NTRI
#Thank you.
Yes, certainly.
We're still in over 400 Walmart stores in the Northeast, and the testing, as we've said before, goes through May of 2017.
There's definite demand for the product, but we need to see if the one-day kit configuration is the right approach.
So we'll be watching this product closely in Q1 when the demand for low-calorie, healthy meals is high.
So we'll keep you posted on that.
In addition, one of our grocery channels has also decided to take the one-day kit for diet season, so we'll also have a second read on that.
Okay, thank you.
Sure.
So I would expect Q4 gross margin to be down slightly versus Q3, primarily as the retail business is projected to be a slightly larger percentage of sales than in Q3, and the seasonality of the business you get a little bit less leverage out of the fixed cost.
Kind of going forward I want to stay away from giving guidance for 2017, but I can say a lot of the improvements that we've made around pricing, getting more efficient with our expanded warehouse distribution and some of the cost savings we've been able to take out of the business we feel generally are sustainable over the long term.
I think your second question just on South Beach, we'll be able to give more specifics around margin profile and contribution to South Beach on the fourth quarter call.
Our overall goal is to have both products be comparable in terms of margins over the long term.
But in the nearer term and the impact on 2017 we'll talk a little bit more about that on the fourth quarter call.
So in the second year we're going to get flow-through revenue from the customers we acquire in 2017, so you get what we call on-program revenue.
So that's orders after the first, the second order, the third order, so on and so forth in the initial diet cycle.
And we also get the benefit of reactivation revenue, so starting to bring back those consumers that we acquire in the initial year.
So you'll remember when you look at the Nutrisystem brand, reactivation revenue is around 25% of our total revenues.
So over time the way our business model works, because we'll spend our media dollars to acquire customers against lifetime value, that starts to improve once we get those additional revenue streams come through for the on-program and reactivation.
So our expectation is, that's why when we specifically talked about in year one as we're kind of building South Beach from scratch and acquiring customers, we'll front-load those marketing expense.
That puts a little bit of pressure on the overall initial margins, but once you get those additional revenue streams after you build the customer database the margins start to improve from that point on.
And remember, <UNK>, there's no marketing expense or very limited marketing expense put against those reactivation and on-program revenue streams.
So it all goes against the initial first order.
So it's all part of the normal ---+ of our normal startup and the way that our business model fills and works.
So, again, upfront revenue and then the profit has a little bit of a tail to catch up as the database builds.
But, again, consistent with what we've said in the past, the profit will be accretive next year.
Well, it's throughout the whole year.
You have to think about it.
We'll be acquiring new customers throughout the whole year.
So for the first ---+ those new customers are going to be driving the majority of the revenues as we go throughout all of 2017.
And then the following year is when you have those reactivation revenues come on and more on-program orders.
But as the pool is being built, there is more ---+ it takes a while for those pools to build over time.
But we don't just acquire, and, as you've seen with Nutrisystem, where we continue to build the customer base quarter after quarter after quarter after quarter, you'll see the same thing happening with South Beach, so again ---+ but, again, the skew is weighted differently for South Beach, because all of it is new to start, because we're starting with a brand new brand and building it from scratch.
We don't disclose the customer acquisition cost, but we're pleased with the results that we've seen.
You're welcome.
Okay, thank you for your time this afternoon.
To close, we're excited for diet season 2017 for Nutrisystem.
We're excited about South Beach.
And we believe we will be able to continue to deliver go-forward shareholder value.
I look forward to sharing these outcomes with you on our next call.
Thanks today for your time.
