Weight Watchers (WTW) Earnings Preview

Secondary Plays: NTRI, MED...

NTRI next earnings release: Feb 19 after market
MED next earnings release: Mar 13 after market

Update: 02/15/2008

WTW +8.6%

Weight Watchers beats by $0.04, beats on revs; guides FY08 EPS in-line (45.92 -0.53) : Reports Q4 (Dec) earnings of $0.50 per share, $0.04 better than the First Call consensus of $0.46; revenues rose 20.5% year/year to $344 mln vs the $321.9 mln consensus. Co issues in-line guidance for FY08, sees EPS of $2.80-3.00 vs. $2.80 consensus.

On the call, the co says that during 2008, the co will continue to accrue revenue benefit from the introduction of its Monthly Pass plan but it will moderate throughout the year as its Monthly Pass Membership stabilizes. Also, its Q1 results will be depressed and Q2 results will be enhanced due to an early Easter. The co has concerns about the weakening US economy and without a new program innovation in NACO there will be weakness. Without a new program innovation, the co expects the softness in enrollment trends it has seen to continue as well, attendances will not be helped by Monthly Pass to the same extent in 2008 as they were 2007 now that it's lapping. The co plans to utilize promotional tools to hold volume up until it has new program at the end of 2008... the co's guidance is assuming mid-to high single digit declines in NACO. Fortunately, since the co will still have continuing financial benefit from Monthly Pass, its product sales per attendance and licensing revenue should continue to do well... NACO revenues should continue to grow in 2008. The co is very pleased with the results so far in Continental Europe with a significant new innovation being well received by members throughout Europe, attendances in the first six weeks of the year have trended back to our positive territory. Based on this early success, as well as other planned initiatives, WTW is forecasting mid single digit positive attendance growth in 2008, a double-digit swing from the trends last year. In addition, WeightWatchers.com is off to a strong start again in 2008.

14-Feb-08 15:38 ET

WTW is expected to report 4Q07 earnings after the mkt closes with a conf call to follow at 5:00PM ET...

WTW Consensus: First Call
4Q07 EPS of $0.46, revs of $321.9 mln;
1Q08 EPS of $0.77, revs of $446.5 mln;
FY07 EPS of $2.46, revs of $1.44 bln;
FY08 EPS of $2.80, revs of $1.57 bln...

Guidance: Co sees FY07 EPS of 2.43-2.48, excluding non-recurring expense associated with the early extinguishment of debt. The co meets or beats ests, it doesn't miss. Beats usually range in the 2 cent area. Revs have been growing in the teens after a brief period of single digit growth a few years back...

Expectations: Analysts are cautious on the co as the economic slowdown is obviously pressuring the co and this isn't expected to change in the near future. They say that consumer's discretionary spending will be pressured and that will in turn pressure WTW's performance. In addition, attendance trends aren't looking too positive either and this will further pressure the co since this is one of the key driver's of growth. Note, Paid Weeks is another metric the co reports and analysts will look closely at...

Areas of Focus on the Call:
1) Attendance trends (Q4 and 2008)
2) Color on 2008 outlook
3) Monthly Pass color...

BriefingTrader Note: The stock has been trending down from its Sept high of ~$58. The stock looks like it bottomed out recently at ~$42 and jumped to its current price of ~$46. It is running into earnings a little bit with that recent jump. It primarily trades on guidance following the earnings release so the 2008 outlook will be what investors will focus on. The near term economics for WTW do not looks exceptional so keep that in mind, but a bullish outlook, which we think is doubtful, will lift the stock.