Good afternoon, welcome to the WW First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Corey Kinger, investor relations. Please go ahead.
Thank you, Andrea, thank you to everyone for joining us today for WW's First Quarter 2019 conference call. At about 4:05 P.M. Eastern Time today, we issued a press release reporting our first quarter 2019 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 corporate.ww.com. Supplemental investor materials are also available on the company's corporate website in the investor section, under presentations and events. 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, 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. Joining today's call are Mindy Grossman, President and CEO, Nick Hotchkin, CFO, Operating Officer of North America, and President Emerging Markets. I'll now turn the call over to Mindy.
Thank you, Corey. Good afternoon, everyone. I'm glad to be speaking with you today. I am pleased to say that year-over-year member recruitment trends have improved in both February and March. While still below 2018 levels, we've stabilized the business by taking quick action to improve and optimize our marketing effectiveness. This resulted in us ending the first quarter with 4.6 million subscribers, above our prior expectations and up 1% from the first quarter of 2018. As a result of these improved recruitment trends and strong cost management, we delivered Q1 results ahead of our expectations. As we discussed on the call in February, our 2019 winter campaign did not recruit to the levels we had intended. We'd attributed this to three main factors.
First, we were lapping the phenomenal success of the launch of our WW Freestyle program last year, and it proved to be a more difficult comp than we expected. Second, the launch of our new global brand rollout and campaign needed a more overt bridge between WW and Weight Watchers and between weight loss and wellness. Third, as much as we are pleased with our heightened brand perception and relevancy, the campaign calls to action did not recruit at the levels we needed. We responded immediately, conducted additional research, and began optimizing and revamping all of our assets across every channel, TV, digital, social, and ECRM in every geographic market. We pivoted quickly, introduced new assets with fewer messages, clearer branding bridge between WW and Weight Watchers, and added more targeted offers, all of which together drove a step-up in our recruitment performance.
We carried these learnings into the development of our spring campaigns in all markets. We developed a framework with a singular message, "It works," and leveraged the stories of our members as well as our celebrity ambassadors, including Hélène Ségara in France, Motsi Mabuse in Germany, and of course, Oprah Winfrey in North America, as well as Australia and New Zealand. Oprah surprises members with a video FaceTime call to celebrate their weight loss success on WW and their lifestyle transformation. During these one-on-one conversations, she speaks candidly with fellow members about their experience on WW and why it works. The joy and enthusiasm expressed in these conversations convey what WW delivers, weight loss that fits into your life.
As said by Oprah and WW member, Faven, "It is not even a diet, it's a lifestyle." In addition to TV, these short and long-form video assets are being leveraged across digital and social. Last week, Oprah kicked off WW Wednesdays, a series that is highlighting the full conversation she had with those members that will be shared on both Facebook and Instagram. The first conversation highlighted WW member Eric, where he shared his 168-pound weight loss and how the WW Connect community stepped up to support him when he encountered strife in his life. Additional stories will be released in a series over the next few months.
In addition, we've added talent and organized the teams to have an even more focused performance marketing approach across all our platforms. We shifted our marketing mix and are using real-time analytics to measure efficacy of assets with different audiences, and we're able to more efficiently target and drive sign-ups at a lower cost. For example, in the U.S. alone, we currently have over 200 creative variations in rotation, which is four times as many as last year, reaching targeted, unique cohort audiences. We still have more work to do in order to return to the growth trajectory that we know we can achieve, but I'm encouraged by this early progress as well as the focus, the energy, and the agility of the passionate teams globally.
Our spring campaigns are a great proof point demonstrating that we can deliver weight loss messaging with a strong call to action and also show up in a modern, aspirational way. Consumers want to lose weight and get healthy, and they need to know that WW delivers on both. Our consumer perception studies show that our brand perception is elevated, with more people identifying WW as a modern, relevant program that can fit their lives. We are confident that our wellness strategy is on target, and for consumers, weight loss is a critical component of wellness, so we will still ensure it's front and center because it is something we deliver better than anyone else. As we continue to optimize our marketing to drive recruitment, there are four key consumer insights that we are elevating and integrating more heavily into our marketing message.
The first, nutritional science is a key point of differentiation. WW is rooted in science, with more than 90 scientific studies on our approach and clinically proven program. Our efficacy led to WW recently being named an official diabetes prevention program provider by the NHS in England, as well as the CDC in the U.S. We have an opportunity to give heightened visibility and voice to the science behind our program. The second is consumers want livability, but livability is also about sustainability, not just flexibility. We frequently highlighted the flexibility of our program with no foods off limits. We have a further opportunity, particularly in today's environment, to reinforce that WW is the most sustainable weight loss program, helping members learn new healthy habits and achieve lasting change. As a prime proof point, we have tens of thousands of lifetime members that attend our workshops every week.
They have maintained their healthy lifestyle through the support of the WW program and community. Third, goes without saying, the importance of technology. The WW app is a powerful enabler of healthy habits for real life. It has never been easier to follow WW. Our members value our incredible digital assets, and everything delivers, including Freestyle and SmartPoints, recipes, our proprietary barcode scanner, restaurant guides, FitPoints, Active, Headspace, WellnessWins, Connect, and 24/7 chat with a coach. Beyond our current and former members, there's a great opportunity to galvanize awareness of our app, all its features, and the tremendous evolution of our ecosystem, particularly over the past year. Our app experience is unique in the immense value it delivers for all our members.
This is the reason the WW app was recently recognized by the International Academy of Digital Arts and Sciences with a Webby Award, the internet industry's highest honor. In addition to being selected by internet industry experts, our app also won a Webby People's Voice Award for the in-apps, mobile, and voice best practices category. For the WW app to be honored among some of the internet's best technology experiences is an amazing achievement and speaks to the value it's delivering to our members. Importantly, member engagement with our app continues to grow, both among digital and studio plus digital members. As we add more features, content, and tools, our members have even more ways to engage. In the first quarter of our members using our app, approximately two-thirds engaged with Connect, our unique social media feature within the app, significantly up from the 50% utilization in 2018.
In Q1, these members created 2.5 million posts, left 16 million comments, and gave 76 million likes. More members are tracking fitness by syncing a device to the WW app to automatically track activity. In March, more than 1.5 million members had synced an activity device, up from an average of 1.3 million throughout 2018. More members are tracking their food in-app. Looking at members who joined in early 2019 versus early 2018, an ever larger percentage are tracking SmartPoints, and this is consistent both among digital and studio and digital members. We believe these year-over-year increases in tracking food and activity are driven by the introduction of WellnessWins, our rewards and loyalty program, which rewards members with wins for engaging on the app by tracking food, activity, weight, and workshop attendance.
As we work to increase awareness of WellnessWins and our other in-app features and content, we have further opportunity to grow member engagement and retention. Lastly, personalization is expected. As we have stated, we are utilizing data science and technology to make the experience more customized and personalized, including in our 24/7 chat with a coach. Coaching and personalized support is a key priority area for us in 2019 and beyond, in terms of how we can better tailor the WW member experience and content. Our goal is to have every member feel that it is their WW. We have a strong foundation upon which to build across each of these areas as we work to attract both returning and new members to WW. As I mentioned in the last call, I'm personally focused on our studio business.
I'm regularly spending time visiting our studios, attending workshops, and meeting with our WW coaches globally. In the first quarter, we realigned our resources across our global organization to ensure we have the right talent and a clear, agile structure in order to drive future growth. A key element of this realignment was to increase the focus on our studio business, ensuring we have the right leadership in every one of our global markets to revitalize and elevate our experience. In addition to his role as CFO, I've asked Nick to assume operating responsibility for the North American market. I'll now hand the call over to Nick Hotchkin to discuss our financial performance and outlook. I'll come back to discuss 2019 priorities.
Thanks, Mindy. Before I discuss our results and outlook, I'd first like to say how thrilled I am to be leading our North America efforts. Our talented teams have really galvanized around driving performance across all aspects of the business, and it is showing in our improving trends. I am already enjoying spending time in the field and hearing from our coaches. With that, I'll turn to our financial results. We ended the first quarter with 4.6 million subscribers, up 1% year-over-year and slightly ahead of our expectations as the actions we took during the quarter helped stabilize the business. Recruitment channels such as Invite a Friend and in-app purchase are working well for us and are effective in attracting first-time members. In Q1, approximately 15% of our global recruits joined through these two channels.
Despite that, Q1 member recruitment was down year-over-year across our major geographic markets, with the studio business in particular being significantly weaker year-over-year. Total revenue in the quarter was $363 million, down 9% year-over-year on a constant currency basis, primarily driven by declines in studio revenue as well as product sales and other revenues. Digital subscription revenues increased 11% year-over-year on constant currency in Q1, primarily due to the strong flow-through from a higher level of incoming subscribers at the start of the year. Gross margin rate was 55%, up nearly 130 basis points year-over-year on constant currency. Excluding the impact of an inventory obsolescence reserve taken in Q1 2018, gross margin would have been roughly flat year-over-year, a little better than we expected due to cost reduction actions taken in the quarter.
Operating income was $22 million, down from $62 million in Q1 2018, primarily driven by operating deleverage on lower revenues and higher marketing expense in the quarter versus the prior period. Also impacting Q1 2019 operating income was $6.3 million of expenses related to organizational restructuring. As discussed on our February call, to better align profitability and cash generation with expected revenue levels, we launched a comprehensive cost savings initiative across all expense lines. Q1 GAAP EPS was a loss of $0.16, which included a negative impact of $0.07 per share related to the organizational changes. This compares to GAAP EPS of $0.56 in Q1 2018, which included a $0.25 per share tax benefit. EBITDA in Q1 was $38 million. Turning to our outlook.
Our subscriber trend over the course of 2019 is expected to be consistent with our normal seasonality, where Q1 is our peak end-of-period subscriber level and year-end is our low point. We expect Q2 end-of-period subscribers to be down slightly both year-over-year and sequentially. As a reminder, about 40% of our annual recruits join us in Q1, and therefore, while we expect our business recovery and cost structure actions to have a positive impact over the course of the year, it is difficult to recover from a soft start given the seasonality of the business. We expect member recruitment to be negative for the year as a whole for both digital and for studio. On a global basis, average retention continues to be well over nine months in both digital and studio, reflecting the value our members are finding in WW.
We are focused on further extending retention through WellnessWins and our other efforts to enhance the member experience. We continue to expect full year 2019 revenue to be approximately $1.4 billion. We anticipate some relative improvement in recruitment trends in our spring campaign and some further improvement in the back half of the year as we lap easier comparisons. This revenue guidance also assumes an estimated foreign exchange negative impact of $12 million. Overall, we continue to expect subscription revenues to be about 85% of our total revenue this year. In North America and the U.K., we expect full year revenue to be down in the mid-single digits on a constant currency basis.
In Continental Europe, we now expect full year revenue to be down in the low single digits year-over-year on a constant currency basis, representing a modest improvement versus our prior guidance. Our full year GAAP EPS guidance range has increased to $1.35-$1.55, reflecting slightly improved revenue trends and strong cost management. This guidance assumes 70 million shares outstanding for the full year. For the remainder of my comments, I'm going to speak to the midpoint of our full-year EPS range and on a constant currency basis. We now expect gross margin rate to decrease by about 200 basis points in 2019, an improvement from our prior guidance, primarily reflecting lower volumes, partially offset by cost savings initiatives versus prior year. Marketing expense in 2019 is expected to be about $250 million.
We'll continue to be agile in our approach, investing behind initiatives that produce results. In addition to an always-on digital and social marketing approach globally, in the United States, which is our largest market, this year, our spring TV advertising will run through mid-June. G&A expense in 2019 is expected to be approximately $250 million, reflecting lower absolute dollar spending year-over-year in Q2 through Q4. Below the line, we assume full year interest expense to be approximately $140 million and a full year tax rate of approximately 25%. For the year, we expect CapEx, primarily driven by tech spend, capitalized software, and some studio network improvements to be in the $60 million range, and D&A is expected to be about $50 million. I'd like to spend a few minutes talking about our capital structure and our cash generation. Our liquidity position is strong.
At Q1 end, we had $193 million cash balance and an undrawn revolver. We expect EBITDA of approximately $350 million for the full year, demonstrating our continued strong cash generation. This cash generation is well in excess of our short-term debt obligations. Absence any debt prepayments, we would expect to end 2019 with a cash balance higher than the end of 2018. We have a covenant-light debt structure and the flexibility to prepay our term loan at any time. We ended Q1 with a net debt to EBITDA leverage ratio of 3.7 times. Note that the leverage calculations used in our credit agreement are on a first lien basis, and at Q1 end, our consolidated first lien net debt to EBITDA leverage ratio was 2.91 times.
With our highly cash generative business model, we have the resources and flexibility not only to operate the business, but also to continue to invest in the initiatives that will drive our growth. In summary, we are encouraged by the incremental improvement in trends resulting from our course-correcting actions. We remain confident that our strategy to focus on providing holistic wellness solutions, in addition to our best-in-class weight management program, is the right path to create long-term sustainable growth. With that, I'd like to turn it back to Mindy.
Thanks, Nick. As we've outlined previously, we have five key priority areas for 2019 that all align with our key objectives of recruitment, retention, and elevating the WW brand. First, our marketing execution and strategy. Our approach to marketing is across the comprehensive member journey, from contemplation to sign-up, to onboarding, to motivation, to engagement, to success. Our cross-functional team is focused on creating an experience which understands, recognize, and rewards our members so well it could only come from WW. Our goal is to make us the first choice for consumers who want to lose weight and get healthy. We're leveraging our data and learnings to further enhance our communications to drive engagement in everything we have to offer: nutrition, activity, mindset, motivation, community, and personal support, as well as products, events, and more. I'll discuss our actions around personalization in the member journey shortly.
We also engage with prospective members and current WW members alike in our influencer marketing. Our ambassadors are highly effective at helping people meet where they are, driving interest and engagement globally. For example, last month, Kate Hudson shared a weight loss update to her more than 10 million Instagram followers about how she's close to reaching her goal weight and how WW's easy and livable program, app, and community have helped her along the way. This post drove over 300,000 social media engagements and editorial commentary, inspiring conversation, and resulting in mass as well as broadcast and online news coverage garnering over 17 million earned impressions. Having a diverse combination of celebrity and non-celebrity member ambassadors is helpful in showing that WW is for everyone.
We recently welcomed several new ambassadors to our family, including Grammy Award-winning gospel singer Tamela Mann and British TV personality Alison Hammond, and the response has been fantastic. We look forward to upcoming marketing activations featuring our global ambassadors. Just to highlight one of the upcoming activations, starting on May 5th, we'll be celebrating and showcasing DJ Khaled's recent 42-pound weight loss milestone ahead of his upcoming album release in a high-impact out-of-home takeover in the heart of Times Square. As many know, Khaled's reason for being a part of the WW family was to get healthy for his son. His new studio album, aptly named "Father of Asahd", launches later in the month, and we're excited to celebrate the launch with a number of creative marketing activations. Second, I'd like to talk about our studio strategy and future experience.
Of our 4.6 million subscribers at the end of Q1, 1.5 million were studio plus digital members. Our in-person workshops with WW coaches are a key differentiator in providing the community and inspiration that many people look for in their weight loss and wellness journey. Our teams are implementing an expansive plan to improve performance and make the necessary fundamental changes that will drive this business over the long term. These initiatives hit upon every touchpoint: people, programming, and places. We are putting NPS, which is a measure of customer satisfaction, the heart of everything we do. We have recently implemented a proprietary and customized global Qualtrics system to get real-time NPS data, not only at the studio level, but down to the individual workshop level.
We are using this NPS data to drive decisions on the overall health of our studio business, leveraging strength and opportunity in the program, service delivery, and the overall member experience. First and foremost, this is a personal relationship between our members and their coaches and guides. Our 16,000 studio team members worldwide are our strongest advocates and are the ones who bring WW to life. We are focused on better galvanizing our field and providing the tools, training, and resources to better support both member recruitment and retention. We're also leveraging our WW Coach Council to ensure the voice of our coaches is applied as we roll out key initiatives and changes. As we look toward the future of the member experience, we're testing various formats to enrich the coaching experience and gather insights.
In addition, we are piloting virtual coaching to bring our coaches to members in new and modern ways. In short, we have a strategic framework of initiatives designed to galvanize our coaches, recruit new members, and elevate our studio experience. Third, our 2020 innovation. The 2020 innovation is a critical component of our strategy. We've taken the learnings from WW Freestyle, new scientific research, leveraged the latest in food science, behavioral science, and consumer preferences to create our most personal program yet. This global innovation has been in development for nearly two years. We're further ahead than ever and are excited to bring this to members later this year. Personalization. I talked about it earlier, and it's our intent to personalize all that we do. Importantly, this encompasses every touchpoint in a member's journey.
Some are high-tech, such as our recently launched Siri shortcut voice integrations, and others are low-tech, such as a WW coach greeting you by name, but all are immensely important to the member experience. Celebrating successes has always been an essential part of the WW culture. To encourage our members along their journeys, we have in-app digital badges to celebrate their successes and engagement. In addition to these virtual badges, in our workshops, members receive milestone charms as they hit weight loss milestones, and this concrete recognition is deeply inspiring and motivating for many members along their journeys. We want to recognize, surprise, and delight our digital members as well. We're currently in the process of rolling out delivery of charms to digital members, and these milestone recognitions become significant moments on social media.
By recognizing our members' successes through tangible and digital milestones, wins for tracking, or coming later this year, WellnessWins challenges, we are adding more value to the member experience. From our testing, we know that rewards and recognition drive increased engagement, which then drives longer retention. We look forward to adding even more value, recognition, rewards, and gamification to the member experience. We're also delivering a more personalized experience through our just recently launched Connect Groups, which are providing a greater sense of belonging. Connect Groups help WW members find people like them, such as in our LGBTQ, WW Bros, and foodie groups. When members see others that are like them, they don't feel they have to explain themselves to each other, and the conversations get deeper and more relatable faster.
They get reliable advice from people in their same life stage, such as our Brides group, which is one of our most frequently visited groups. The Bride group has high return visits because the members are counting down to a specific significant event and are finding timely content and support, and they find a forum where they can easily contribute or get immediate value, such as our Recipes and Meal Prep group. Even though Connect Groups has just launched, we have found that group members are posting more frequently and are following two times as many people as non-group members. Currently, 9% of Connect users are members of a group. Given the value our members have told us a group provides, there's a big opportunity to grow this metric and thereby increase overall engagement. Global community activation.
As I talked about during our last call, one of our key priorities is to galvanize communities through events, activations, content, and experiences. We will be hosting a series of events throughout the summer, kicking off with an activation on Global Wellness Day in June. Later in the fall, we will be announcing a multi-pronged activation of community events, including events in partnership with Oprah Winfrey, which we'll be launching earlier in the new year. Needless to say, we are very excited about the opportunity to bring our brand into the community to reach and touch so many people. By executing on each of these priorities, we are confident we will be able to improve our performance trajectory.
While recruitment at the start of the year was not up to our expectations, we are encouraged by the team's ability to quickly course correct and pivot where necessary while maintaining focus on our long-term vision. We're confident that developing a best-in-class weight loss and wellness ecosystem that encompasses nutrition, activity, mindset, motivation, community, and personalized support with broader appeal to more diverse audiences, is the right path to support long-term sustainable growth. Weight loss and wellness are highly attractive markets as people everywhere want to lead healthy, happy lives. By executing on our purpose to inspire healthy habits for real life, we become the world's partner in wellness as well as the world's leader in weight loss management. Thanks for joining us on the call today. With that, we'll now turn the call to the operator for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Our first question will come from Brian Nagel of Oppenheimer. Please go ahead.
Hi, good afternoon.
Hi, Brian.
Thank you for taking my questions. Hey. My first question, I appreciate all the color in your comments with regard to subscriber growth. As we look back now at Q1, maybe with a clearer lens, can we talk more about the weakness in recruitment? Do you think now it's more a function of, say, internal missteps versus external factors like some of the new diets that have emerged lately? How do we think about that split?
What I think about is we can control what we can control, the reason why we've been a leader in what we do for over 55 years is because we lead in healthy weight loss and now in the ability to also help people lead better lives of wellness. What I'm talking about is very specifically what we diagnosed is what we could have done in a more effective way, that's why we're seeing the results of that in the improvement. Nobody's more disappointed than us that we didn't perform, we immediately diagnosed, we immediately responded. We've created new assets, new ways to engage the customer, our focus is on absolutely controlling what we can control and do what we do best.
I guess a follow-up question to that is, Nick, you'd mentioned in your financial commentary about how the trajectory in subscribers, the likely trajectory in subscribers through 2019, I think you said that we should expect a similar type fade, if you will, as in prior years. The question I have is, if we think about, at the risk of overthinking this, but we had weaker subscriber growth. We couldn't expect subscriber growth in Q1, and arguably, some of that was probably that recurring customer not coming back to the Weight Watchers brand. Could we make the assumption, if that's true, that maybe there would be less fall off or fade through this year? You have basically a potentially stickier base right now at the end of Q1.
Brian, our guidance assumes the same seasonal trends that are typical with Q1 as the peak with a year-end as the low point. Of course, within that expected normal seasonal trend, both with WellnessWins and other retention-driving activities, we're focused not only on continuing to improve our recruitment trajectory but have people stay with WW for longer also.
Thank you.
Our next question comes from Frank Camma of Sidoti. Please go ahead.
Hey, thanks for taking the question. First question, just a clarification. Nick, did you say that there was $6 million in SG&A related to restructuring?
There was $6.3 million in total restructuring spends or $0.07 per share. The vast majority of that, about $5 million or so, Frank, hit G&A, the rest hit OPEX.
Okay. If we wanted to normalize our numbers, we could take out $0.07, is what you're saying?
Yes.
Correct.
The $0.16 loss that we reported had that $0.07 restructuring within that number. Yes.
Okay. That makes your 250 for the year more reasonable, given what you said. Okay. The other question, I know product's obviously not your big thing, but the product revenue was really the only big variance on my revenue line. Why would that be down so sharply year-over-year, given some of those initiatives that you've been working on?
Yeah, look, I think some unique factors there, Frank Camma. Look, primarily, the fact that we've set our studio business, and therefore attendance in meetings was weak during the first quarter, particularly in January. New members to WW tend to spend more on their products when they're in our workshops. The other factor was the fact that we're just really ramping up globally this wonderful new line of consumer products, and that's why we certainly expect our year-over-year trends in product sales to improve as we go through the year, and our guidance assumes that they do.
Right. You will see over the course of the year, more and more new product introductions, particularly in the food space and other categories, and also continued focus on, in addition to the sales that we do in our workshops, our e-commerce platforms. I think you saw we launched our first dedicated store on Amazon, and we continue to add our products as they've been developed and formulated within that.
Bear in mind, in the tail end of last year, we were ramping down the sale of our old products as we started to ramp up this new product line. We've got easier comps in the back half of the year also.
Yeah.
Okay. Just remind me, that's where you put royalties as well, right? Those are well down from historical years. Is that correct?
Yeah. That is our royalties on our licensing business. They're relatively flat year-over-year.
Okay.
The way to think about it is, we've sat back, as you know, and done a full assessment of what our opportunities are within the product space. Certainly, our first priority was to have the products out there that we sell be consistent with who we are as a brand, which is why all reformulated, all back out in the market, across every product we have. We also brought in a new head of product and licensing, and we are looking globally, particularly in the areas of healthy kitchen, where you've seen us focus our efforts. You will expect to see product expansion, particularly around those areas of business.
Okay. That's helpful. Thank you.
Our next question comes from Jason English of Goldman Sachs. Please go ahead.
Hey, good evening, folks. Thank you for squeezing me in.
Hey, Jason.
I want to drill a little bit deeper on the meeting subscribers in North America, because it was certainly a little bit lighter than we expected, and given your initiative on trying to dig into satisfaction, it sounds like it's also an area that you guys are focused on. Any early indications of what drove the relatively subdued sequential step-up in North American meeting subscribers? Is it fair to assume that this cohort of consumers is the one where repeat rates are highest, meaning that they generally come in, they leave with satisfaction, and then come back a year or two later?
To your point, lapsed members, particularly early in the year, are normally first to come back. If you think about it, we were also lapsing a year of a huge new news innovation, which tends to drive lapsed members even more. A combination of those things. You're right. We definitely know that even from a targeted marketing point of view, working both on certainly new and lapsed members. As we look for the business, but then also looking at things like new studio formats, new partnerships to attract new members. For example, we announced our partnership with Kohl's. We're building a 1,600 square foot studio in their flagship in Chicago, and have other efforts. You'll see diversification of how we're looking to recruit not just former members within our existing environments, but also expanding our opportunities where we can recruit new members.
Okay. In terms of, let's just broader on recruitment. You mentioned that retention still high, tracking over nine months. You gave us some great little data points in terms of engagement, which hopefully should and intuitively would translate into good retention. Recruitment's clearly the soft point here. Do you think you're doing enough on recruitment? You mentioned that you've seen sequential improvement through the quarter. Is there any quantification, any data points you can give us to grasp, to contextualize the improvement that you talked about?
Yeah. Well, I'd say sequential improvement during the quarter and frankly continuing into the launch of our spring campaign also, and that's reflected in our guidance. I wouldn't expect Q2. Our guidance doesn't assume that Q2 has a positive year-over-year recruitment, but we would expect to cross that hurdle sometime later in the year.
Okay. Thank you.
Our next question comes from Vincent Sisinni of Morgan Stanley. Please go ahead.
Hey, good evening, guys. Thanks very much for taking my question here.
Hi, Vincent.
Hey. I wanted to ask about the data analytics that you mentioned, Mindy. Especially on the back of the new ad campaign, can you give us all just a little bit more sense, kind of some of the things that you're looking at, what you're seeing, and maybe also with some of the kind of mitigation of some of the missteps from a few months ago? Do you have a sense for what of those things that kind of reversed and you saw impact on most?
I'm going to bucket into a few things. We've really enhanced our talent and our organization in terms of strategic member marketing, data science, marketing analytics. As Nick was asked a question about, we have made some organizational restructuring in how those teams are working together, all based on the back of informing through data. That was a work in process, but certainly we've accelerated those efforts. The second is we've re-looked at the marketing mix overall. Although you still see us doing television spots, you will see a lot more assets, particularly in the areas of direct response, social, digital, et cetera. I use the example of the number of assets we have out there today that we're measuring to make sure that we have the ones that have the most efficacy, and then the new assets are being created against that.
Very structured process, and that also goes through any of our ECRM, SEO. I would say, if you actually for now, if you look year-on-year, we have much more sophistication there. We feel very positive about what we're being informed and the measures we're taking and what we're creating against those assets.
That's helpful, Mindy. I guess maybe just more of just kind of a strategy question here. Kind of at a high level that you've had some improvement later in the first quarter, but as you said, kind of course, now looking forward to the next holiday season, the 2020 innovation plan. Is it a fair thing to say that you'll continue to have things come out as we go through this year, particularly as we get into the fall? Is your mission right now to try to kind of just keep things stable for the majority of this year and then essentially kind of come out with guns blazing as we get in toward the next holiday season? Is that how we should just kind of think about it at a high level?
I think the way you should think about it at a high level is that we have an organization focused definitively on sequential improvement throughout the year because I think you'll see we have efforts, whether they be around marketing efforts, studio efforts, influencer efforts, partnership efforts, that are all going to help to build to help us amplify the 2020 innovation. As I mentioned, we've been working on this for a long time. We have a very deep process to make sure that we're going to deliver that in the most effective way. There are certainly things that we're going to do throughout the year, both to improve performance, but also to help us amplify those efforts when we get to 2020 innovation.
Okay. All right, great. Thanks very much, guys, and best of luck.
Thank you.
Thank you.
Our next question comes from Mark Rosenkranz of Craig-Hallum Capital Group. Please go ahead.
Hi, Mark.
Hey. Good evening everyone. Thanks for taking my questions. You mentioned some interesting subscriber activity with the increased food and activity tracking. I was wondering if you've seen any type of demographic shift with this new recruiting class, or any type of learnings on what they're tracking or what activity they're logging that can perhaps benefit recruitment or retention, how you market and reach these new recruits.
Yeah. What we find, at least on the tracking, what we're seeing in food, ever since we came out with Freestyle, it's people really embracing the zero-point foods. If you look at any recipe that's shared, food is a core component of what we do. It really is relative to the program itself what's being tracked. I can tell you that the number 1 tracked food is an egg, if that's interesting, and it's zero points. Relative to activity, as I mentioned, we're seeing a lot of that activity coming from syncing up devices. We've seen an increase in that as well, and it really is diverse across the population. It's a pretty diverse population of where they are in their health journey.
That's really relative to what the device is, but not surprisingly, energetic, walking, running, they tend to be the highest as far as that goes. In terms of diversity of audience, we're starting to definitely see movement on the gender side. We still are predominantly female, but we are pleased that as a result of our targeted marketing efforts, more diversity in our ads themselves. We're starting to see movement there, and we're also starting to see diversity overall, and that has a lot to do with the expansion of our ambassador and influencer base. You'll see continued efforts as it relates to that.
Okay, great. That's helpful. Just a quick follow-up, you mentioned about 9% of Connect users are in groups right now. Seems like a pretty big opportunity to expand recruitment or retention. Does that give you more of a 2019 opportunity you can build into as you enter 2020, or is that potentially part of the 2020 program offering that you're looking to announce?
I think it's relatively new. The groups are getting formed. People have engagement on the whole Connect. I think it's just a matter of them recognizing and joining the groups. I have to say, I belong to a number of the groups, and it really has made a difference for those people who really want to engage with people like themselves. The other interesting thing is that a lot of people still stay engaged in the broader Connect as well as in their groups. We're actually getting additional engagement. We'll continue to monitor that. We have other elements that we want to add into these Connect Groups to help foster the engagement. We're very pleased with the initial response.
Okay, that's great. Thanks for taking my questions, and best of luck on the spring and summer here.
Thank you.
Thank you.
Our next question comes from Gregory Badishkanian of Citi. Please go ahead.
Hi, Greg.
Hey, Greg.
Hi, guys. This is actually Spencer Hanus for Greg.
Hi, Spencer.
Yeah, hi. You called out that you get 15% of recruits in 1Q came from Invite a Friend and in-app purchases. Just curious how the demographics of those recruits compare to the overall company?
Yeah. Look, as you'd expect, those new channels are great tools, particularly in-app purchase for attracting a younger audience. Invite a Friend has been a terrific success in terms of bringing more men into the brand. Both of these channels are very highly incremental, a very rich mix of first-time users to the brand. That's why I'm very pleased with these two new recruitment channels.
Okay, great. Then in terms of member retention, in the past, you've talked about trying to get to 10 months in 2019. Do you still think that's an achievable target this year? How do we get there from, I think you said you're above nine currently.
Yeah, look, well over nine now, as you've heard today, working on great retention drivers, including WellnessWins, which we expect have the same sort of ramp-up of usage curve as we saw in Connect. The importance of the digital rewards and milestones that we mentioned in the call. Absolutely, we're certainly shooting to get to over 10 months as soon as possible.
Okay, great. Thank you.
Our next question comes from Edward Yruma of KeyBanc. Please go ahead.
Hey, guys. Thanks for taking the question. I guess first on the rebranding, I know that you discussed some of the issues of the call to action as you transitioned into January. I guess as you sit and assess it now, how has the rebranding gone, and has it succeeded, at least initially, in helping to modernize the brand?
The answer on the modernization side, the brand perception, relevancy, absolutely. If you look at whether it's our products that are out in the marketplace, the consistency of our branding globally, the message, that has absolutely. We measure that very, very specifically. That's why I talk about the proof points of relevancy and brand retention, and what we're offering people. Now, having said that, we needed a little bit more of a bridge for certain people to really understand, and whether it was our former members or whether it was newer members. We have done that, and we will continue to monitor the brand, the recognizability, the understanding of WW, but we're already seeing improvement of that. I'm very pleased about the brand perception metrics, because that was a very big part of what we needed to do around relevancy.
Great. A follow-up, if I may. Obviously, trends improved from January, but just kind of curious, in your survey work when you talked to consumers, did you notice that maybe those that joined in February or March maybe attempted paleo and failed or I know you constantly kind of emphasize the healthy weight loss component of Weight Watchers. Do you think that over time, as people realize some of the other health downsides to paleo, that that could be a positive for you over time? Thanks.
Yeah. We know for a fact, and it's not anecdotal, that there are people that come to us, particularly if they've been with us before, and you say, "Why are you back?" They go, "Because we know that if I come back here, it'll work. I just have to learn that it's sustainable." Because that is what our entire program, our science, and everything our brand is built on. We want to continue to support people no matter what their former efforts were. That's why if you look at our campaigns that are out right now around It Works and my commentary before, that one of the things that we're very focused on in our communication is sustainability. You'll continue to hear us speak about that.
Great. Thanks so much, guys.
Thank you.
Our next question comes from Michael Lasser of UBS. Please go ahead.
Hi, Michael.
Hi, Mindy. Good evening. Thanks a lot for taking my question. Two. One, have you seen the improvement that you mentioned in February and March continue into April?
Yes.
Two, we have not seen such a wide divergence in your fee per subscriber between your studio business in North America and your digital business. In the studio business, it was down 4.4%. In the digital business, it was up 4.2%. Can you give us a reason why there were such divergent trends there?
Yeah. Given the weakness in our studio business, particularly right at the start of the year, while we were waiting to get the fixes in place that we've described and which have been successful. We did get more promotional for a period of time, and that was reflected in the metrics that you're citing. We're on a better price realization track right now.
On the digital business, were you less promotional? Because that's the metric that had been under pressure or declining for the last five quarters.
Yeah, the price realization was a little better on the digital side, absolutely, versus studio.
Okay. Thank you very much.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to CEO Mindy Grossman for any closing remarks.
Well, thanks, everyone. We look forward to continue to update you on our progress.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.