Nature’s Sunshine Products, Inc. (NASDAQ:NATR) Q4 2023 Earnings Call Transcript
Nature's Sunshine Products, Inc. (NASDAQ:NATR) Q4 2023 Earnings Call Transcript March 12, 2024
Nature's Sunshine Products, Inc. beats earnings expectations. Reported EPS is $0.45, expectations were $0.15. NATR isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, everyone. And thank you for participating in today's conference call to discuss Nature's Sunshine Financial Results for the Fourth Quarter and Full Year ended December 31, 2023. Joining us today are Nature's Sunshine's CEO, Terrence Moorehead; CFO, Shane Jones; and General Counsel, Nate Brower. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nate, please go ahead.
Nate Brower: Thank you. Good afternoon. And thanks for joining our conference call to discuss our fourth quarter and full year 2023 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through March 26th and via a live webcast that will be posted in the Investor Relations portion of our Web site at ir.naturessunshine.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies, such as believe, hope, may, anticipate, expect, will and other similar expressions. Forward-looking statements are not guarantees of future performance and the actual results may be materially different from the results implied by forward-looking statements.
Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date and the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Nature's Sunshine, Terrence Moorehead. Terrence?
Terrence Moorehead: Thank you, Nate. And good afternoon, everyone. I want to thank you for joining today's call to discuss our fourth quarter and full year results. Today, I'll provide some context for our performance, which has been fueled by the continued execution of our global strategies. I'll also share some insights on how we believe the business is progressing as we move into 2024. From there, Shane will take you through the specifics of our financials in more detail. Starting with our full year results. We reported net sales of $445 million, making 2023 one of the strongest sales years in our company's history. When you adjust for the impact of foreign exchange, our 2023 sales were $453 million, up 7% versus 2022. This is a tremendous accomplishment given the backdrop of geopolitical unrest in Europe, elevated inflation, high interest rates and lagging consumer confidence.
These results demonstrate that our high-quality products, strong field activation and omnichannel approach can drive strong financial performance even during periods of economic uncertainty and social unrest. 2023 was also the first year to benefit from our gross margin improvement initiatives. You'll remember that we committed to delivering $10 million of gross savings by focusing on several areas; first, reducing the cost of our ingredients, packaging and formulations while maintaining quality and performance; second, improving efficiency and reducing waste from our manufacturing processes; and third, reducing costs related to logistics and transportation. I'm pleased to say that we've made excellent progress on these initiatives in 2023 as gross margins increased 110 basis points to 72.1%.
Moving forward, we expect to meet or exceed our $10 million savings plan with quarterly fluctuations in gross margins throughout 2024 due to mix and seasonal promotions. Our 2023 gross margin performance, along with our top line momentum, aided our adjusted EBITDA growth for the year, which was up 26% versus 2022 to $40.4 million. The strong momentum in our business was also apparent in our fourth quarter results where we reported net sales of $108 million when excluding the impact of foreign exchange, which was a 6% year-over-year increase. This was led by 13% growth in North America, followed by 7% growth in Asia Pacific on a constant dollar basis. The strong sales performance helped drive a 21% increase in adjusted EBITDA to $9.7 million.
A closer look at our fourth quarter results shows a meaningful breakthrough in North America where sales were up 13% due to our strategic investment in digital and improved activation with our nutritional health practitioners and specialty retailers. For the quarter, digital sales increased 97%, driven by new customer growth that was up 27% and incremental Amazon sales. The strong launch of our new Power Line products also helped drive new customer growth as the introduction of our Power Greens, Power Beets and Power Meal products helped improve activation and drive orders across all channels. In 2024, we will build on this momentum by further expanding our digital footprint and increasing the performance of our nutritional health practitioners and specialty retailers.
In Asia Pacific, sales were up 7%, primarily driven by Taiwan and Japan. Our investment in field activation continued to pay dividends in Taiwan, driving 49% order growth for the quarter. We saw a similar story in Japan with solid execution of field fundamentals and a continued focus on driving customers to our Subscribe and Thrive Autoship program that represents about 50% of sales. To support field activation in Japan, we will continue to make strategic investments in the market with plans to open a new training facility that will double capacity and allow the team to support continued growth. Another strong contributor to the fourth quarter was China that delivered an 8% sales increase on a local currency basis. Our digital live streaming model continued to attract new customers and drive strong order growth, and we will continue to invest in this innovative and powerful digital approach.
Overall, we continued to be very positive on the long-term prospects of our business in China but are cautious in the short term given the economic conditions. In Europe, sales were down 8%, primarily due to the prolonged war and the toll that is taking on Eastern European markets and the surrounding area. Our team has done an excellent job attracting new customers and driving orders in Central Europe. And we continue to see a positive consumer response to our products and remain steadfast in our commitment to invest in field activation, improved sales tools and expand our geographic footprint in Central European markets in an effort to continue to capture the untapped potential these markets offer. In summary, our fourth quarter and full year 2023 results demonstrate the strong underlying fundamentals of our business and we're very pleased with our performance and excited about our plans for 2024.
Once again, I would like to leave you with the following thoughts. First, our business continues to outperform the market with sales growth driven by strategic investments in digital, field activation and brand building initiatives. Working in combination, these investments have allowed us to attract and retain more new customers, drive order growth and build momentum in the market, significantly outpacing market growth. Second, our gross margin savings initiatives are on track to deliver the $10 million of gross savings we discussed. The team has verified the savings and we've already started to see the benefits of our plans as gross margin improved in 2023. Over the coming year, we expect to see continued progress. Third and finally, we've built a strong financial position with a strong balance sheet and strong positive cash flow that will allow us to continue to invest in our growth strategies as we move forward.
We're still operating in a challenging external environment, but our team is focused, they continue to execute our strategies well and we expect to take this positive momentum through 2024 and beyond. With that, I'd like to turn the call over to our Chief Financial Officer, Shane Jones. Shane?
Shane Jones: Thank you, Terrence. We continue to be excited about the positive momentum that we're seeing in North America and Asia Pacific, resulting in another strong quarter and full year. Net sales in the fourth quarter were $108.9 million compared to $102.7 million in the year ago quarter, representing a 6% increase versus prior year. This was driven by 13% growth in North America and 6% growth in Asia Pacific. Consolidated net sales for full year 2023 finished at $445.3 million compared to $421.9 million in the previous year, representing 6% growth or 7% growth, excluding the $7.5 million headwind from foreign exchange rates. Looking at sales by market in Q4. North America sales grew 13% versus last year. The double digit growth in North America sales was a result of strong growth from both our digital business and our core business of practitioners and retailers.
As Terrence mentioned, in Q4, our digital business was up 97% with new customer growth of 27%. For full year 2023, North America sales increased 5% to $139.8 million, driven by a 58% increase in digital. Asia Pacific also saw continued growth with sales increasing 6% or 7% on a local currency basis. This was driven by local currency growth in Taiwan, Japan and China of 21%, 9% and 8% respectively. This above market growth was driven by our continued emphasis on field energy along with healthy increases in customers and transactions. Full year 2023 sales in Asia Pacific were $201.3 million, representing growth of 8% or 13% excluding the impact of foreign exchange. Sales in Europe during Q4 decreased 5% or 8% on a local currency basis. This is reflective of the continued impact of the war as well as macroeconomic challenges that are pressuring consumer spending and demand, especially in Eastern Europe.
Net sales in Europe for the full year 2023 increased 3% or 1% on a local currency basis to $81.1 million. In Latin America, our continued focus on field energy, sales tools and business fundamentals is generating customer growth and activation. However, the sales impact of those efforts remains muted as sales increased only 5% or 1% on a currency neutral basis. Full year sales in Latin America were $21.8 million, a 3% increase versus prior year or 1% excluding the impact of foreign exchange. Gross margin in the fourth quarter decreased 30 basis points year-over-year to 71.9%. This modest decrease was a result of our cost saving initiatives being offset by increased promotional activity during targeted windows, such as Cyber-Five, inflationary pressures and market mix.
The market mix impact was due to stronger growth in North America where gross margins are lower but contribution margin is higher than other regions. As Terrence mentioned, for the year, our gross margins improved 110 basis points or $4.9 million versus prior year, driven primarily by our savings initiatives previously outlined. We are encouraged by the progress that we're seeing against these initiatives and reiterate our commitment to reach at least $10 million of savings. Volume incentives as a percentage of net sales were 30.1% compared to 30.3% in the year ago quarter. The slight decrease was primarily due to the changes in market and channel mix. Selling, general and administrative expenses during the fourth quarter were $39.9 million compared to $38.8 million in the year ago quarter.
This slight increase on a dollar basis was driven by increased incentive compensation, variable costs related to sales growth and investments to drive digital growth. As a percentage of net sales, SG&A improved 120 basis points to 36.6% for the fourth quarter of 2023. Operating income increased to $5.7 million or 5.2% of net sales compared to $4.2 million or 4.1% of net sales in the prior year. GAAP net income attributable to common shareholders for the fourth quarter was $9 million or $0.46 per diluted share as compared to $2 million or $0.10 per diluted share in the year ago quarter. The higher GAAP net income was primarily the result of strong sales growth and operating income improvement in the quarter as well as favorable changes in our valuation allowances related to foreign tax credits compared to the fourth quarter of last year.
Adjusted EBITDA, as defined in our earnings release, increased 21% to $9.7 million compared to $6.1 million in the fourth quarter of 2022. The strong growth in EBITDA was attributable to our sales growth along with leverage on SG&A. For full year 2023, adjusted EBITDA was $40.4 million, 26% higher than prior year, driven by sales growth and improved gross margin. Our balance sheet remains strong with cash and cash equivalents of $82.4 million and no outstanding debt. Operating cash flow less capital expenditures for 2023 produced $31 million in free cash flow compared to negative free cash flow of $8 million in 2022. As part of our capital allocation plan, we continue to utilize our share repurchase authorization, buying 424,000 shares during 2023 for $6.4 million or an average of $15.09 per share.
As of December 31, 2023, $17.6 million remains of our $30 million share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Now I would like to introduce our 2024 outlook. We're very excited about both the immediate and long term growth prospects of the business and remain committed to driving improved efficiency and profitability. Therefore, we are providing full year 2024 net sales guidance of $455 million to $480 million. Please note, this includes an estimated 100 basis point headwind to growth due to foreign exchange. As such, our guidance equates to constant currency growth of 3% to 9%. In addition, we expect adjusted EBITDA to range between $42 million and $48 million.
Overall, we are very excited about the progress made in 2023 and continue to focus on driving strong execution against our digital and other key strategic initiatives. As we do so, we are confident that we will continue the strong momentum established in 2023 in driving outsized shareholder returns in 2024 and beyond. Now I will turn the time back to the operator.
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