USANA Health Sciences Reports Third Quarter Financial Results

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  • Record third quarter net sales of $261.8 million, an increase of 3.0% year-over-year
  • Number of active Customers1 at quarter end increased 2.4% to 563,000
  • Third quarter EPS of $0.97, or $1.02 excluding incremental expense related to China and the Company’s previously disclosed internal investigation
  • Company updates 2017 outlook

SALT LAKE CITY--(BUSINESS WIRE)-- USANA Health Sciences, Inc. (NYSE: USNA) today announced financial results for its fiscal third quarter ended September 30, 2017.

Financial Performance

For the third quarter of 2017, net sales were $261.8 million compared with $254.2 million in the prior-year period, or a 3.0% increase year-over-year. There was no meaningful year-over-year impact from changes in currency exchange rates on quarterly net sales. The Company’s total number of active Customers increased by 2.4% year-over-year to 563,000.

Net earnings for the third quarter were $23.8 million compared with $30.1 million during the prior-year period, a decrease of 21.0%. Higher SG&A expense and a higher effective tax rate reduced net earnings during the quarter as they have throughout 2017.

Earnings per diluted share for the third quarter were $0.97 compared with $1.20 in the prior year period, a decrease of 19.2%. The expense related to China and the Company’s internal investigation into its China operations, which was disclosed in February 2017, negatively impacted the third quarter by approximately $1.9 million and earnings per diluted share by $0.05. Weighted average diluted shares outstanding were 24.6 million for the third quarter of 2017, compared with 25.1 million in the prior-year period. The Company repurchased 865 thousand shares during the quarter for a total investment of $50.0 million. The Company ended the quarter with $191.7 million in cash and cash equivalents and no debt. As of September 30, 2017, there was $50.0 million remaining under the current share repurchase authorization.

“The third quarter was significant for USANA, not only for delivering record quarterly sales, but because of the accomplishments and announcements we made during the quarter,” said Kevin Guest, Chief Executive Officer. “In particular, we celebrated our 25th anniversary at our annual International Convention, where we introduced a new skincare line, Celavive®, and announced our plans to expand into four additional European countries. Celavive® is formulated with our cell-signaling technology, InCelligence. Both the launch of Celavive® and the rollout of our European expansion will take place throughout 2018. These announcements were well received by thousands of our Associates at our convention and demonstrate our commitment to improving the health of more individuals and families around the world.”

Regional Results

Net sales in the Asia Pacific region increased by 4.7% to $199.3 million. Within Asia Pacific, net sales:

  • Increased 5.5% in Greater China;
  • Increased 35.9% in North Asia; and
  • Decreased 3.8% in the Southeast Asia Pacific region.

Sales growth in Greater China was primarily driven by 8.7% active Customer growth in Mainland China, while sales growth in North Asia resulted from 39.1% active Customer growth in South Korea. The total number of active Customers in the Asia Pacific region increased by 6.5% year-over-year.

Net sales in the Americas and Europe region decreased by 2.1% to $62.5 million, largely due to an 8.6% decrease in active Customers.

“For the first time in nearly three years, the overall revenue impact from changes in currency exchange rates was neutral,” continued Mr. Guest. “Our Asia Pacific region continues to be the driver of our sales growth. While we continue to face a challenging trend in the Americas and Europe region, we will continue to offer short-term promotions leading up to the launch of Celavive and the opening of our new European markets next year.

Outlook

The Company is updating its consolidated net sales and earnings per share outlook for 2017 as follows:

  • Consolidated net sales approaching $1.030 billion (the top end of the company’s previously issued guidance of $1.015 billion and $1.030 billion); and
  • Earnings per share of approximately $3.70 (previously $3.50 and $3.70).

The Company’s outlook reflects:

  • No significant impact from changes in currency exchange rates during the fourth quarter;
  • An estimated operating margin of approximately 14% for the fourth quarter, which includes continued investments in the business;
  • An effective tax rate of 31.2% for 2017, which excludes any prospective impact from excess tax benefits; and
  • An annualized diluted share count of approximately 24.7 million.

Chief Financial Officer Doug Hekking, commented, “As we head into the final months of 2017, we are adjusting our guidance to reflect our year-to-date results and forecast for the remainder of 2017. We continue to have confidence in the Company’s long-term growth trajectory and look forward to finishing 2017 strong and continuing to grow in 2018.”

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 (“FCPA”) and certain conduct and policies at BabyCare, including BabyCare’s expense reimbursement policies. The Audit Committee of the 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 has voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway and intends to provide additional information to both agencies as the investigation progresses. The Company cannot currently predict the duration, scope, or result of the investigation.

Non-GAAP Financial Measures

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 and thus 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.

Additionally, EPS results for a reporting period which exclude incremental expense related to the Company’s internal investigation in China are non-GAAP financial measures that are intended to help facilitate period-to-period comparisons of the Company’s Financial Results. Such EPS results are calculated by (i) calculating the total incremental expense related to the internal investigation after taxes; and (ii) dividing the expense by the total number of diluted shares outstanding for the applicable reporting period.

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 25, 2017 at 11:00 a.m. 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 and Indonesia. 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 global economic conditions generally, reliance upon our network of independent Associates, the governmental regulation of our products, manufacturing and marketing risks, adverse publicity risks, 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.

1 The term “active Customers” refers to the combined total of active Associates and active Preferred Customers as of September 30, 2017. During the first quarter of 2017, we initiated our Preferred Customer Invitation Plan in the United States and, pursuant to this invitation, 16,000 active Associates in the United States became Preferred Customers. To avoid confusion in reporting changes in the number of active Associates and Preferred Customers as a result of this invitation plan, we are reporting total active Customers. The tables, which are part of this release, however, will continue to separately disclose the number of active Associates and active Preferred Customers.

USANA Health Sciences, Inc.
Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
         
Quarter Ended Nine Months Ended
1-Oct-16 30-Sep-17 1-Oct-16 30-Sep-17
 
Net sales $ 254,219 $ 261,765 $ 753,182 $ 774,151
Cost of sales   44,979   47,135   133,869     133,691
Gross profit 209,240 214,630 619,313 640,460
 
Operating expenses
Associate incentives 112,816 116,010 335,541 350,195
Selling, general and administrative   60,591   67,263   176,986     193,653
 
Earnings from operations 35,833 31,357 106,786 96,612
 
Other income (expense)   268   690   (9 )   1,632
Earnings before income taxes 36,101 32,047 106,777 98,244
 
Income taxes   6,003   8,278   28,618     29,858
 
NET EARNINGS $ 30,098 $ 23,769 $ 78,159   $ 68,386
 
 
Earnings per share - diluted $ 1.20 $ 0.97 $ 3.12 $ 2.75
Weighted average shares outstanding - diluted 25,050 24,588 25,050 24,871
 
 
 
USANA Health Sciences, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
As of As of
ASSETS 31-Dec-16 30-Sep-17
Current Assets
Cash and cash equivalents $ 175,774 $ 191,745
Inventories 64,810 63,334
Prepaid expenses and other current assets   37,277   31,373
Total current assets 277,861 286,452
 
Property and equipment, net 101,267 102,146
Goodwill 16,715 17,167
Intangible assets, net 34,349 34,728
Deferred income taxes 18,292 28,577
Other assets   22,158   21,581
Total assets $ 470,642 $ 490,651
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,040 $ 9,290
Other current liabilities   129,451   112,137
Total current liabilities 138,491 121,427
 
Deferred income taxes 5,499 5,249
Other long-term liabilities 1,365 1,163
 
Stockholders' equity   325,287   362,812
Total liabilities and stockholders' equity $ 470,642 $ 490,651
 
 

USANA Health Sciences, Inc.
Sales by Region
(unaudited)
(in thousands)
                 
Quarter Ended
 
1-Oct-16     30-Sep-17

Change from prior
year

Currency
impact on
sales

 

% change
excluding
currency
impact

   
Asia Pacific
Greater China $ 124,470 49.0 % $ 131,273 50.1 % $ 6,803 5.5 % $ 201 5.3 %
Southeast Asia Pacific 54,351 21.4 % 52,310 20.0 % (2,041 ) (3.8 %) (1,197 ) (1.6 %)
North Asia   11,555 4.5 %   15,708 6.0 %   4,153   35.9 %   (243 ) 38.0 %
Asia Pacific Total 190,376 74.9 % 199,291 76.1 % 8,915 4.7 % (1,239 ) 5.3 %
 
Americas and Europe   63,843 25.1 %   62,474 23.9 %   (1,369 ) (2.1 %)   1,198   (4.0 %)
 
$ 254,219 100.0 % $ 261,765 100.0 % $ 7,546   3.0 % $ (41 ) 3.0 %
 
 
Active Associates by Region(1)
(unaudited)
 
As of
1-Oct-16 30-Sep-17
 
Asia Pacific
Greater China 263,000 57.7 % 281,000 60.7 %
Southeast Asia Pacific 91,000 20.0 % 90,000 19.4 %
North Asia   15,000 3.3 %   23,000 5.0 %
Asia Pacific Total 369,000 81.0 % 394,000 85.1 %
 
Americas and Europe   87,000 19.0 %   69,000 14.9 %
 
  456,000 100.0 %   463,000 100.0 %
 
(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.
 
 
Active Preferred Customers by Region (2)
(unaudited)
 
As of
1-Oct-16 30-Sep-17
 
Asia Pacific
Greater China 5,000 5.3 % 4,000 4.0 %
Southeast Asia Pacific 15,000 16.0 % 16,000 16.0 %
North Asia   10,000 10.6 %   11,000 11.0 %
Asia Pacific Total 30,000 31.9 % 31,000 31.0 %
 
Americas and Europe   64,000 68.1 %   69,000 69.0 %
 
  94,000 100.0 %   100,000 100.0 %
 
(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.

USANA Health Sciences, Inc.
Investors contact:
Patrique Richards, 801-954-7961
Investor Relations
investor.relations@us.usana.com
or
Media contact:
Dan Macuga, 801-954-7280
Public Relations

Source: USANA Health Sciences, Inc.

Released October 24, 2017