USANA Health Sciences, Inc. (NYSE: USNA) announced financial results for its fiscal first quarter ended March 31, 2018.
For the first quarter of 2018, net sales were $292.0 million compared with $255.3 million in the prior-year period, or a 14.4% increase year-over-year.
Favorable currency exchange rates positively impacted net sales by $16.4 million for the quarter. Targeted product promotions offered by the Company during the quarter contributed approximately $11 million to net sales and the Company’s launch of its new skincare line, Celavive, also contributed approximately $9 million in incremental sales for the quarter.
The Company’s total number of active Customers increased 1.9% year-over-year to 585,000.
The Company reported net earnings for the first quarter of $28.9 million, compared with net earnings of $21.4 million reported in the prior-year period. Earnings per diluted share increased to $1.19 per diluted share, an increase of 38.4% on a year-over-year basis.
The increase in net earnings was due primarily to higher net sales, lower relative operating expenses and a lower effective tax rate of 34.2% compared to 36% during the prior year period. Costs related to China and the Company’s internal investigation into its China operations were nominal during the first quarter of 2018 as compared to approximately $2.4 million, after tax, during the prior year period.
“We are off to a solid start to the year as we continue to see strong momentum in most of our regions around the world,”
said Kevin Guest, Chief Executive Officer.
“The highlight of the quarter was our successful launch of the Celavive skincare line. We launched Celavive in every market except China, where we anticipate launching in the fourth quarter.
The initial results from this launch show strong customer demand for this product line around the world. We also offered a targeted product promotion in China that benefited sales for the quarter.”
Weighted average diluted shares outstanding were 24.3 million for the first quarter of 2018, compared with diluted shares of 25.0 million in the prior-year period. The Company repurchased approximately 39,000 shares during the quarter for a total investment of $2.9 million, and ended the quarter with $266.2 million in cash and cash equivalents and no debt. As of March 31, 2018, there was $47.1 million remaining under the current share repurchase authorization.
Net sales in the Asia Pacific region increased by 19.0% to $232.1 million for the first quarter of 2018. Within Asia Pacific, net sales:
Increased 19.8% in Greater China;
Increased 39.6% in North Asia; and
Increased 11.6% in the Southeast Asia Pacific region.
Sales growth in Greater China was primarily driven by a 4.9% increase in active Customers in Mainland China, while sales growth in North Asia resulted from 17.9% active Customer growth in South Korea. Sales growth in Southeast Asia Pacific was driven by 27.3% active Customer growth in Malaysia and 18.2% active Customer growth in Singapore. The total number of active Customers in the Asia Pacific region increased by 5.7% year-over-year.
Net sales in the Americas and Europe region for the first quarter of 2018 decreased by 0.6% to $59.9 million, and active Customers in this region declined 8.6%.
“Each of our Asia Pacific regions reported double-digit sales growth in the first quarter,” continued Mr. Guest. “We’re pleased not only with our continued growth in China, but also with the double-digit sales growth we reported in several other markets, including South Korea, Malaysia, Australia and Singapore. In the Americas and Europe region, net sales decreased on a year-over basis, but increased sequentially.
Active Customer growth continues to be a challenge for us in this region and a major focus of our team. Several of our 2018 growth strategies are intended to help generate customer growth in this region, including the opening of four new European markets in mid-June. Although we are forecasting sales to be relatively modest in these markets initially, we believe that the excitement of entering these new markets will help generate momentum within the overall region and, most importantly, we’re pleased to be able to offer USANA products to more families across the globe.”
The Company is updating its consolidated net sales and earnings per share outlook for 2018 as follows:
Consolidated net sales between $1.13 and $1.17 billion, previously between $1.11 and $1.16 billion; and
Earnings per share between $4.25 and $4.55, previously between $4.05 and $4.45.
The Company’s outlook reflects:
A positive impact from more favorable currency exchange rates of approximately $45 million for the full-year;
An estimated operating margin of between 13% and 14% for the year;
An effective tax rate of approximately 34% for the year; and
An annualized diluted share count of approximately 24.3 million.
Chief Financial Officer Doug Hekking commented, “Our results for the first quarter reflect the strength of USANA’s business. We generated record net sales for the quarter with the Celavive launch and other promotional activity contributing to the topline performance. In addition, topline results were positively impacted by favorable currency exchange rates. Earnings from operations for the quarter benefited from a delay in planned investments that will be implemented during the remainder of 2018. We continue to believe that we are well positioned to leverage the meaningful investments we have made in our business over the last several years and expect to deliver a higher operating margin. We are raising our outlook for 2018 to reflect our first quarter results and the momentum we are seeing in the business.”
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.
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 and Indonesia.
More information on USANA can be found at www.usana.com.
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