WeightWatchers 2013 Annual Report Download - page 53

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Fiscal 2014: Anticipated Business Metrics, Trends and Other Events
Due to increasing competitive pressures, including the impact of the increasing consumer trial of activity
monitors and free apps in the commercial weight loss category, and less impactful marketing of our new two-
week starter plan, Simple Start, management anticipates negative recruitment trends to continue into 2014. Given
the lower starting active base at the beginning of fiscal 2014 versus the beginning of fiscal 2013 and the weak
recruitment environment continuing into 2014, management expects declines in paid weeks in fiscal 2014 to be
higher than the declines experienced in fiscal 2013. Management expects Online paid weeks in fiscal 2014 to
decline at a higher rate than that experienced in the second half of fiscal 2013. For NACO, the United Kingdom
and Continental Europe, management anticipates meeting paid weeks and attendances in fiscal 2014 to decline at
a higher rate than that experienced in fiscal 2013. Given these expected negative trends, management expects
revenues to decline at a higher rate in fiscal 2014 than that experienced in fiscal 2013.
To help offset this anticipated revenue decline, our strategy for fiscal 2014 includes investments in certain
key areas to support future growth and plans to reduce costs aggressively elsewhere. As part of this cost savings
initiative, the Company is undertaking a plan of termination which will result in the elimination of certain
positions and employees worldwide. In connection with this plan, the Company anticipates recording
restructuring charges in connection with employee termination benefit costs of approximately $10.0 million
(which is expected to be divided equally between general and administrative expenses and operating expenses
related to field restructuring) during the first and second quarters of fiscal 2014.
Margins
Gross Margin
The following table sets forth our gross profit and gross margin for the past five fiscal years, as adjusted to
exclude the impact of the UK VAT and the UK self-employment matters:
(in millions) 2013 2012 2011 2010 2009
Gross Profit ...................................... $1,001.1 $1,093.8 $1,058.5 $800.8 $740.8
Gross Margin ................................ 58.1% 59.5% 57.8% 54.7% 52.4%
Adjustments to Reported Amounts
UK self-employment accrual(1) ............... — (14.5) — — 32.5
UK VAT ruling accrual(2) ................... — — — (2.0) —
Gross Profit, as adjusted(1)(2) ......................... $1,001.1 $1,079.3 $1,058.5 $798.8 $773.3
Gross Margin impact from above adjustments(1)(2) .... — 0.8% — 0.0% (2.3%)
Gross Margin, as adjusted(1)(2) ................... 58.1% 58.7% 57.8% 54.6% 54.7%
Note: Totals may not sum due to rounding
(1) “As adjusted” is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2012 to exclude the
impact of a $14.5 million decrease to cost of revenues related to the settlement of the UK self-employment matter and that adjusts the
consolidated statements of net income for fiscal 2009 to exclude $32.5 million in cost of revenues for the impact of the UK self-
employment matter.
(2) “As adjusted” is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2010 to exclude the
benefit of a $2.0 million increase to revenues from the reversal of the previously disclosed over-accrual related to the adverse UK VAT
ruling.
See “Non-GAAP Financial Measures” below for an explanation of our use of non-GAAP financial measures.
In the period from fiscal 2009 through fiscal 2013 our gross margin ranged from a high of 59.5% in fiscal
2012 to a low of 52.4% in fiscal 2009. Excluding the impact of the UK VAT and UK self-employment matters in
the period, our gross margin ranged from a high of 58.7% in fiscal 2012 to a low of 54.6% in fiscal 2010. As the
higher margin WeightWatchers.com business grew over the period and became a larger share of our revenue
mix, our adjusted gross margin expanded, most notably from fiscal 2010 through fiscal 2012. In addition, with its
fixed cost business model, growth within the WeightWatchers.com business resulted in margin expansion in that
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