.4%, but were down 1.7% on a constant currency basis, versus the prior year.
UK licensing revenues increased in fiscal 2011 versus the prior year; however, both North America and
Continental Europe experienced weak performance, primarily as a result of pricing challenges in a tough
economic environment.
Components of Expenses and Margins
Cost of Revenues and Gross Margin
Total cost of revenues in fiscal 2011 was $772.0 million, an increase of $110.6 million, or 16.7%, from
$661.4 million in the prior year. Cost of revenues grew at a slower rate than net revenues, which increased 25.3%
in fiscal 2011 versus the prior year. We gained operating efficiency versus the prior year because of the increase
in average attendance per meeting and despite higher expenses related to ensuring a successful launch of the new
program innovation in our North American and UK markets. Gross profit for fiscal 2011 of $1,047.1 million
increased $256.5 million, or 32.4%, from $790.6 million in fiscal 2010, and gross margin expanded to 57.6%, an
increase of 310 basis points as compared to 54.4% in fiscal 2010. While operating leverage in the meetings
business was a contributor, the increase in gross margin was largely the result of the higher margin
WeightWatchers.com business, where cost of revenues is largely fixed, becoming a larger component of our
revenue mix.
Marketing
Marketing expenses for fiscal 2011 were $292.4 million, an increase of $75.2 million, or 34.6%, versus
fiscal 2010, or 32.5% on a constant currency basis. Included in our fiscal 2011 marketing expense was a first
time significant investment in marketing the Weight Watchers Online product to men. This new initiative in
fiscal 2011, which focused on building awareness and communicating the relevance of the Weight Watchers
brand to the male demographic, accounted for 8.2% of the increase in marketing expenses in fiscal 2011 versus
the prior year. In addition, we increased our marketing investment in the second and third quarters of fiscal 2011
to support our new program launches and to strengthen recruitment growth during our spring and fall marketing
campaigns. This strategy proved to be efficient and successful in driving recruitment of both new and rejoining
meeting members and Online subscribers. In the fourth quarter of fiscal 2011 we increased our global spend in
the last week of the year in support of our winter 2012 marketing campaigns. In addition, we opportunistically
added marketing in the second quarter of fiscal 2011 to leverage positive public relations, such as our ranking as
the number one weight-loss diet by U.S. News & World Report magazine.
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