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Usana accepts lower earnings to revise compensation structure for distributors

By Hank Schultz , 24-Oct-2013
Last updated on 31-Oct-2014 at 15:11 GMT2014-10-31T15:11:33Z

The company’s entry into Colombia was hailed as the smoothest one the company has had
The company’s entry into Colombia was hailed as the smoothest one the company has had

Usana Health Sciences has accepted lower sales and revenues in order to accomplish some needed restructuring steps, the company said yesterday.

Chief among the restructuring steps was a move to prevent distributors from buying products in one market, where prices might be lower because of strategic considerations or currency fluctuations, and selling them in another.  This was of particular concern in the interaction between the Hong Kong and mainland China markets.

The company also more recently revised its pricing structure, and moved to one unified price for customers, from which some discounts are offered. In addition, the company revised its compensation model for its distributors.  This second change seems to be aimed at deflecting the kind of crticism that network marketing giant Herbalife has endured in the mainstream press and from investors.

“We also simplified our compensation plan for all associates by making it easier to understand, easier to explain to others and easier to earn compensation. This change is especially important for our new and up-and-coming associates as the investor is trying to learn about our products and our business,” said CEO David A. Wentz during a conference call with investors.

Simplifying compensation plan

One major criticism of network marketing in general is that many distributors earn very little, and moving up in the ranks of the organization to earn higher commission checks can be confusing and difficult. This leads to a charge, hotly disputed by Usana, Herbalife and other network marketing companies, that many distributors are being taken advantage of.

“Our objective was to simplify this process and our initial results have been encouraging. The number of weekly commission checks earned by associates has increased by about 40%. The weekly number of first-time check earners has also increased nearly 30%,” Wentz said.

Taken together, the moves put a slight damper on an otherwise strong quarter, Wentz said.

“While net sales for the quarter increased 5.2% year-over-year to nearly $174 million, we estimate that the initiatives I just mentioned reduced sales by nearly $11 million for the quarter. The total reduction was comprised of an estimated $5.9 million attributable to the worldwide policy changes and $4.6 million attributable to the pricing discounts,” he said.

Helping to boost quarterly results was the company’s entry into Colombia.  The launch was the smoothest one the company has had, Wentz said.

“I think we've rated it internally as our smoothest opening ever possibly in USANA. We keep learning and I think we've rated it one of our smoothest with the fewest technical glitches,” he said.

Earnings details

Usana  reported $1.16 earnings per share for the quarter, beating the analysts’ consensus estimate of $1.14 by $0.02. Revenue came in at  $173.7 million for the quarter, compared to the consensus estimate of $172.4 million. That was a dip from the same quarter last year, when the company notched $1.18 earnings per share. USANA Health Sciences’s revenue was up 5.1% compared to the same quarter last year.

The company also revised its guidance for fiscaly year 2013, pegging the earnings per share in the $5.35 to $5.40 range, compared to analysts’ expectations of $5.40.

Usansa, based in Salt Lake City, UT, offers a wide range of meal replacement products, supplements and personal care products.  Now, with the addition of Colombia, the company operates in 19 countries worldwide.