For network marketing companies like Usana the annual events where sales associates gather for training and motivation are important milestones. Usana held its annual sales event in China in 2014, the first time the event has been held outside of North America. The development underscores how important the market has become for the company.
Chief financial officer Paul Jones said the discounting program for the company's dietary supplement and nutritional products and the event fed off of each other to fuel growth in the company’s now most important market. In an earnings call with analysts Jones said, “First; during the quarter we offered a new incentive program which increased the compensation we pay for sales generated by new customers. This incentive was offered worldwide for 13 weeks and was more successful than we anticipated. This incentive also cost more than we initially anticipated. Second; the fourth quarter included an extra week of sales which we estimate contributed an additional $16 million to net sales. Third; we held our national sales meeting in China during the quarter which had record attendance and created additional excitement in that market. The excitement surrounding this meeting combined with the incentive we offered, accelerated our sales and customer growth in China during the quarter.”
Usana now derives almost two and an a half times as much revenue from sales in the Asia Pacific region as it does from sales in North America. Net sales in the Asia Pacific region increased by 34.1% to $163.3 million, compared with $121.8 million for the fourth quarter of the prior year. Net sales also increased by 25.4% on a sequential quarter basis. The year-over-year increase was due to 45.1% sales growth in the Greater China region, and these figures were achieved while fighting the headwind of a strengthen US dollar. Meanwhile, sales in North America were essentially flat at $64.5 million and actually declined in the US proper.
For the quarter net sales increased by 22.3% to $227.9 million, compared with $186.3 million in the prior-year period. As noted earlier, the fourth quarter of 2014 was a 14-week quarter as compared to a typical 13-week quarter in the prior year period. The increase in net sales was driven by 31.7% growth in the number of active Associates, largely as a result of strong growth in the Company’s Asia Pacific region. Net sales, on a comparative basis, were negatively impacted by $6.3 million due to a strengthening U.S. dollar. Net earnings for the fourth quarter increased by 5.0% to $21.3 million, compared with $20.3 million during the prior-year period. This increase was driven by higher net sales and improved gross margins, which was partially offset by higher operating expenses relating to the incentive program.
For the year, ended January 3, 2015, net sales increased by 10.1% to $790.5 million, compared with $718.2 million in the prior year. Again, the increase in net sales was largely driven by sales and associate growth in the company’s Asia Pacific region. Net sales for the full-year were negatively impacted by $14.9 million due to a strengthening U.S. dollar. Net earnings for the year decreased by 3.0% to $76.6 million, compared with $79.0 million in the prior year. Usana attributed the profit dip to a change in how associates are compensated that came online in late 2013. This change, which has helped associates earn more money, was widely seen as a result of the criticisms of fellow multilevel marketing company Herbalife’s business model by activist investor Bill Ackerman.