USANA's sales fall; future outlook dimmed by coronavirus crisis

07-Feb-2020 - Last updated on 07-Feb-2020 at 16:51 GMT

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USANA Health Sciences net sales dropped 7% in fiscal 2019 according to its annual report. The future outlook is clouded even further by the expected continuing market dislocations caused by the coronavirus crisis in China.

USANA is a network marketing company based in Salt Lake City, UT. While the company sells its dietary supplements and personal care products in more than 24 countries, the company has long made the lion’s share of its revenue in China.

Crisis is expanding

The coronavirus crisis is expanding rapidly. Since first coming to public awareness late last year in the city of Wuhan in central China, the virus has spread worldwide. In early January, Chinese health authorities confirmed that the mounting cases of severe respiratory illness in the city were a result of a novel virus, dubbed 2019-nCoV by the World Health Organization.

At time of publication, the virus has infected more than 28,000 people in 27 countries and has killed at least 565, almost all of them in China. The government has slapped a quarantine on the Wuhan region, and a number of airlines have restricted flights in and out of the country or have stopped flights altogether.

In an earnings statement issued earlier this week, USANA said that top line revenue for the coming year could range from $1.03 billion (a slight drop) to $1.16 billion (a slight gain). The company recorded $1.06 billion in net sales in 2019 and $1.19 billion in fiscal 2018.

The uncertainty in China is playing a big role in this guarded outlook. But the company’s fortunes in China had already been dimmed by the 100 day review of network market companies the country conducted in early 2019. USANA saw sales fall by more than 20% when accounting for currency fluctuations. Sales in North Asia (South Korea, primarily) were up about 42%, however.

CEO Christopher Guest said in an earnings call with analysts that the first quarter is often a challenging one for the company from a sales standpoint because of the extended Chinese New Year celebrations. This year is expected to be more challenging than most.

Situation had been improving before virus hit

Guest said the effects of the 100-day review seemed to have washed through the system by the fourth quarter. But future prospects are uncertain, because the company, like other MLMs (multilevel marketing companies) relies on large scale meetings for distributors to generate sales momentum. Last year’s was held in Macau. It’s hard to say when such a meeting bringing in distributors from all over the country will again be possible. In the last similar viral outbreak in China, the SARS epidemic in 2003, the number of reported infections continued to climb for several months after the disease was first identified.

“We believe that consumer sentiment improved in China during the second half of 2019 and particularly in the fourth quarter. That said, we are obviously monitoring the coronavirus situation in China on a day-to-day basis with rest of the world, as we try to gain more visibility into the potential impact this dynamic could have on our employees, customers and overall business as we come out of the extended Chinese New Year holiday,” Guest told the analysts. A transcript of the call was posted on the site seekingapha.com.

Guest said the company’s new Celavive skin and personal care product line was performing well and it was planning to launch a new line of ingestible products.

“Although, it's a bit early to speak about it, I'd also like to mention that we are planning to roll out a whole new product category in early 2021. This new product line will offer our customers a more holistic approach to their health and wellbeing, while also leveraging investments we have and will make in both technology and our new manufacturing facility next door,” he said.