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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 ofAs of

ASSETS

29-Dec-1829-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.

Contacts:

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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