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USANA sales fall amid pandemic disruptions

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USANA Health Sciences Inc. (NYSE: USNA), a direct selling company that produces nutritional supplements, functional foods and personal care products, posted a 21% year-over-year decrease in sales in its most recent quarter.

Disruptions from Covid-19, including in mainland China, were partly to blame for USANA’s performance.

In its fiscal second quarter ending July 2, the Salt Lake City-based company reported net sales of $264 million, versus $337 million in the same three-month period the prior year. Diluted EPS (earnings per share) was down to $1.00 from $1.87 in the second quarter of 2021.

The company reiterated its 2022 forecast of net sales ($1.015 billion to $1.065 billion) and diluted EPS ($3.85 to $4.45).

USANA Chairman and CEO Kevin Guest said Covid-19-related disruptions in several important markets resulted in lower-than-expected participation in active customer counts, sales programs and financial performance.

“Although many of these disruptions were outside of our control, and while we faced a tough year-over year comparable due to the timing of a successful sales program in 2021, our second quarter results were not up to our standards,” he said in a July 26 press release announcing USANA’s second-quarter results.

In China, USANA faced restrictions and lockdowns in many areas that made it difficult to hold small in-person meetings, according to commentary from management.

“Consequently, the response to promotional activity in mainland China was meaningfully below our internal expectations,” Guest and USANA Chief Financial Officer Douglas Hekking said. “We currently have limited visibility in this key market as Covid-related disruptions continue to have a pronounced impact on our business.”

They added, “Despite the current difficulties, we remain committed to making strategic investments and are optimistic in the long-term growth prospects of this key market.”

Guest said USANA remains devoted to its business strategy and believes it will provide continuous, long-term growth in several areas, including customer counts, EPS and net sales.

The company’s strategy includes improving the online shopping experience for its customers, strengthening training and onboarding for its associates and exploring further promotions and incentives, he said. The strategy also includes introducing “experience centers in mainland China to promote growth in this key market,” as well as “pursuing accretive business development opportunities,” according to Guest.

USANA’s results “reflects macro-related weaknesses in key markets”—namely Southeast Asia and China—as well as “softening customer trends” and foreign currency “headwinds,” the financial services firm Jefferies said in equity research published July 26.

The company has been vulnerable to economic forces facing the broader economy, including inflation and supply chain challenges. To alleviate potential supply chain challenges, USANA made the decision to increase its inventory levels over the last few years, management shared.

USANA “continued to experience inflationary pressure across many areas of our business that have negatively impacted our operating margin, and this is expected to continue over the next several quarters," Guest and Hekking said. “Consequently, efforts are underway to align spending with current and expected sales performance yet will allow for prioritized investments in areas of strategic importance.”

On a brighter note, the company plans to celebrate its 30th anniversary in a few weeks in Salt Lake City during a hybrid event expected to host roughly 4,000 associates in person.

“We have select events and modest promotional activity planned in conjunction with this celebration to help generate excitement and momentum in the business,” management said.

In a separate announcement this week, USANA revealed retired accountant Scott Nixon has rejoined the company’s board of directors. In 2015, Nixon retired from PricewaterhouseCoopers LLP, where he was a partner and spent more than 31 years in various roles.

USANA said its board is now comprised of eight members, including seven independent directors.

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