In a conference call held on October 21, 2020, USANA reported its third quarter earnings for 2020 and expectations going forward.
CEO and Chairman of the Board, Kevin Guest, highlighted USANA stock’s record earnings per share and nearly $300 million in sales. Guest attributed the strong performance to strong consumer demand and incentive programs.
Key metrics included:
- A 14.5% year-over-year increase in net sales to $298.5 million, due in large part to a surge in product demand and successful incentive programs.
- A 32.1% year-over-year increase in diluted EPS to a record $1.44.
- A 16.5% year-over-year increase in active customers to a record 650,000.
Guest expressed hope for USANA’s continued momentum through Q4 2020 and 2021.
Predictions for Growth in China
Guest attributed the less than stellar Q3 numbers in China to the particularly harsh impact of COVID-19 in the region. Net sales and active customers increased year-over-year by 3.9% and 4.0% respectively. These figures paled in comparison to a 24.3% and 20.0% growth in North Asia, and even more so to a 40.5% and 41.1% growth in Southeast Asia Pacific.
Guest stated that the 100-day review period for nutritional supplements dampened USANA’s momentum, which they are slowly regaining. Roughly five percent of the company’s sales in China are coming from Hong Kong. He also spotlighted USANA’s strong growth outside of China and expressed confidence in future prospects, asserting that China remains a strong market with high potential.
He also asserted that USANA is being proactive and engaged in China. He cited that consumers are saving more and being more cautious about spending on new products. Sales efforts were met with enthusiasm, and with time will come progress.
Overall, the company’s Q3 performance in the Asia Pacific Region saw a year-over-year increase in net sales of 15.7% to $241.3 million and an increase in active customers of 15.4% to 502,000. Comparatively, Q3 figures in the Americas and Europe clocked in at a 10.0% growth in net sales to $57.2 million and a 20.3% growth in active customers to 148,000.
New Incentives and Promotions
Guest stated that 2020’s sales mix saw a lower gross margin due to the higher cost of goods. However, implementing a more attractive incentive program for associates ultimately brought Q3 earnings into the green. USANA’s CFO, Doug Hekking, also reported positive feedback from the company’s sales force globally, particularly for new trial incentives being tested.
Benefits from promotions in Q3 were in the $30 to $35 million range. USANA’s first priority is to grow the business organically. The company is ramping up efforts to pursue new opportunities in sales efforts, regions, and new products and technologies.
Guest reported an increase in demand for products designed to support immune function, one of the key factors that drove USANA’s strong Q3 performance. The company plans to increase the rate of product rollouts in Q4, which would include a new collagen product. Cross marketing efforts will be adapted to each individual market based on what one market has and another doesn’t.
Despite the company’s record Q3 earnings, nearly $300 million cash balance and zero debt, it held back on share repurchasing. USANA did not repurchase any shares of common stock and closed out the quarter with roughly $73 million remaining under their share repurchase authorization.
Guest commented that the board and management are looking for the right opportunity to repurchase shares based on specific criteria.
Restrictions on in-person meetings have forced associates to go virtual. Zoom was and continues to be the company’s platform of choice due to being user-friendly and mainstream, offering great accessibility to users across the globe. USANA’s contract with Zoom allows users to log in to online events at no additional cost.
While virtual meetings are often viewed as less intimate and less personal, they also provide certain advantages. Hekking observed an increase in participation by customers and distributors not affiliated with USANA. Many guests from China sat in on the company’s Americas and Europe event, presenting an opportunity to grow customer base. The China National Sales Meeting likewise brought in a larger audience than past, in-person meetings.
Guest expects meetings and conventions to remain virtual at least until mid 2021 or when the environment allows for in-person events.
Going forward, Hekking stated that the company will raise its net sales and EPS guidance. The company is expected to scale back its incentive offerings for Q4. In spite of this, Hekking believes that the business will continue to produce impressive results and carry momentum into 2021. USANA will focus on balancing financial flexibility with investing in long-term growth opportunities.
Plans for 2021
USANA’s Active Nutrition line of supplements is expected to roll out across the globe in early 2021. The products will be an addition to USANA’s ever-growing catalog of vitamins and nutritional supplements, giving customers more options when it comes to their health. Due to regulations and timeframes for registering products, each market will see a different release date. The company is partnering with high-performance athletes to test and market products, a strategy that Guest believes provides them with a competitive edge.
Guest stated that Active Nutrition will be targeted primarily to women between the ages of 25 and 35. It will be part of USANA’s holistic approach to health and nutrition.
USANA develops and manufactures a wide array of nutritional supplements available for purchase in 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.
The company’s supplements are designed to support and maintain health, ranging from heart and immune health to healthy liver function. For example, Vitamin C has been proven to play an active role in supporting immune function. While supplements are not intended to replace a healthy diet, they support a healthy lifestyle by patching up nutritional deficiencies and having a positive effect on how people feel.