Traders pound USANA's stock over slowdown in China sales

By Hank Schultz contact

- Last updated on GMT

Image: iStockPhoto / Lemiuex
Image: iStockPhoto / Lemiuex

Related tags: Net sales, Revenue

USANA Health Sciences reported $232.6 million in net sales in its fourth quarter, a 2.1% year-over-year increase. That amounted to $1.83 in earnings per share, but these figures disappointed analysts, and the company’s share price tumbled as a result.

For a number of years USANA, which is based in Salt Lake City, has made the lion’s share of its sales in mainland China, so conditions in that market are of outsized importance for the company. The Chinese economy is still growing, but not at the breakneck pace of previous years, and the Chinese government undertook some adjustments of its currency during 2015 that sent a number of investors running for cover.

USANA missed analysts’ projections on top line revenue by $6.3 million and earnings per share by 18 cents. This was enough to send the stock into a nosedive, with the share price plunging by more than 17% before rebounding slightly yesterday to close above $98 per share.

Relative weakness in China sales were primarily to blame, To some degree it could be said that USANA has become a victim of its own success; as one analyst in the company’s earnings call noted USANA has routinely notched close to 40% sales gains in China year-over-year in past quarters. In the fourth quarter of fiscal 2015, USANA notched at 10.9% increase in net sales, which came in at $172.1 million for the Asia Pacific region. 

IT bottleneck

CEO Dave Wentz told analysts during the call that the strong dollar impacted earnings in China. But the biggest limiting factor was a decision by the company to back off the breakneck pace of growth in the country so that it could catch up on infrastructure projects to adequately service that expanded customer base. USANA, which sells primarily dietary supplements through its network marketing model but is launching a line of functional foods, is completing a wholly owned manufacturing facility in the country, and has instituted some IT projects to better support the business. But demand for IT help is high across the board, and the company struggled to find enough qualified people, Wentz said.

“One of the biggest areas that we need to invest in this year is IT. We wish more of that investment had gone in last year, but it's just a very tough market, finding people in this market is extremely difficult, and so we weren't able to take on as many projects last year as we had hoped, but we are trying to put a lot more into 2016, because technology is just so important to our business that we need to keep up with it,”​ Wentz said.  His comments were excerpted from a transcript of the call posted on the site seekingalpha.com​.

2015 Results

USANA is now nearing the billion-dollar mark in top line revenue. For the year ended January 2, 2016, net sales increased by 16.2% to $918.5 million, compared with $790.5 million in the prior year. This increase in net sales was driven largely by sales and Associate growth in the Company’s Asia Pacific region. Net sales for the full-year 2015 were negatively impacted by $53.6 million due to a strengthening U.S. dollar and an extra week of sales in the prior year. Excluding the impact of currency and the extra week of sales in the prior year, net sales would have increased by 25.6% for the year. For the coming year the company is projecting $1.02 to $1.05 billion. The company anticipates that a strong dollar will continue to impact results in 2016.

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