USANA Health Sciences Reports Results for Third Quarter 2018; Updates 2018 Outlook; Board Increases Share Repurchase Authorization
October 23, 2018
-
Third quarter net sales of $296.8 million, an increase of 13.4%
year-over-year -
Third quarter diluted earnings per share increased 27.8%
year-over-year to $1.24 - Total Active Customers increased 9.2% year-over-year to 615,000
- Board increases share repurchase authorization
SALT LAKE CITY–(BUSINESS WIRE)–USANA Health Sciences, Inc. (NYSE: USNA) today announced financial
results for its fiscal third quarter ended September 29, 2018.
Financial Performance
For the third quarter of 2018, net sales were $296.8 million, compared
with $261.8 million in the prior-year period, a 13.4% increase
year-over-year. Unfavorable currency exchange rates negatively impacted
net sales by $6.2 million for the quarter as compared to the prior year.
The Company’s skin and personal care product category contributed
approximately $9.5 million in incremental sales for the quarter. The
Company’s total number of active Customers increased 9.2% year-over-year
to 615,000.
Net earnings for the third quarter increased 30.6% to $31.0 million,
compared with net earnings of $23.8 million reported in the prior-year
period. Earnings per diluted share increased to $1.24, an increase of
27.8% on a year-over-year basis. The increase in net earnings was due
primarily to higher net sales and lower relative operating expenses
compared to the prior year period. Weighted average diluted shares
outstanding were 25.0 million for the third quarter of 2018, compared
with diluted shares of 24.6 million in the prior-year period.
“We continue to see strong momentum in most of our regions, which is
reflected in our double-digit third quarter growth,” said Kevin Guest,
Chief Executive Officer. “Our growth strategies and investments into the
business are producing results and our team remains committed to
providing the best overall customer experience at USANA.”
During the quarter, the Company repurchased 177,724 shares of common
stock for an investment of $22.6 million. The Company ended the quarter
with no debt, $239.8 million in cash and cash equivalents, and an
additional $81.7 million invested in short-term securities. As of
September 29, 2018, there was $24.4 million remaining under the current
share repurchase authorization.
Regional Results
Net sales in the Asia Pacific region increased by 20.2% to $239.6
million for the third quarter of 2018. The total number of active
Customers in the Asia Pacific region increased by 13.9% year-over-year.
Within Asia Pacific, net sales increased:
- 22.6% in Greater China;
- 26.7% in North Asia; and
- 12.3% in the Southeast Asia Pacific region.
Sales growth in Greater China was primarily driven by a 16.7% increase
in Active Customers in Mainland China, while sales growth in North Asia
resulted primarily from 15.6% Active Customer growth in South Korea.
Sales growth in Southeast Asia Pacific was driven by 24.0% Active
Customer growth in Malaysia, and 8.6% growth in the Philippines.
Net sales in the Americas and Europe region for the third quarter of
2018 decreased by 8.5% to $57.2 million, and active Customers in this
region declined 5.1%. The Company’s new European markets, which opened
during the second quarter of 2018, contributed positively to the
region’s third quarter performance.
“During the quarter, we hosted thousands of Associates here in Salt Lake
City for our annual International Convention,” continued Mr. Guest. “In
China, we launched our new skincare line, Celavive, which accounted for
$4.1 million in incremental sales of the $28.5 million year-over-year
growth in this market. We are now turning our attention to our China
national sales meeting to be held in Macau in late November where, for
the first time, we will offer products for sale at the event.”
Tariffs and Trade Policies
While the Company continues to evaluate the evolving tariffs and trade
policies between the United States and other countries, the Company does
not currently expect these tariffs and trade policies, as they currently
exist, to have a material impact on its future operating results.
Additional changes in tariffs and trade policies may have a negative
impact on currency exchange rates and economic conditions generally,
which could negatively affect the Company’s results of operations.
Outlook
Chief Financial Officer, Doug Hekking, commented, “Our business
generated strong third quarter net sales, despite pressure from a
strengthening U.S. dollar on both a sequential quarter and
year-over-year basis. Although favorable currency exchange rates
benefited our operating results in the first half of 2018, the U.S.
dollar strengthened more than expected in the third quarter and we
anticipate a similar pattern in the fourth quarter. Consequently, we
have again reduced the estimated benefit to net sales from currency for
the full year. This considered, and with only one quarter remaining in
fiscal 2018, we have tightened our revenue outlook. Our operating
results continue to be strong and, accordingly, we have tightened our
range for diluted earnings per share and increased the top-end of our
outlook.”
The Company is updating its outlook for 2018 as follows:
-
Consolidated net sales between $1.185 and $1.20 billion, previously
between $1.17 and $1.20 billion; and -
Earnings per share between $5.00 and $5.15, previously between $4.75
and $5.05.
The Company’s full-year outlook reflects:
-
A year-over-year benefit to net sales of approximately $16 million
from favorable currency exchange rates, which was previously estimated
at $29 million; - An estimated operating margin between 15.7% and 15.9%;
- An effective tax rate of approximately 34%; and
- An annualized diluted share count of approximately 24.8 million.
Increased Share Repurchase Authorization
The Board of Directors has authorized up to $150 million in funding for
share repurchases by the Company of its outstanding common stock. This
authorization is inclusive of the $24.4 million that was remaining under
the prior authorization as of the end of the second quarter. Repurchases
may be made from time to time, in the open market, through block trades
or otherwise. The number of shares to be purchased and the timing of
purchases will be based on market conditions, the level of cash
balances, general business opportunities, and other factors. Additional
share repurchases would represent upside to the revised EPS outlook the
Company issued today.
China Preferred Customers
The Company has had a long-standing Preferred Customer program in China
but, due to certain attributes of that program, had historically
reported China Preferred Customers as Associates. The Company began
reporting China Preferred Customers as Preferred Customers with its
results for the fourth quarter of 2017.
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.
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 24, 2018 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 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.
| USANA Health Sciences, Inc. | |||||||||||||
| Consolidated Statements of Operations | |||||||||||||
| (In thousands, except per share data) | |||||||||||||
| (Unaudited) | |||||||||||||
| Quarter Ended | Nine Months Ended | ||||||||||||
| 30-Sep-17 | 29-Sep-18 | 30-Sep-17 | 29-Sep-18 | ||||||||||
| Net sales | $ | 261,765 | $ | 296,767 | $ | 774,151 | $ | 890,225 | |||||
| Cost of sales | 47,135 | 51,877 | 133,691 | 151,243 | |||||||||
| Gross profit | 214,630 | 244,890 | 640,460 | 738,982 | |||||||||
| Operating expenses | |||||||||||||
| Associate incentives | 116,010 | 130,264 | 350,195 | 392,416 | |||||||||
| Selling, general and administrative | 67,263 | 69,112 | 193,653 | 206,781 | |||||||||
| Earnings from operations | 31,357 | 45,514 | 96,612 | 139,785 | |||||||||
| Other income (expense) | 690 | 1,012 | 1,632 | 2,262 | |||||||||
| Earnings before income taxes | 32,047 | 46,526 | 98,244 | 142,047 | |||||||||
| Income taxes | 8,278 | 15,486 | 29,858 | 48,154 | |||||||||
| NET EARNINGS | $ | 23,769 | $ | 31,040 | $ | 68,386 | $ | 93,893 | |||||
| Earnings per share – diluted | $ | 0.97 | $ | 1.24 | $ | 2.75 | $ | 3.80 | |||||
| Weighted average shares outstanding – diluted | 24,588 | 25,001 | 24,871 | 24,705 | |||||||||
| USANA Health Sciences, Inc. | |||||||
| Consolidated Balance Sheets | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| As of | As of | ||||||
| ASSETS | 30-Dec-17 | 29-Sep-18 | |||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 247,131 | $ | 239,751 | |||
| Securities held-to-maturity, net | – | 81,673 | |||||
| Inventories | 62,918 | 81,110 | |||||
| Prepaid expenses and other current assets | 30,110 | 32,228 | |||||
| Total current assets | 340,159 | 434,762 | |||||
| Property and equipment, net | 102,847 | 93,555 | |||||
| Goodwill | 17,417 | 16,829 | |||||
| Intangible assets, net | 35,154 | 32,217 | |||||
| Deferred income taxes | 2,859 | 3,771 | |||||
| Other assets | 20,833 | 18,247 | |||||
| Total assets | $ | 519,269 | $ | 599,381 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 11,787 | $ | 14,467 | |||
| Other current liabilities | 129,396 | 138,419 | |||||
| Total current liabilities | 141,183 | 152,886 | |||||
| Deferred income taxes | 13,730 | 9,848 | |||||
| Other long-term liabilities | 1,146 | 1,058 | |||||
| Stockholders’ equity | 363,210 | 435,589 | |||||
| Total liabilities and stockholders’ equity | $ | 519,269 | $ | 599,381 | |||
|
|
USANA Health Sciences, Inc. |
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|
|
Sales by Region |
|||||||||||||||
| (unaudited) | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Quarter Ended | ||||||||||||||||
| 30-Sep-17 | 29-Sep-18 | Change from prior year | Currency impact on sales | % change excluding currency impact | ||||||||||||
| Asia Pacific | ||||||||||||||||
| Greater China | $ 131,273 | 50.1% | $ 160,932 | 54.2% | $ 29,659 | 22.6% | $ (3,221) | 25.0% | ||||||||
| Southeast Asia Pacific | 52,310 | 20.0% | 58,770 | 19.8% | 6,460 | 12.3% | (1,942) | 16.1% | ||||||||
| North Asia | 15,708 | 6.0% | 19,899 | 6.7% | 4,191 | 26.7% | 182 | 25.5% | ||||||||
| Asia Pacific Total | 199,291 | 76.1% | 239,601 | 80.7% | 40,310 | 20.2% | (4,981) | 22.7% | ||||||||
| Americas and Europe | 62,474 | 23.9% | 57,166 | 19.3% | (5,308) | (8.5%) | (1,236) | (6.5%) | ||||||||
| $ 261,765 | 100.0% | $ 296,767 | 100.0% | $ 35,002 | 13.4% | $ (6,217) | 15.7% | |||||||||
| Active Associates by Region(1) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| As of | ||||||||||||||||
| 30-Sep-17 | 29-Sep-18 | |||||||||||||||
| Asia Pacific | ||||||||||||||||
| Greater China | 104,000 | 36.4% | 111,000 | 36.8% | ||||||||||||
| Southeast Asia Pacific | 90,000 | 31.5% | 95,000 | 31.4% | ||||||||||||
| North Asia | 23,000 | 8.0% | 28,000 | 9.3% | ||||||||||||
| Asia Pacific Total | 217,000 | 75.9% | 234,000 | 77.5% | ||||||||||||
| Americas and Europe | 69,000 | 24.1% | 68,000 | 22.5% | ||||||||||||
| 286,000 | 100.0% | 302,000 | 100.0% | |||||||||||||
| Active Preferred Customers by Region (2) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| As of | ||||||||||||||||
| 30-Sep-17 | 29-Sep-18 | |||||||||||||||
| Asia Pacific | ||||||||||||||||
| Greater China | 181,000 | 65.3% | 219,000 | 70.0% | ||||||||||||
| Southeast Asia Pacific | 16,000 | 5.8% | 20,000 | 6.4% | ||||||||||||
| North Asia | 11,000 | 4.0% | 11,000 | 3.5% | ||||||||||||
| Asia Pacific Total | 208,000 | 75.1% | 250,000 | 79.9% | ||||||||||||
| Americas and Europe | 69,000 | 24.9% | 63,000 | 20.1% | ||||||||||||
| 277,000 | 100.0% | 313,000 | 100.0% | |||||||||||||
|
(1) Associates are independent distributors of our products who |
|
(2) Preferred Customers purchase our products strictly for their |
Contacts
USANA Health Sciences, Inc.
Investors contact:
Patrique
Richards
Investor Relations
(801) 954-7961
investor.relations@us.usana.com
or
Media
contact:
Dan Macuga
Public Relations
(801) 954-7280