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Asia-Pacific sales growth drives USANA's strong results

By Hank Schultz , 07-Feb-2014

USANA Health Sciences, a network marketing company based on sports nutrition, weight management and general health nutritional products, posted an impressive 10.6% gain in net sales for its fourth quarter of 2013. Net sales hit $186.3 million for the quarter and earnings per share were up 11%.

The financial markets reacted strongly to the news, sending USANA’s share price up 14% immediately after the announcement.  The company’s share price rose further in early trading on Friday to top $65.  Overall, the company’s share price is still recovering from shocks delivered  to the entire network marketing sector in the form of public debates over Herbalife’s business model and a high-profile investigation of NuSkin in China, which signaled a possible crackdown on foreign operators of network marketing organizations in that country. USANA’s 52-week high share price was $92.

Initiative paid off quickly

The strong sales figures were welcome but somewhat unexpected, said CEO David A Wentz.  The sales figures came as a result of several initiatives the company instituted last year, including an amended compensation model to both improve the initial retention of distributors and in part to address outside concerns about the company’s business model, i.e., wheterh it could be looked at as a pyramid scheme.  Under the new compensation plan, distributors see their first commission checks form the company sooner that they did previously, and are compensated at a higher level. On the pricing side, the company lowered the price of some of its products to encourage customers to sign up for autoship orders.  Both initiatives paid off much more rapidly than the company first projected, Wentz said.

“When we last spoke with you in late October, we indicated that while these initiatives would pressure our operating results in the short term, we believe they would improve USANA's long-term growth potential. The initiatives did generate modest pressure on our operating margins, but they have been adopted by our customers more quickly than we anticipated. This accelerated adoption rate is what led to a better-than-expected fourth quarter,” Wentz said in a conference call with analysts that was transcribed by the investor service Seeking Alpha.

Importance of Asia

The company will also continue to emphasize growth in the Asia Pacific markets, Wentz said.  The company recently announced a plan for a $40 million manufacturing facility in Beijing that will become operational in the latter half of 2015.

The Asia Pacific market now accounts for  the lion’s share of the company’s revenues.  Sales in the region hit $121.8 million in the fourth quarter, a 13% year-over-year gain, said interim CFO Paul Jones.  Leading that charge was mainland China, where sales grew by 15%.  Sales declined in Hong Kong, primarily as a result of internal policy changes to prevent cross-border sales into the rest of China. Sales grew by 6% in Europe and “modestly” in North America, Jones said.

The company has long pursued a “personalized” model that enables customers to select products using a questionnaire that gives them choices geared to their health concerns and lifestyle. Changes made lasted year to the customer interface simplified this process, Wentz said.  That, along with the lower prices, meant that whereas 30% of customers were ordering personalized packs via autoship orders, that portion of the business has now grown to 42%, he said.

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