Like a good horror movie monster, Weight Watchers International
Fourth-quarter results were pretty good, though I believe the bar was set fairly low. Revenue was up 8%, as the company saw more than 3% growth in meeting fees and nearly 6% growth in product sales. While online revenue is still a modest part of the total (about 10%), it continues to grow significantly, and online subscriptions were up nearly 19% this quarter.
Overall attendance was a mixed bag. North American attendance rebounded more than 7%, but the year-over-year comparison was easier, since the year-ago period saw attendance drop significantly. (I never bought the notion that the lingering aftereffects of Katrina would depress results.) Overseas, though, attendance fell about 5%.
I was also a little disappointed by the margins; gross and operating margins fell sequentially, and the operating margin slipped slightly from its year-ago level.
The balance sheet and cash flow present a mixed message, too. Cash flow looks good -- free cash flow grew about 13% from last year, now constituting nearly one-quarter of sales (a pretty remarkable percentage). On the balance sheet, though, the company has negative shareholder equity. Roughly three-quarters of the balance sheet assets are intangible, while Weight Watchers' $740 million-plus in debt is extremely tangible.
It seems there's no easy play in weight loss. NutriSystem
I make no bones of my dislike for Weight Watchers' management, though I have to acknowledge that they produce excellent returns on invested capital. If you believe that they have a credible plan for continuing attendance growth, the company's cash flow may look mighty attractive. However, I'll continue to be a skeptic for at least a couple more quarters.
Fatten up on some further Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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