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News

USANA Health Sciences Reports First Quarter 2019 Results

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USANA Health Sciences, Inc. (NYSE: USNA) today announced financial results for its fiscal first quarter ended March 30, 2019 that were in line with the preliminary results provided on April 2, 2019.

Financial Performance

First quarter 2019 net sales were $273.0 million, compared with $292.0 million in the prior-year period, or a 6.5% decrease year-over-year. The strengthening of the U.S. dollar unfavorably impacted net sales by $13.3 million for the quarter. The Companys total number of active customers at the end of the first quarter was 586,000, compared to 585,000 in the prior-year period.

First quarter net earnings were $24.2 million, or $1.01 per diluted share, compared with $28.9 million, or $1.19 per share during the prior-year period.

As we reported in early April, three factors unfavorably affected our sales results for the first quarter of 2019, said Kevin Guest, Chief Executive Officer. First, our 2019 operating plan contained very little promotional activity during the first quarter but calls for increasing promotional activity as the year progresses. This had a more significant impact on our global momentum than we anticipated, particularly during the seasonal slow-down that we experience each year in many of our markets during Chinese New Year. Second, the Chinese governments 100-day review of the health product and direct selling industries that occurred during the quarter was accompanied by unexpected, persistent, negative media coverage about these industries in China. This media coverage affected our sales in China for the quarter. Finally, the unfavorable impact of a stronger U.S. dollar on net sales was also significant.

Regional Results

Net sales in the Asia Pacific region decreased by 4.8% to $220.9 million for the first quarter of 2019. On a constant currency-basis, net sales in the Asia Pacific region increased 0.3% during the first quarter of 2019. The total number of active customers in the Asia Pacific region increased by 2.9% year-over-year. Within Asia Pacific, net sales:

  • Decreased 8.7% in Greater China;
  • Decreased 3.0% in Southeast Asia Pacific; and
  • Increased 22.9% in North Asia.

Active customers increased modestly by 1.8% and 0.7% in Southeast Asia Pacific and Greater China, respectively. Net sales growth in North Asia resulted from 27.3% growth in active customers in South Korea.

Net sales in the Americas and Europe region decreased by 13.0% to $52.1 million for the first quarter of 2019, primarily due to an 8.6% decrease in active customers.

Despite our softer than expected start to the year, we continue to believe that we can deliver growth in 2019, added Mr. Guest. Our promotional calendar kicked off during the second quarter and we remain confident that these promotions and initiatives will generate sales momentum during the year. Additionally, the 100-day review in China concluded in mid-April, and we expect to see a more typical operating environment in China going forward. Although it takes time to recapture momentum, we believe we will begin to do so during the second quarter and that our results will further accelerate during the second half of the year. We are confident in the strategies we have in place around the world and believe that 2019 will be another record year for USANA.

Share Repurchase Program Update

During the quarter, the Company repurchased 283,595 shares of common stock for $30.0 million and ended with weighted average diluted shares outstanding of 23.9 million. The Company continues to have a strong balance sheet with no debt, $225.0 million in cash and cash equivalents, and $26.9 million invested in short-term securities. As of March 30, 2019, there was $40.2 million remaining under the current share repurchase authorization. The Companys Board of Directors has authorized up to $150 million in share repurchase authorization, which is inclusive of the $40.2 million currently authorized. Repurchases may be made from time to time, in the open market, through block trades or otherwise, subject to applicable rules of the Securities and Exchange Commission. The number of shares to be purchased and the timing of purchases will be based on market conditions, the level of cash balances, general business opportunities, and other factors.

Outlook

The Company reiterated the following consolidated net sales and earnings per share outlook for fiscal year 2019:

  • Consolidated net sales between $1.21 billion and $1.26 billion, representing growth between 1.7% and 5.9% (or growth of 3.6% to 7.9% in constant currency);
  • Earnings per share between $5.00 and $5.35.

The Companys outlook for the year reflects:

  • An estimated operating margin of between 14.3% and 14.7%;
  • An effective tax rate of approximately 34%;
  • An annualized diluted share count of approximately 23.7 million, which does not reflect future share repurchases; and
  • An unfavorable impact of approximately $23 million related to a stronger U.S. dollar.

Chief Financial Officer Doug Hekking commented, We remain confident in the underlying strength of our business around the world and the strategies in place to generate growth as the year progresses. While our operating margin may be modestly impacted in the short-term, I expect it to remain in line with our long-term strategy, which is intended to drive long-term sustainable growth in active customers.

Internal Investigation of China Operations

As the Company first disclosed in February 2017, it is voluntarily conducting an internal investigation of its China operations, BabyCare Ltd. The investigation focuses on compliance with the Foreign Corrupt Practices Act and certain conduct and policies at BabyCare, including BabyCares expense reimbursement policies. The Audit Committee of the Companys Board of Directors has assumed direct responsibility for reviewing these matters and has hired experienced counsel to conduct the investigation. While the Company does not believe that the subject amounts are quantitatively material, or will materially affect its financial statements, it cannot currently predict the outcome of the investigation on its business, results of operations, or financial condition. The Companys internal investigation is substantially complete, however, the Company continues to cooperate with the Securities and Exchange Commission and the United States Department of Justice. The Company cannot currently predict the duration, scope, or result of the investigation.

Non-GAAP Financial Measures

The Company prepares its financial statements using U.S. generally accepted accounting principles (GAAP). Constant currency net sales, earnings, EPS and other currency-related financial information (collectively, Financial Results) are non-GAAP financial measures that remove the impact of fluctuations in foreign-currency exchange rates and help facilitate period-to-period comparisons of the Companys Financial Results that we believe provide investors an additional perspective on trends and underlying business results. Constant currency Financial Results are calculated by translating the current period’s Financial Results at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period’s Financial Results.

Conference Call

The Company has posted the Management Commentary, Results and Outlook document on the Companys website (https://ir.usana.com) under the Investor Relations section of the site. USANA will hold a conference call and webcast to discuss todays announcement with investors on Wednesday, May 1, 2019 at 11:00 AM Eastern Time. Investors may listen to the call by accessing USANAs website at https://ir.usana.com. The call will consist of brief opening remarks by the Companys management team, before moving directly into questions and answers.

About USANA

USANA develops and manufactures high-quality nutritional supplements, healthy foods and personal care products that are sold directly to Associates and Preferred Customers throughout the United States, Canada, Australia, New Zealand, Hong Kong, China, Japan, Taiwan, South Korea, Singapore, Mexico, Malaysia, the Philippines, the Netherlands, the United Kingdom, Thailand, France, Belgium, Colombia, Indonesia, Germany, Spain, Romania, and Italy. More information on USANA can be found at www.usana.com.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Our actual results could differ materially from those projected in these forward-looking statements, which involve a number of risks and uncertainties, including: regulatory risk in China following the Chinese governments 100-day review of the health product and direct selling industries; continued negative media coverage in China following the Chinese governments 100-day review of these industries; global economic conditions generally; reliance upon our network of independent Associates; risk associated with governmental regulation of our products, manufacturing and marketing activities; adverse publicity risks globally; risks associated with our international expansion and operations; and risks associated with the internal investigation into BabyCares operations. The contents of this release should be considered in conjunction with the risk factors, warnings, and cautionary statements that are contained in our most recent filings with the Securities and Exchange Commission. The forward-looking statements in this press release set forth our beliefs as of the date hereof. We do not undertake any obligation to update any forward-looking statement after the date hereof or to conform such statements to actual results or changes in the Companys expectations, except as required by law.

 
USANA Health Sciences, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
  Quarter Ended
31-Mar-18   30-Mar-19
 
Net sales $ 291,998 $ 272,990
Cost of sales   49,375   45,901
Gross profit 242,623 227,089
 
Operating expenses
Associate incentives 129,362 122,530
Selling, general and administrative   70,132   69,555
 
Earnings from operations 43,129 35,004
 
Other income (expense)   862   1,290
Earnings before income taxes 43,991 36,294
 
Income taxes   15,045   12,122
 
NET EARNINGS $ 28,946 $ 24,172
 
 
Earnings per share – diluted $ 1.19 $ 1.01
Weighted average shares outstanding – diluted 24,273 23,927
 
 
 
USANA Health Sciences, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
As of As of
ASSETS 29-Dec-18 30-Mar-19
Current Assets
Cash and cash equivalents $ 214,326 $ 225,041
Securities held-to-maturity, net 63,539 26,854
Inventories 81,948 86,465
Prepaid expenses and other current assets   32,522   31,819
Total current assets 392,335 370,179
 
Property and equipment, net 92,025 91,994
Goodwill 16,815 17,073
Intangible assets, net 31,811 32,227
Deferred income taxes 3,348 3,249
Other assets   18,129   36,861
Total assets $ 554,463 $ 551,583
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable $ 9,947 $ 11,700
Other current liabilities   138,739   118,292
Total current liabilities 148,686 129,992
 
Deferred income taxes 13,367 17,507
Other long-term liabilities 1,264 12,867
 
Stockholders’ equity   391,146   391,217
Total liabilities and stockholders’ equity $ 554,463 $ 551,583
 
 
USANA Health Sciences, Inc.
Sales by Region
(unaudited)
(in thousands)
 
  Quarter Ended        
  % change
Currency excluding
Change from prior impact on currency
31-Mar-18 30-Mar-19 year sales impact
   
Asia Pacific
Greater China $ 157,808 54.0 % $ 144,153 52.8 % $ (13,655 ) (8.7 %) $ (8,252 ) (3.4 %)
Southeast Asia Pacific 56,228 19.3 % 54,515 20.0 % (1,713 ) (3.0 %) (2,566 ) 1.5 %
North Asia   18,084 6.2 %   22,228 8.1 %   4,144   22.9 %   (1,074 ) 28.9 %
Asia Pacific Total 232,120 79.5 % 220,896 80.9 % (11,224 ) (4.8 %) (11,892 ) 0.3 %
 
Americas and Europe   59,878 20.5 %   52,094 19.1 %   (7,784 ) (13.0 %)   (1,412 ) (10.6 %)
 
$ 291,998 100.0 % $ 272,990 100.0 % $ (19,008 ) (6.5 %) $ (13,304 ) (2.0 %)
 
 
Active Associates by Region(1)
(unaudited)
 
  As of
31-Mar-18   30-Mar-19
     
Asia Pacific
Greater China 108,000 37.5 % 109,000 36.9 %
Southeast Asia Pacific 88,000 30.6 % 90,000 30.5 %
North Asia 24,000 8.3 % 31,000 10.5 %
Asia Pacific Total 220,000 76.4 % 230,000 78.0 %
 
Americas and Europe 68,000 23.6 % 65,000 22.0 %
 
288,000 100.0 % 295,000 100.0 %
 
 
Active Preferred Customers by Region (2)
(unaudited)
 
As of
31-Mar-18 30-Mar-19
Asia Pacific
Greater China 194,000 65.3 % 195,000 67.0 %
Southeast Asia Pacific 21,000 7.1 % 21,000 7.2 %
North Asia 11,000 3.7 % 13,000 4.5 %
Asia Pacific Total 226,000 76.1 % 229,000 78.7 %
 
Americas and Europe 71,000 23.9 % 62,000 21.3 %
 
297,000 100.0 % 291,000 100.0 %
 

(1) Associates are independent distributors of our products who also purchase our products for their personal use. We only count as active those Associates who have purchased from us any time during the most recent three-month period, either for personal use or resale.

(2) Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products. We only count as active those Preferred Customers who have purchased from us any time during the most recent three-month period. China utilizes a Preferred Customer program that has been implemented specifically for that market.

Investors contact:
Patrique Richards
Investor Relations
(801)
954-7961
investor.relations@us.usana.com

Media contact:
Dan Macuga
Public Relations
(801) 954-7280

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