Amidst the uncertainty we have all been plunged into in light of Covid-19, nutritional supplements and health products manufacturer USANA Health Sciences was able to instill some much-needed confidence by reporting better-than-expected numbers in the third quarter. With the release of their earnings report after the markets closed on October 20th and the earnings call the next morning, share prices for the global direct selling company rose as they reported a net sales increase of 14.5% year-over-year for the third quarter, attributing this bottom-line growth to strong demand for the product as well as successful incentive programs.
Founded in 1992, USANA Health Sciences is the brainchild of the world-renowned immunologist and microbiologist Dr. Myron Wentz. After spending two decades growing an international reputation as a pioneer in the development of human cell culture technology and infectious disease diagnosis, Wentz decided to sell his controlling interest in his diagnostic testing company Gull Laboratories in order to work toward preventing degenerative diseases through proper nutrition instead. The company has a long history of strategic efforts to remain transparent within their industry, having filed for an IPO and became a publicly traded company on the NASDAQ National Market System when the company was only four years old, and consistently works to instill confidence through trust with their investors. USANA has been trading on the New York Stock Exchange since 2011 and in 2019 moved into the S&P SmallCap 600 index, further showing their investability and transparency.
In addition to the double-digit sales growth, USANA also experienced record earnings per share and customer counts. Diluted EPS for the company increased 32.1% year-over-year, and active customers increased 16.5% year-over-year with large growth in both the Asia Pacific region as well as the Americas and Europe region. USANA credits these results to a high demand for their product in addition to the success of their incentive programs offered during the quarter. One of the primary drivers for their year-over-year customer growth was a global incentive program for all regions designed to reward their independent distributors for sales to new customers. Additionally, one market-specific incentive program in particular contributed to sales and customer growth for the quarter, in which they replicated a program that had previously been successful in South Korea in their Philippines market. Earnings per share for the quarter were also higher than previously anticipated, due to improved operating margins as a result of improved operating margins due to lower event and travel costs as well as increased net sales.
As a result of the strong performance in the third quarter, USANA raised their guidance for both net sales and earnings per share. The previous range had consolidated net sales at $1.050 – $1.100 billion and diluted earnings per share at $4.70 – $5.25, while the revised range has consolidated net sales at $1.090 – $1.115 billion and diluted earnings per share at $5.15 – $5.45. These updates are indicative of the confidence USANA has in delivering solid results for the final quarter of the year, in spite of the unprecedented landscape. Below, we go further in-depth as to the results of the third quarter with some of the key takeaways from the earnings report and call.
Most operations will continue to be virtual for the foreseeable future
The coronavirus pandemic has forced all businesses to think on their feet and get creative with solutions to problems across the board, and USANA was no exception. Their annual conventions are vital to maintaining the culture and camaraderie of both the management team and Associate sales force, and they were able to successfully execute a virtual strategy for both their Americas and Europe Convention and China National Sales Meeting. USANA saw a higher participation rate of non-USANA customers and distributors interested in learning more about the company during both events, and the Americas and Europe event saw a large number of people from China attend. Uninhibited by the necessity to travel that an in-person event brings, USANA was able to reach larger audiences of people who would not normally be exposed to the information, and stated that they intend to leverage and use this information for future events. With a clear path still not evident to the end of Covid-19 restrictions, for the foreseeable future USANA intends to continue to operate their virtual sales and events strategy for Associates and their work-from-home plan for employees.
Associates are adapting while utilizing the technology that serves their market best
According to chief financial officer Doug Hekking, morale for the USANA sales force remains up even through these irregular times. They have received positive feedback on the new incentive programs they have been testing, and generating more excitement through their virtual conventions. Rather than mandate a certain virtual platform for their Associates to use, USANA has given them the freedom to decide for themselves which platform works best for their specific market. By leveraging existing platforms such as Zoom or Webex, USANA has been able to take advantage of the familiarity and ease of use for the technology without having to heavily invest in creating something new, thus helping their bottom line. Additionally, the use of Zoom for the virtual events held during the third quarter ensured that anybody who wanted to attend would be able to do so in a user-friendly way.
The Greater China market is seeing a small momentum shift after a rough two years
Although all markets were up on a year-over year basis, the lowest increase in local currency sales came from the Greater China region at 3.2%. In addition to the chaos brought by the onset of Covid-19 for all markets, they are still feeling the aftershock effects of the Chinese government’s “100-day review” of their health market that disrupted consumer confidence. USANA was not implicated or guilty in the review, but the negative press toward their industry that occurred in 2019 is still having lasting effects on the market. Additionally, challenging market conditions in Hong Kong have negatively impacted their business with local currency sales declining by 14.7%. With around 5% of the Greater China region sales coming from the city, this also had an effect on the year-over-year growth. However, the company is remaining proactive and engaged and as a result has seen a small recovery and momentum, and say they still have the same confidence they’ve had historically in the region.
Standout product trends and rollouts
As may have been expected with the global pandemic, relative to past years the popularity of products designed to support immune functions has increased considerably since the first quarter of 2020, and that trend continued into the third quarter. In the fourth quarter, USANA intends to launch a collagen product that they believe will be well received, and early in 2021 they will begin a global rollout of their new Active Nutrition line. The target demographic for the product line will be females in the age range of mid-twenties to mid-thirties, and they will all fall under the umbrella of USANA’s underlying vision of health and health-based supplementation. The company also anticipates that utilizing the athletes within their Athlete Guarantee Program as part of the marketing strategy will give them a competitive edge for the release.
Overall, USANA has been able to maintain steady growth and better-than-expected returns during trying times that have tested the resilience of businesses across the world. Their commitment to consistent and reliable growth has been the strong backbone that has seen the company thrive over the course of three decades, and in spite of the global pandemic that has rocked the world, USANA appears poised to maintain their momentum of year-over-year growth into 2021.
