NTRI Notes:

EPS Release and call – Q2 2007

• Revenue $214m – EPS $0.96, Revenue up 61% and EPS up 81%

• Solid growth in core womens segment (31%) and growth in seniors and mens segment (107%) exceeded expectations

• Direct channel $202m rev – up 65%. 246k new direct channel customers – up 46%

• Increased operating margins by 130 bps y/y and still added new e-commerce platform, new call center and international expansion

• In 1H, repurchased 2.0m shares at $49 – most must have been purchased in Feb and March

• Guiding Q3 rev 200-208m – EPS .77 to .82 – add 245,000 new direct channel customers

• FY guidance Rev 810-820 – EPS $3.46-$3.52

• Slight softness in June carrying over to July – some effect from new OTC weight-loss pill

• No debt and strong balance sheet creates future opportunity

• Does not expect significant G&A spending increase in Q3

• Marketing $45.5m (21% of rev) – up 70% from last year

  • Customer acquisition cost (CAC) up 17% to $182 – expects this measure to grow mid-teens for FY 2007

  • Company claims higher cost for going after men who spend more on the program, but so far increase in revenue per customer does not match increase in CAC

• In Q2, repurchased 329,000 shares at Avg $63.80 – added .05 to 1H EPS and will add 10c for FY EPS

• Launched member website in June 207 to help increase customer retention through group encouragement and support

• Expects 1m new customers in 2007 – also focusing on 3x customers

• Management appears to be interested in acquisitions in health and vanity area

Analyst reports 7/25/07 (KBRO, CANC, LEHM)

• Reactiviation revenue of 23.3m – guiding 93-96m FY 2007. KBRO thinks this stream could be larger than new customer stream in a couple years

• KBO believes management being conservative

• 2H has tough comps due to initiation of Dan Marino campaign last year

• New customer adds decelerating from 50% in 1H to 10%

• Plans to launch new diet program Jan 2008

Citi report 9/19/07 (pushed stock down 11%)

• Impact from Alli and tough comps from Marino campaign are headwinds

• Estimate 4% new customer growth

• Initiatives for ’08 growth from re-activations, new program and new geographic expansion.

• Believes Alli’s sales have moderated and only sees this as a short term threat.

• Reactivations have better margins – expecting to be 14% of 2008 rev and 28% of 2008 EPS

• Overseas markets will take more effort as menus must be re-formulated to appeal to local tastes.

Press Release 10/3/07 (after market close)

• $100m increase to existing stock repurchase program

• Entered into $200m credit facility

• Q3 expected revenue $188m – up 21% y/y

• Expect 218,000 new customers – 7% decline y/y

• EPS between 0.62 to 0.66 (compares to 0.63 in Q3 of 2006)

• Satisfied with success reactivating former customers but disappointed with new customer statistics

• Expenses relating to building infrastructure and a failed acquisition are included

• Expect customer acquisition costs Q3 between 212 and 216

• Will release final Q3 results on 10/23

TWEI report 10/4/07

• $0.62 to 0.66 guidance compares with street expectation of $0.82

• Compeition from Alli continues to be pressuring new customer adds

• Customer acquisition costs now $212-216 up 49.7% y/y – previous management guidance had implied Q3 CAC increase low to mid 20’s

• Likely has reached diminishing returns on marketing spend

• Revising 2007 estimates to $3.05 on $796m revenue versus earlier $3.49 on 820m

• Revising 2008 to $2.78 on 832m versus earlier $3.98 on 954m