USANA Health Sciences Reports Second Quarter 2019 Results

USANA Health Sciences, Inc. (NYSE: USNA) today announced financial results for its fiscal second quarter ended June 29, 2019.

Financial Performance

Second quarter 2019 net sales were $256.0 million, compared with $301.5 million in the prior-year period, or a 15.1% decrease year-over-year. The Company’s financial performance for the quarter was impacted, as noted in the pre-release of results on July 2, by the continuing challenging consumer environment in China. In addition, the strengthening of the U.S. dollar unfavorably impacted net sales by $12.4 million for the quarter. The Company’s total number of active customers at the end of the second quarter was 555,000, compared to 597,000 in the prior-year period.

Second quarter net earnings were $21.4 million, or $0.91 per diluted share, compared with $33.9 million, or $1.36 per share during the prior-year period.

“The continuing challenging market environment in China was the major factor that impacted our second quarter results,” said Kevin Guest, Chief Executive Officer. “During the second quarter, we offered promotions and incentives in China that have historically generated meaningful sales and customer growth. However, the contribution of these promotions was significantly lower than we anticipated, which we believe is due to the low consumer sentiment toward health products in China. We believe it could take several months for consumer sentiment and our momentum to improve in China. We remain optimistic in our long-term growth potential in this important market and our other markets around the world.”

Regional Results

Net sales in the Asia Pacific region decreased by 14.9% to $205.5 million for the second quarter of 2019. On a constant currency-basis, net sales in the Asia Pacific region decreased 10.1% during the second quarter of 2019. The total number of active customers in the Asia Pacific region decreased by 5.7% year-over-year. Within Asia Pacific, net sales:

• Decreased 23.2% in Greater China (down 18.3% on a constant currency basis);
• Decreased 1.5% in Southeast Asia Pacific (up 1.8% on a constant currency basis); and
• Increased 18.9% in North Asia (up 28.0% on a constant currency basis).

Active customers decreased by 12.3% in Greater China. In Southeast Asia Pacific and North Asia, Active customers increased by 2.9% and 27.0%, respectively.

Net sales in the Americas and Europe region decreased by 15.6% to $50.5 million for the second quarter of 2019, primarily due to an 11.6% decrease in active customers.

“We will continue to execute our 2019 strategy during the second half of the year, which includes introducing new products and planned promotional activity across our markets,” continued Mr. Guest. “We have tailored our plan to ensure that we have strategic offerings in the appropriate markets at the appropriate times to generate momentum in the business. Overall, we remain confident in the strategies we are pursuing for the long-term health of our business.”

Share Repurchase Program Update

During the quarter, the Company repurchased 367,800 shares of common stock for $27.6 million and ended with weighted average diluted shares outstanding of 23.4 million. The Company continues to have a strong balance sheet with no debt and $234.4 million in cash and short-term securities. As of June 29, 2019, there was $122.4 million remaining under the current share repurchase authorization.

Outlook

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

• Consolidated net sales between $1.02 billion and $1.06 billion;
• Earnings per share between $3.70 and $4.10.

The Company’s outlook for the year reflects:

• An estimated operating margin of between 11.9% and 12.7%;
• An effective tax rate of approximately 34%;
• An annualized diluted share count of approximately 22.7 million, which anticipates future share repurchase activity in 2019; and
• An unfavorable impact on net sales of approximately $25 million related to a stronger U.S. dollar.

Chief Financial Officer Doug Hekking commented, “Due to the lower-than-expected results in the first half of the year, we expect our operating margin for fiscal 2019 to be lower than our typical rate. While we are actively working to better align our cost structure with our sales performance, we plan to continue making the necessary investments to execute our long-term growth strategies.”

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 BabyCare’s expense reimbursement policies. The Audit Committee of the Company’s 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 Company’s 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 Company’s 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 Company’s website (http://ir.usana.com) under the “Investor Relations” section of the site. USANA will hold a conference call and webcast to discuss today’s announcement with investors on Wednesday, July 24, 2019 at 11:00 AM Eastern Time. Investors may listen to the call by accessing USANA’s website at http://ir.usana.com. The call will consist of brief opening remarks by the Company’s 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 government’s 100-day review of the health product and direct selling industries; continued negative media coverage in China following the Chinese government’s 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 BabyCare’s 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 Company’s expectations, except as required by law.

	USANA Health Sciences, Inc.
	Consolidated Statements of Operations
	(In thousands, except per share data)
	(Unaudited)
			Quarter Ended				Six Months Ended
			30-Jun-18		29-Jun-19		30-Jun-18		29-Jun-19
	Net sales		$    301,460		$    256,016		$    593,458		$    529,006
	Cost of sales		49,991		46,494		99,366		92,395
	Gross profit		251,469		209,522		494,092		436,611
	Operating expenses
	Associate incentives		132,790		111,511		262,152		234,041
	Selling, general and administrative		67,537		66,854		137,669		136,409
	Earnings from operations		51,142		31,157		94,271		66,161
	Other income		388		1,355		1,250		2,645
	Earnings before income taxes		51,530		32,512		95,521		68,806
	Income taxes		17,623		11,134		32,668		23,256
	NET EARNINGS		$      33,907		$      21,378		$      62,853		$      45,550
	Earnings per share - diluted		$          1.36		$          0.91		$          2.56		$          1.93
	Weighted average shares outstanding - diluted		24,841		23,370		24,557		23,648

USANA Health Sciences, Inc.
Consolidated Balance Sheets
(In thousands)
		As of			As of
ASSETS		29-Dec-18			29-Jun-19
Current Assets					(Unaudited)
Cash and cash equivalents		$	214,326		$	231,353
Securities held-to-maturity, net			63,539			2,999
Inventories			81,948			88,127
Prepaid expenses and other current assets			32,522			26,304
Total current assets			392,335			348,783
Property and equipment, net			92,025			92,637
Goodwill			16,815			16,829
Intangible assets, net			31,811			31,129
Deferred income taxes			3,348			5,473
Other assets			18,129			37,550
Total assets		$	554,463		$	532,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable		$	9,947		$	11,694
Other current liabilities			138,739			117,065
Total current liabilities			148,686			128,759
Deferred income taxes			13,367			5,787
Other long-term liabilities			1,264			13,699
Stockholders' equity			391,146			384,156
Total liabilities and stockholders' equity		$	554,463		$	532,401

USANA Health Sciences, Inc.
Sales by Region
(unaudited)
(in thousands)
		Quarter Ended
		30-Jun-18						29-Jun-19						Change from prior year							Currency impact on sales				% change excluding currency impact
Asia Pacific
Greater China		$	167,841		55.6	%		$	128,946		50.3	%		$	(38,895	)		(23.2	%)		$	(8,170	)		(18.3	%)
Southeast Asia Pacific			54,771		18.2	%			53,960		21.1	%			(811	)		(1.5	%)			(1,818	)		1.8	%
North Asia			18,986		6.3	%			22,575		8.8	%			3,589			18.9	%			(1,731	)		28.0	%
Asia Pacific Total			241,598		80.1	%			205,481		80.2	%			(36,117	)		(14.9	%)			(11,719	)		(10.1	%)
Americas and Europe			59,862		19.9	%			50,535		19.8	%			(9,327	)		(15.6	%)			(659	)		(14.5	%)
		$	301,460		100.0	%		$	256,016		100.0	%		$	(45,444	)		(15.1	%)		$	(12,378	)		(11.0	%)

Active Associates by Region(1)
(unaudited)
		As of
		30-Jun-18					29-Jun-19
Asia Pacific
Greater China		111,000		38.0	%		102,000		35.8	%
Southeast Asia Pacific		85,000		29.1	%		87,000		30.5	%
North Asia		26,000		8.9	%		33,000		11.6	%
Asia Pacific Total		222,000		76.0	%		222,000		77.9	%
Americas and Europe		70,000		24.0	%		63,000		22.1	%
		292,000		100.0	%		285,000		100.0	%

Active Preferred Customers by Region (2)
(unaudited)
		As of
		30-Jun-18				29-Jun-19
Asia Pacific
Greater China		206,000		67.5%		176,000		65.2%
Southeast Asia Pacific		20,000		6.6%		21,000		7.7%
North Asia		11,000		3.6%		14,000		5.2%
Asia Pacific Total		237,000		77.7%		211,000		78.1%
Americas and Europe		68,000		22.3%		59,000		21.9%
		305,000		100.0%		270,000		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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190723005890/en/