Usana records strong results in China despite internal probe

03-May-2017 - Last updated on 04-May-2017 at 14:49 GMT

In the midst of an internal review of its Chinese operations, Usana Health Sciences reported a 6.2% increase in sales derived almost entirely from the Asia Pacific region.

In its first quarter earnings report, Utah-based Usana reported $255.3 million in sales, which represented an 8.8% increase in constant currency terms. As the company now derives most of its revenue overseas, the strengthening dollar hurts more that it does for some other dietary supplement marketers. Usana is a network marketing organization that focuses exclusively on nutritional products. According to industry publication Direct Selling News, the company is the world’s 20th largest such company, with 2016 fiscal year revenues coming in at slightly more than $1 billion.

Response to anonymous blog post

In an unusual move in an analyst conference call, CEO Kevin Guest felt compelled to respond to an anonymous blog post about the company posted on a financial news billboard. The blog post related to the activities of the company’s Chinese subsidiary BabyCare Ltd. The division has been under a cloud since early February, when the company posted this statement: “ Company is voluntarily conducting an internal investigation of its China operations, BabyCare Ltd. . . . focus[ing] on the compliance with the Foreign Corrupt Practices Act . . . and certain conduct and policies at BabyCare, including BabyCare's expense reimbursement policies."

In the call yesterday that was posted in transcript form on the site seekingalpha.com, Guest had this to say about the current state of affairs with BabyCare:

“The most important clarification is that our China business continues to operate as it has historically and in the ordinary course of business. BabyCare's Associates are buying and selling products as well as enrolling new customers. As we reported yesterday, BabyCare generated 21% constant currency sales growth and 80% total active customer growth year-over-year for the first quarter.

“Additionally, BabyCare is not subject to any new regulatory mandates or decrees from the Chinese government and the Chinese government has not imposed any new restrictions on BabyCare's cash and liquidity or its ability to repatriate cash to the U.S.,” he said.

Asia Pacific drives results

As in past quarters, sales in the Asia Pacific region continue to be the primary growth driver for the company. Usana reported $155 million in sales in the region, and reported these sector-specific sales increases in its first quarter:

Increased 12.6% in Greater China (up 17.4% on a constant currency basis);
Increased 3.2% in Southeast Asia Pacific region (up 4.5% on a constant currency basis); and
Increased 22.7% in North Asia (up 18.0% on a constant currency basis).

Sales in North America and Europe declined, however. Like other MLMs, such as Herbalife, Usana has struggled in these regions of late. Usana reported that net sales in the Americas and Europe region decreased by 5.9% to $60.2 million. The decrease was due to a decline in sales and active customers in the U.S., which was partially offset by sales and active Customer growth in Mexico. A stronger U.S. dollar negatively impacted top-line results in the region by $0.5 million.