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USANA Health Sciences Reports Third Quarter 2019 Results

SALT LAKE CITY--(BUSINESS WIRE)--

  • Third quarter net sales of $260.6 million
  • Third quarter net earnings of $24.2 million, or $1.09 per diluted share
  • Company narrows 2019 Net Sales and EPS outlook on updated FX outlook for the year

USANA Health Sciences, Inc. (USNA) today announced financial results for its fiscal third quarter ended September 28, 2019.

Financial Performance

Third quarter 2019 net sales were $260.6 million, compared with $296.8 million in the prior-year period, or a 12.2% decrease year-over-year. The strengthening of the U.S. dollar unfavorably impacted net sales by approximately $6.0 million for the quarter. The Company previously estimated the impact from currency to be neutral for the second half of the year. The Company’s total number of active Customers at the end of the third quarter was 558,000, compared to 615,000 in the prior-year period.

Third quarter net earnings were $24.2 million, or $1.09 per diluted share, compared with $31.0 million, or $1.24 per share during the prior-year period.

“Although we continue to face a challenging sales environment in China and other regions, we were pleased to see sales in several markets improve on a consecutive quarter basis,” said Kevin Guest, Chief Executive Officer. “We offered several incentives and promotions around the world during the quarter, which positively impacted customer growth and added approximately $16 million to net sales. We also recognize, however, that we still have work to do in the Southeast Asia Pacific and Americas/Europe regions towards regaining sales momentum.”

Regional Results

Net sales in the Asia Pacific region decreased by 12.9% to $208.6 million for the third quarter of 2019. On a constant currency-basis, net sales in the Asia Pacific region decreased 10.7% during the third quarter of 2019. The total number of active Customers in the Asia Pacific region decreased by 10.1% year-over-year. Within Asia Pacific, net sales:

  • Decreased 18.6% in Greater China (down 16.4% on a constant currency basis);
  • Decreased 7.6% in Southeast Asia Pacific (down 6.8% on a constant currency basis); and
  • Increased 17.1% in North Asia (up 24.3% on a constant currency basis).

Active Customers decreased by 17.3% in Greater China and by 2.6% in Southeast Asia Pacific. In North Asia, Active customers increased by 28.2%.

Net sales in the Americas and Europe region decreased by 9% to $52.0 million for the third quarter of 2019, primarily due to a 6.1% decrease in active Customers.

Mr. Guest continued, “In September, the Chinese government initiated a follow-up to the industry review they conducted during the first quarter of this year. We anticipated this 100-day follow-up review and will cooperate with the government throughout this process. To date, we have not experienced the negative media environment or restrictions on meetings that accompanied the government’s previous review.

“As we conclude fiscal 2019, we will continue to utilize strategic incentive offerings to help generate sales and customer growth around the world, although not at the same level as those offered during the previous quarter. We remain optimistic in our long-term growth potential in China and our other regions around the world, and are committed to returning momentum to the business.”

Share Repurchase Program Update

During the quarter, the Company repurchased approximately 1.4 million shares of common stock for $92.4 million and reported weighted average diluted shares of 22.2 million for the quarter. The Company continues to have a strong balance sheet with no debt and $182.7 million in cash and cash equivalents. As of September 28, 2019, there was $30.0 million remaining under the current share repurchase authorization.

Outlook

The Company updated its consolidated net sales and earnings per share outlook for fiscal year 2019 as follows:

  • Consolidated net sales between $1.030 billion and $1.045 billion, previously between $1.020 and $1.060 billion; and
  • Earnings per share between $3.90 and $4.05, previously between $3.70 and $4.10.

The Company’s outlook for the year reflects:

  • An estimated operating margin of between 12.7% and 12.9%;
  • An effective tax rate of approximately 33.5%;
  • An annualized diluted share count of approximately 22.8 million; and
  • An unfavorable impact on net sales of approximately $39 million related to a stronger U.S. dollar, which was previously estimated at $25 million.

Chief Financial Officer Doug Hekking commented, “During the third quarter, we generated improved operating margins when compared to the first half of 2019. Although sales from promotional activity contributed to this improvement during the quarter, our efforts to align our cost structure with sales performance also contributed to improved sequential results. We plan to continue making necessary investments to execute our long-term growth strategies, generate momentum in each of our regions, and return to operating margins in line with historical results.”

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, October 23, 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

 

Nine Months Ended

 

 

29-Sep-18

 

28-Sep-19

 

29-Sep-18

 

28-Sep-19

 
Net sales

$

296,767

$

260,598

$

890,225

$

789,604

Cost of sales

 

51,877

 

47,819

 

151,243

 

140,214

Gross profit

 

244,890

 

212,779

 

738,982

 

649,390

 
Operating expenses
Associate incentives

 

130,264

 

111,059

 

392,416

 

345,100

Selling, general and administrative

 

69,112

 

66,262

 

206,781

 

202,671

 
Earnings from operations

 

45,514

 

35,458

 

139,785

 

101,619

 
Other income (expense)

 

1,012

 

430

 

2,262

 

3,075

Earnings before income taxes

 

46,526

 

35,888

 

142,047

 

104,694

 
Income taxes

 

15,486

 

11,666

 

48,154

 

34,922

 
NET EARNINGS

$

31,040

$

24,222

$

93,893

$

69,772

 
Earnings per share - diluted

$

1.24

$

1.09

$

3.80

$

3.01

Weighted average shares outstanding - diluted

 

25,001

 

22,223

 

24,705

 

23,173

 

USANA Health Sciences, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

As of

 

As of

ASSETS

29-Dec-18

 

28-Sep-19

Current Assets
Cash and cash equivalents

$

214,326

$

182,748

Securities held-to-maturity, net

 

63,539

 

-

Inventories

 

81,948

 

76,141

Prepaid expenses and other current assets

 

32,522

 

24,089

Total current assets

 

392,335

 

282,978

 
Property and equipment, net

 

92,025

 

91,515

Goodwill

 

16,815

 

16,456

Intangible assets, net

 

31,811

 

29,667

Deferred income taxes

 

3,348

 

5,267

Other assets

 

18,129

 

37,158

Total assets

$

554,463

$

463,041

 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable

$

9,947

$

8,605

Other current liabilities

 

138,739

 

121,041

Total current liabilities

 

148,686

 

129,646

 
Deferred income taxes

 

13,367

 

5,433

Other long-term liabilities

 

1,264

 

13,676

 
Stockholders' equity

 

391,146

 

314,286

Total liabilities and stockholders' equity

$

554,463

$

463,041

USANA Health Sciences, Inc.

Sales by Region

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

 

 

 

 

 

 

29-Sep-18

 

28-Sep-19

 

Change from prior
year

 

Currency
impact on
sales

 

% change
excluding
currency
impact

 
Asia Pacific
Greater China

$

160,932

54.2

%

$

130,947

50.3

%

$

(29,985

)

(18.6

%)

$

(3,647

)

(16.4

%)

Southeast Asia Pacific

 

58,770

19.8

%

 

54,327

20.8

%

 

(4,443

)

(7.6

%)

 

(428

)

(6.8

%)

North Asia

 

19,899

6.7

%

 

23,299

8.9

%

 

3,400

 

17.1

%

 

(1,435

)

24.3

%

Asia Pacific Total

 

239,601

80.7

%

 

208,573

80.0

%

 

(31,028

)

(12.9

%)

 

(5,510

)

(10.7

%)

 
Americas and Europe

 

57,166

19.3

%

 

52,025

20.0

%

 

(5,141

)

(9.0

%)

 

(450

)

(8.2

%)

 

$

296,767

100.0

%

$

260,598

100.0

%

$

(36,169

)

(12.2

%)

$

(5,960

)

(10.2

%)

 
Active Associates by Region(1)
(unaudited)
 
As of
29-Sep-18 28-Sep-19
 
Asia Pacific
Greater China

111,000

36.8

%

99,000

35.0

%

Southeast Asia Pacific

95,000

31.4

%

88,000

31.1

%

North Asia

28,000

9.3

%

34,000

12.0

%

Asia Pacific Total

234,000

77.5

%

221,000

78.1

%

 
Americas and Europe

68,000

22.5

%

62,000

21.9

%

 

302,000

100.0

%

283,000

100.0

%

 
Active Preferred Customers by Region (2)
(unaudited)
 
As of
29-Sep-18 28-Sep-19
Asia Pacific
Greater China

219,000

70.0

%

174,000

63.3

%

Southeast Asia Pacific

20,000

6.4

%

24,000

8.7

%

North Asia

11,000

3.5

%

16,000

5.8

%

Asia Pacific Total

250,000

79.9

%

214,000

77.8

%

 
Americas and Europe

63,000

20.1

%

61,000

22.2

%

 

313,000

100.0

%

275,000

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.

 

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