Weight Watchers International's (WTW) CEO Jim Chambers on Q2 2014 Results - Earnings Call Transcript

| About: Weight Watchers (WTW)
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Weight Watchers International, Inc. (NYSE:WTW) Q2 2014 Results Earnings Conference Call July 30, 2014 5:00 PM ET


Corey Kinger - Brainerd Communicators, Inc.

Jim Chambers - President, Chief Executive Officer, Director

Nick Hotchkin - Chief Financial Officer


Jerry Herman – Stifel

R. J. Hottovy – Morningstar

John Faucher – JPMorgan

Glen Santangelo - Credit Suisse

Kurt Frederick - Wedbush Securities


Good day, and welcome to the Weight Watchers Second Quarter Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Corey Kinger. Ms. Kinger, the floor is yours ma'am.

Corey Kinger

Thank you, Mike, and thank you to everyone for joining us today for Weight Watchers International second quarter 2014 Conference Call. With us on the call are Jim Chambers, our President and Chief Executive Officer and Nick Hotchkin, our Chief Financial Officer.

At about 4 'O clock p.m. Eastern Time today, the company issued a press release reporting the fiscal 2014 second quarter results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at www.weightwatchersinternational.com. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release.

Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the call over to Jim Chambers, President and Chief Executive Officer of Weight Watchers International. Jim?

Jim Chambers

Thanks, Corey. Good afternoon, everyone and thank you for joining us. On today's call, I would like to update you on our business performance as well as on the progress we're making on our transformation initiatives.

Nick will then take you through the details of the Q2 financial results, give the progress update on our cost management actions and review our outlook for the balance of 2014 as well as an early read into 2015.

My remarks will follow the four strategic pillars of our transformation plan, which by way of reminder, are one, driving immediate performance improvement; two, reimagining our core offerings; three, growing our healthcare business and four, strengthening our organization.

In the second quarter, we delivered total revenue of $398 million and excluding special items, adjusted operating margins of 30% and adjusted net income of $56 million or $0.98 per share.

The biggest challenge we faced in our business continues to be recruitment as competitive forces continue to impact our current consumer offerings with mobile apps and activity monitors garnering a large amount of consumer and media attention and negatively impacting our consumer trial.

Recruitment is down in a majority of countries in which we operate in both meetings and online. Importantly however, once consumers engage with Weight Watchers, they continue to value our service as shown by our retention trend.

Average length of stay in Q2 remained at eight months for monthly pass members and nine months for Weight Watchers online subscribers. Our recruitment trends in Q2, while still negative, are not deteriorating further.

Combined with the cost management actions we have taken, ranging from taking cost at our vendor relationships through improved procurement capabilities to reducing the size of our organization, we are managing through a tough environment in making a positive impact on our immediate results.

We have planned reductions in our marketing spend year-over-year as we took a prudent, flexible approach focusing our resources on activities with the best return and also experimenting with various promotional tactics.

Coming out of a slow start in Q1, where our original advertising creative did not broadly resonate, we pulled back on our levels of investment even further. At the same time, as you will recall, we pivoted and swiftly introduced revised advertising creative, which helped improve our performance. Net our marketing investment in Q2 was significantly lower than last year.

Leveraging consumer insights on simple start we capped further into the value proposition that Weight Watchers allows people to have a strong and flexible relationship with food, which is critical to consumer acceptance. Our U.K. team quickly took these learnings and developed food focused ads that featured simple star.

After launching in the U.K., the ads were then adapted and rolled out to North America and other markets in Q2 as our TV spring campaign.

Over the last year as we built out our new leadership team, one of our first goals was the breaking down of our artificial barriers within the company; between meetings and online, across functions and between geographies. Fast forwarding to today, it's great to see the collaboration and sharing of ideas starting to benefit the business.

I am pleased by how our teams have worked together for example, in experimenting with different promotional and marketing ideas such as extending food-centered consumer activation through new local marketing initiatives and testing time bound promotional channels to reach a wider audience and our members.

Turning to our second strategic pillar, the reimagining of our offering, we are excited about our plans for winter diet season 2015 and the accompanying repositioning of our brand. As discussed previously, we believe our innovation for the upcoming winter season will be a meaningful step in the right direction.

It is our fundamental belief that tools alone, technology alone, food programming alone will never reach the levels of success that are possible and they are combined with human engagement to guide and provide inspiration and accountability. The strength of the Weight Watchers brand is and always will be in the human connections that make our weight loss journey more successful.

Connections between members and between members and service providers, these human connections have always been present in our meetings offering, but not in our online offering. Our innovations for winter season 2015 will bring this power to our online offering for the first time and strengthen its impact in the existing meetings offering.

This expansion of personalization and community elements and our offerings will leverage our talented service providers. Our 2045 offerings will be expanded to provide one on one personal advice from Weight Watchers experts to our online members for the first time are also providing greater personalization and connection in between meetings for our meetings members.

While we will not be providing more specifics on our innovations until they are rolled out because of commercial sensitivity, we aren’t actively engaged with consumers to refine our approach and plan for implementation.

Early consumer feedback is encouraging and we are excited of the prospect of thousands of Weight Watchers experts expanding their ability to reach consumers with the personalized support, skills and community needed for a successful weight loss journey.

In addition to these enhancements, a key part of our strategy to reimagine our offerings is the opening up of a Weight Watchers brand, changing the way we show up across all the dimensions of the consumer experience. We have a great opportunity to make Weight Watchers a more inviting and inclusive brand and as a result, to reach a wider set of consumers.

Our strategic work to strengthen and reposition our brand is underway and will be launched to a company our winter diet season 2015 innovations. I expect to provide more color on this critical initiative on our next quarterly call.

We continue to work on our innovation pipeline extending well beyond winter season 2015 as we pursue a model of more continuous innovation and less reliance on winter season alone.

The evolution of our core program better reaching underpenetrated demographics and reaching consumers at more moments in their journey to a healthier lifestyle, will all be important considerations as we make fundamental changes to how we define and present Weight Watchers in the future.

You will recall that in Q2 we acquired Wello, a small San Francisco-based technology start-up that offers one on one and group fitness training online through interactive video. By way of update, the team from Wello is now on Board and they are providing great insights on our near term innovation agenda as well as contributing to the thinking on how best to leverage the adjacencies of weight management and fitness in the future.

In the near term, prior to the 2015 winter season, we are on track to deliver improvements to our digital experience, including strengthening search and simplifying tracking.

In addition, we will leverage API technology to allow our members to integrate wearable, in-home devices, apps and ecosystem into their Weight Watchers experience. In combination with our comprehensive program, these tools can be helpful to our members.

We recently launched our first activity monitor integration partnership with Fitbit in Germany, which allows our members to use Fitbit devices to track activity and translate it to Weight Watchers point's values.

And this partnership goes beyond simple technology integration Fitbit has designated Weight Watchers as a privileged partner and is marketing Weight Watchers to its user base in Germany, while we sell their devices in our meeting rooms.

Our third strategic pillar is growing our healthcare business. We continue to make progress on enhancing our technology capabilities and processes for healthcare, including data management, privacy protection, eligibility verification billing and reporting.

As discussed previously, these improvements require significant investment, which is well underway and will accelerate through the remainder of the year.

Further, progress against our goal to engage in at least one commercial partnership in 2015 is encouraging. We continue to expect that our healthcare initiative could make meaningful revenue contributions beginning in 2016.

We believe the healthcare space will increasingly demonstrate market demand for proven, effective and cost efficient weight management programs. This view is validated again in May when the U.K.'s National Institute of Health and Care Excellence said their research found that the cost of losing weight in a safe and sustainable way via a program such as Weight Watchers could result in significant savings over the long term.

As a result, we are accelerating our efforts to enter into partnerships with U.K. healthcare authorities making Weight Watchers a more compelling choice for physician recommendations.

And finally pillar four, strengthening our organization, which is key to turning around and transforming this business. In the past year, we build out a strong team to restructure the organization with simplified work flows and increased accountability and enhanced our innovation capabilities.

In addition, our technology transformation is progressing well against our goal of changing our technology base from a legacy challenge into an enabling asset.

We are selectively adding to our talent pool in two strategic areas. For example, we recently hired Dondeena Bradley as VP of Global Innovation to drive the innovation pipeline for both our meetings and online offerings. Dondeena is an experienced global leader with a deep skill set in nutrition, health and innovation. She joined us from PepsiCo where she was most recently Vice President of Nutrition Ventures.

Now I'll turn it over to Nick for more detail on our financial performance and a look ahead.

Nick Hotchkin

Thanks, Jim, and good afternoon everyone. Current Q2 we saw a continuation of our negative topline performance. Total company revenue in the second quarter declined 15.6% to $398 million. Continental Europe continues to be our strongest topline performing segment, particularly France.

Second quarter global trade weeks were down 14.4%, driven by declines in online and meetings. End of period global length of subscribers declined 12.7% to $3.4 million with monthly pass active subscribers down 10.7% to $1.4 million and active online subscribers down 14.1% to $2 million.

Despite continued expense discipline, our lower revenue and substantial pressure on the P&L resulting in an operating income decline of 25.6% in the second quarter. EPS was $0.95 on a reported basis and $0.98 on an adjusted basis in the second quarter,

Adjusted EPS excludes $0.07 in restructuring charges and is partially offsetting $0.04 net tax benefit associated the closure of our China business and the recognition of the valuation allowance related to tax benefits for foreign losses.

In the prior year's second quarter, adjusted EPS was $1.39, which excluded a $0.24 charge related to our 2013 debt refinancing. For reference in the quarter, foreign currency benefitted our results or approximately $0.02 per share.

During the quarter we continued to deliver incremental improvements across many areas of our business and as a result Q2 EPS came in ahead of our internal expectation.

Turning now to our results by geographic segment, which I will discuss on a constant currency basis, our North America business remained under pressure and in the second quarter total North America revenues declined 23.6%. Meetings increased 19.3% and online revenue down 22.2%.

Meetings paid weeks declined 16.9% and online paid weeks declined 21.1%. In-Meeting product sales declined 30.2%, with product sales per attendee down 16%, primarily driven by lower sales of our enrollment products.

During this quarter, we maintained a focus on cost which partially helps to mitigate the impact of foreign declines in the field where we made good progress in reducing the underperforming drop in hours and consolidating small meetings. On the corporate side, we've introduced new procurement capabilities and processes resulting in contract renewal savings with vendors.

In the U.K. business, second quarter total revenue was down 16.1% with meeting fees down 11.4% and online revenues down 13%. Meeting paid weeks declined 10.1% and online paid weeks declined 11.6%. In-Meeting product sales declined 19% for the current sales, with product sales per attendee down 6.4%.

Not long ago, the U.K. was almost a challenged market, but the team has made progress over the last six months as reflected in the improving results.

In Continental Europe, total revenues declined 2.4%, with online revenue up 5.5% and meeting fees down 4.4%. Online paid weeks increased 3.7%, benefiting from a higher active subscriber base at the beginning of the quarter compared to the beginning of Q2 2013, partially offset by spot recruitment.

Meeting paid weeks declined 3.3%, In-Meeting product sales were down 5%, and product sales per attendee were up 0.8%. Effective commercial activities helped drive these results. Now it shows that our perfect core initiative, which is focused on delivering a member experience in the first weeks of a weight loss journey is improving meeting attendance.

Now to review some key financial metrics for Q2 2014. We incurred a pre-tax restructuring charges of $6.5 million or $0.07 per share in connection with our previously disclosed plan to resize the organization and restructure our field operations bringing total year to date expense potentially $2 million.

On the technology front, we're moving faster than we had expected on the restructuring tax organization and capping legacy spending. So we are now anticipating approximately $12 million in overall restructuring expenses this year spread fairly evenly between OpEx and G&A.

Our philosophy continues to be to invest in key areas in support of future growth but to cut aggressively elsewhere. We are on track to meet our gross annual run rate savings target of $150 million as compared to the end of 2012, by the end of this year. Based on the actions we have already taken, we expect to reduce OpEx and G&A by an incremental $60 million in 2014 and achieve our two-year goal.

It is important to know however that only a portion of these savings are dropping to the bottom line in 2014, given that we are we reinvesting in the business.

Now, to the P&L detail excluding the impact of our restructuring expenses. In the second quarter, gross margin declined 270 basis points from the prior year to 57.6%, primarily due to operating cost deleverage as well as the impact of our 2013 U.S. service provider compensation changes.

Q2 marketing spend decreased $24.5 million versus prior to $46.2 million, reflecting the nimble management of our marketing activity that Jim discussed. We had lower total TV advertising activity as well as lower production cost, combined with a continued focus on digital marketing efficiencies.

Q2 G&A expenses increased 4.6% versus prior to $61.7 million but our cost savings initiatives are being more than offset by ramping spend in connection with our program development and healthcare initiatives as well as timing differences in certain accruals.

Our Q2 tax rate was 34.4%, due to the one-time net tax benefit that I've discussed. Excluding this tax benefit our tax rate would have been 37.4%.

Looking at our balance sheet and cash generation, we ended the quarter with $276 million in cash and cash flow from operations totaled $65 million in the quarter. Based on this performance, we expect full year cash flow from operations to exceed $200 million.

Our $2.4 billion outstanding term loans do not have any restrictive leverage related financial covenants and our next meaningful debt maturity is the $300 million due in 2016. While our revolving line of credit availability will be reduced from $250 million to $50 million when we exceed five times leverage. It remains undrawn. We have no current plans to utilize this bank facility. Our debt to EBITDA leverage ratio increased to 4.9 times as of June 30.

Now I'll discuss our outlook for 2014. While the year-over-year recruitment trends are negative, they are slightly better than we anticipated at the beginning of the year. Therefore for the full year, we now expect total revenue to be north of $1.45 million.

For Q3 and the full year, we anticipate year-over-year revenue and paid weeks to be down in the low to mid-teens. In North America, we anticipate that Q3 and full-year revenues should decline by 20% and total paid weeks will decline in the high-teens, with meeting paid weeks performing slightly better than online paid weeks.

In the U.K., for Q3 and the year, we expect revenue and total paid weeks to decline by approximately 10% with online and meetings paid weeks performing similarly. And for CE, we expect revenues for Q3 and the year to be slightly positive.

Total paid weeks are expected to be up slightly for Q3 and the full year with online paid weeks growing and meeting with paid weeks declining.

Now some detail on the cost lines. With gross margin, we continue to expect our full year gross margin to decline by up to 400 basis points with Q4 declining more than Q3. This decline has worsened in the first half of the year due to the timing of incremental investments in the winter season and our healthcare initiative as well as accelerated depreciation of some of our legacy technology assets as we begin to replace them with new capabilities, all of which are progressively impacting the back half of the year.

We now anticipate that full year marketing expense will decline by approximately $30 million. For Q3, we expect marketing expense to be roughly flat year-over-year as we invest to support the fall season and anniversary the particularly deep test we made in marketing in Q3 2013.

Also please note that Q4 will include a 53rd week, which comes at marketing heavy time for our business. Therefore Q4 marketing spend will likely be higher year-over-year.

For the full-year, we continue to expect G&A to be down low single digit percentage versus prior. As we move through the year G&A is impacted as we ramp up higher investments in our strategic initiatives including healthcare are technology.

Below the line for the year, we expect interest expense to be approximately $122 million for the increase versus Q1 with the interest rate swap that went into effect on March 31, 2014.

For the full year, our tax rate will be approximately 36.8% as a result of the unusually low rate in Q2. Excluding the tax benefit impact, our tax rate would be approximately 38.3% for the year. For 2014, we expect CapEx of about $50 million and G&A of $45 million.

So far in 2014 we have been acting with urgency in responding well to drive all the recruitments we can, while carefully managing expenses. As a result, of the slightly better revenue outlook and the work we continue to do on top, we are raising our 2014 EPS guidance to a range of $1.65 to $1.85.

This guidance excludes the $0.11 Brazil one-time gain from Q1, the positive $0.04 net tax adjustment in Q2 and the full-year $0.13 of severance costs related to our restructuring. While this revised guidance is above the virtual expectations we outlined for the year, it remains well below the $3.87 and the EPS we delivered in 2013.

Before I turn it back over to Jim, I would like to take a minute to talk about 2015. While we have fairly begun our budgeting process, we would like provide you with an early view into our thinking in order to assist you with your modeling. We are confident that the enhanced offerings and repositioning of the brand will make 2015 the inflection point for our business and that the associated recruitment will more than offset the incremental variable cost associated with the new offering.

To drive this growth we expect to keep marketing investment at similar levels to 2014. Note that our 2015 P&L will be pressured particularly in the first half as we will still be carrying the legacy technology platform that we expect to moving down by the middle of the year.

We will also continue to invest in the healthcare initiative in advance of the revenue benefits being fully realized. In addition, when we compare 2015 EPS to 2014, given the significantly negative recruitment trends this year, we will begin 2015 with a lower starting exit space, which will drive the negative EPS impact of about $0.60 per share.

As usual, we're trying to provide 2015 in February by reiterating that these remarks represent an early view to assist you in your modeling.

Thanks everyone. I'll now hand the call back to Jim.

Jim Chambers

Thanks Nick. Looking back on my first year as CEO, we started with a forthright situation assessment and translated that into an operating plan with a short term urgency of a turnaround and the strategic vision needed for a longer term transformation.

We are executing on our multiyear agenda and I am encouraged by the early progress. We are aggressively controlling costs, developing a solid game plan for winter season 2015 and revitalizing the Weight Watchers brand. Building the foundation for a robust healthcare offering turning around our technology organization and capabilities and building a willing town base from executive leadership to all levels in the company.

There is still a good deal to be done and we are committed to tackling the items before us as we build for the future.

Thanks again for joining the call today and we will now open it up for questions.

Question-and-Answer Session


Thank you. We will now begin the question and answer session. (Operator Instructions) The first question we have comes from Jerry Herman of Stifel. Please go ahead.

Jerry Herman – Stifel

Thanks. Good afternoon, everybody. Nick I just wanted to ask you a question about the very last comment you made in fact with regard to the $0.60 impact. We certainly appreciate that color, but I am wondering if you could give may be some additional color detail around that in terms of some of the basic assumptions or even logic that you utilize to sort of generate that number.

Nick Hotchkin

Yes, sure Jerry. The impact is essentially driven by the fact that we had solidly negative recruitment this year, so both on our monthly pass actives and our online active subscribers. We start 2015 with both times with housing down 2015 versus the 2014 starting point and that drives the headwind that we've mentioned.

Jerry Herman – Stifel

Okay. Great. And…

Nick Hotchkin

And just to add Jerry if I could, the headwind of those regulators active and as we reiterated with additional costs, variable cost to our offering that we are confident can be more than offset by the revenue that we'll generate. I might assess that in 2015 like 2014, you'll see us continue to invest in the business to finalize our tech reinvention and to complete our healthcare capability build-out.

Jerry Herman – Stifel

Great. And guys I am wondering if you could talk a bit about the current subscriber base and in particular the composition of that subscriber base and what I am getting to is, is there any read on the percentage of all subscribers or users that are legacy users if you will as opposed to new users, what I am really getting at is are you getting close to some recurring user base of sort of loyal Weight Watchers customers?

Nick Hotchkin

I think Jerry, when you looked at our businesses on average. Folks in our meeting business, about two-thirds of those folks have been with us before. On the online business about one third of the folks in each of the brand, no, I think what we are confident then is that while we'll be introducing in 2015, while I feel both to new people to the brand and to lapsed members.

Jerry Herman – Stifel

Okay. Thanks, I'll turn it over.


Next we've R. J. Hottovy of Morningstar.

R. J. Hottovy – Morningstar

Thanks and good afternoon. I wanted to start on the healthcare business and Nick you commented about I guess it was Jim's comment about 2016 being the first year positive revenue contribution, wanted to see if the longer term goals that you establish at last year's analyst day, I believe it was $300 million in incremental opportunity was still valid and then maybe an update on how many strategic talents you have in that business. Just any color you have in that segment might be helpful.

Jim Chambers

Yes, let me start and talk to the analyst day part of it and then Nick can pick up from there. You are correct in recalling that on the day we expressed our basis for strategic interest in healthcare as part of it and unless put your view of how the company might look when we return to growth in the future, we did describe the healthcare opportunity in numbers.

Like you are suggesting, we still feel that opportunity is there for us. I think we've been clear about the investment required to get there. That investment also plays very heavily against existing account base and our strategic customers as well.

Those improvements in reporting an individual data tracking, those are very strong requirements in this channel. So we still feel that, that target is reasonable. We still feel committed to the healthcare strategy and I'll turn it over to Nick for the last half of your question.

Nick Hotchkin

Look I'll say that the strategic business, it's relatively small business for us right now about $25 million in revenue, but with good potential and we have some good projects in Q2 or I also signed six new strategic deals including Geico, Lincoln Financial Group and Heimat Health. We are confident that growing the healthcare business can be a good part of our future.

R. J. Hottovy – Morningstar

Thanks and I had a second question just on technology platform in general, one is do you have plans to incorporate the app integration efforts that you have with Fitbit or some of the other partners out there as part of your 2015 marketing plans?

And then the second question I had is what have generally been the meeting group leader response to some of the personalization efforts that you guys were talking about, just any color behind that, that would be also very helpful thanks.

Jim Chambers

Sure, with respect to the technology platform and integration, as I mentioned we are in the short run before 2014 is out, we will be leveraging API technology integration to provide access to a number of devices and in home appliances to richen the experience for Weight Watchers members.

So that's a very distinct part of our strategy. We think it plays to the strength of our community. It extends their reach. It creates new partners and it begins to leverage the potency of fitness and weight management together, which is something we have always talked to and as evidenced by the very early work in Germany we can see that it really resonates with our members to be able to address activity in a very much more specific and deeper way along with weight management.

So we see this as a particularly strong strategy for opening up Weight Watchers and leveraging the size and strength of our community to create an even stronger experience.

With respect to the second question, our leaders and receptionists, they live for and they love helping members become more successful in their weight management journey and any and always that we can extend their ability to do that, are things that they find very positive.

So early in our testing and in our dialogue with leaders around this direction they have been very enthusiastic and very responsive.

R. J. Hottovy – Morningstar



(Operator instructions) Next we have John Faucher of JPMorgan.

John Faucher – JPMorgan

Thank you very much. In looking at the $0.60 number that you discussed, you often talk about sort of an inflection point in the business, is that -- is the $0.60 number sort of a net number or does that include or does that include the benefit of this inflection that you are looking for I guess is there any earnings benefit from that?

And then just a more technical question in terms of looking at the Q4 gross margin, is it the extra week I missed this, the extra week that's driving the Q4 gross margin performance to be worse than Q3 or is there something else going on there, thanks?

Nick Hotchkin

Let me start on the gross margin. Q4 like the first half of the year have been impacted by the operating deleverage due to lower volumes and the investments in our service provider compensation. As you get into Q4, you’ve not only got the ramping cost related to our healthcare initiative, but guidance also assumes launch costs and training costs related to our winter season offering and that's why the Q4 is progressively worse than Q3,

In terms of the $0.60 impact that was purely the math on our expected starting point of how many people we have -- expect to have in our programs at the start of the year and it doesn’t I don't think include any view on recruitment. As you've heard, we're confident that it can be a main inflection point that will drive people to the brand next year.

John Faucher – JPMorgan

Okay. I apologize, one more clarification. I think you talked about marketing spending being flat in 2015. I assume that's on a dollar basis, then?

Nick Hotchkin

Yes, that's a working assumption for now.

John Faucher – JPMorgan

Okay. Thank you very much.


Next we have Glen Santangelo of Credit Suisse.

Glen Santangelo - Credit Suisse

Yes, thanks. Nick, I just wanted to follow-up on the guidance you gave on 2015, as well. You also suggested you're still going to have some costs from your legacy IT platform, I think you suggested, and still making investments in healthcare. Will those investments be greater in 2015 versus 2014 of they be about the same just so we think about the year-over-year comparisons?

Nick Hotchkin

Yes Glen you’ve would imagined it's hard for me to answer that because I am not giving guidance today and we're just really the beginning of our funding costs. So I would just reiterate that we will have continued cost as we ramp down legacy technology spend particularly in the first half of the ramp up and new type capabilities and then we'll continue to invest in healthcare.

Glen Santangelo - Credit Suisse

Okay, so as we think about the year-over-year comparison, you don't want to give us guidance in terms of how big that inflection point could look like. But you just want to signal to people that you are starting $0.60 in the hole, basically, given the run-off in the second half of 2014.

Nick Hotchkin

That's absolutely right.

Glen Santangelo - Credit Suisse

Okay, all right. Jim, if I could shift gears. I wanted to follow-up. It seems like the company has posted some obviously better results in Continental Europe and I get it AsiaPac is an emerging market. It's still small, but you still have some pretty decent growth there.

I'm curious as to what's working in the Continental Europe market, for example, that's not working in North America? Are you are approaching those markets the same way? Or is there something that explains the divergence in the results as much as it is?

Jim Chambers

I think there are a lot of moving parts, but at a high level I think one of the biggest differences is the maturity that compare the trend things impacting the digital space in the United States are more aggressive and having a more substantial impact on crowing our trials.

There are some other plusses and minuses like I said and we referenced France for one which is having a particularly strong period of performance and I want to picture that because the comments I made about the future view around branding and our product offering I think relate back to something interesting in the French market.

We have -- we have what I would argue is a mildly aspirational brand position in France and we get credit from the consumers in that marketplace for that. We are less reliant on promotional oriented advertising and have a better brand position and a better brand development sort of marketing tactics.

And so amongst a couple of other things, that's putting that market out in front for us and I think that that is one thing that we would look in the aggregate to other markets and say there is potential in that. Central to the strategy around reimagining our offering as I said is strengthening our brand and this is a good reference point for us.

If we can get the brand to occupy a stronger position with consumers, one that is a little more inviting, a little more open, a little more aspirational that resonates better, we will be in a much stronger position. So as a specific with respect to your question, there is something different there that we can look to -- I'll point at that one for the future as well.

Glen Santangelo - Credit Suisse

Okay. Thank you.


The next question we have comes from Kurt Frederick of Wedbush Securities.

Kurt Frederick - Wedbush Securities

Thanks for taking the question. I was wondering, for the 2015 launch, is that something that's consistent across all the geographies? Or is it going to be more like a traditional where certain markets have different launches than the other markets?

Jim Chambers

Yes, I am not going to shed too much more detail, but it's safe to say that the strategies of personalization and community underpinning the direction for our offerings will be common across markets. I would necessarily assume that everything is going to happen the same way at the same pace.

Kurt Frederick - Wedbush Securities

Okay. And then just on the number of meetings centers. How it has that changed from the beginning of 2014 to the end of 2014?

Jim Chambers

Our retail footprint has been roughly stable through the year. I think in terms of the Weight Watchers branded company centers if you will.

So where we've been achieving the operating expense savings has been really reducing the number of drop-in hours that we have and then also feel like consolidating small and medium that we haven’t been closing so also if you will.

Unidentified Analyst

Okay. Fine. That's all I had. Thank you.


Well, this will conclude our question-and-answer session. I will now like to turn the conference call back over to Mr. James Chambers for any closing remarks. Sir?

Jim Chambers

Once again, everyone, thank you for joining the call today and thank you for your continued interest in our company.


And we thank you sir and to the rest of the management team for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you and have a great day everyone.

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