The company made its remarks as part of the release of its first quarter 2020 earnings statement. As expected, the Salt Lake City, UT-based company, which now derives more than 80% of its overall revenues from sales in Asia, took a hit from the coronavirus-related shutdowns in China and elsewhere in Asia. But the company’s stock price soared on news that managment believes the impact of the crisis on revenue for the entire year will be minimal.
Virus crisis strikes at heart of direct selling
Observers of the direct selling sector have been waiting for signs as to how the pandemic crisis will affect this business model. The social distancing strictures put into place in many jurisidictions would seem to strike directly at the heart of these companies’ business model which is based on personal interactions and face-to-face selling. But Usana, which sells a variety of dietary supplements, foods and personal care items, has been one of the leaders within the multilevel marketing space in putting online selling platforms in place that its distributors can use to augment (and in the current climate, replace) face-to-face interactions.
More than a year ago China initiated a thoroughgoing regulatory review of the entire direct selling sector (not just those companies that sell nutritional products). One of the things that has come out of that is a renewed emphasis on companies having to have physical offices open in the cities in which they are doing business, and to conduct meetings there, presumably as a way for officials to more easily monitor how these transactions are being performed and what kind of promises are being made to new distributors.
Smaller meetings hurt results
Even thoiught the Chinese economy is opening back up, some social distancing measures will remain in place. Not being able to conduct sales meetings on the same scale before has thrown a wrench into the works, admitted Usana president Jim Brown.
“For us, the challenge is what’s going to be the playing field in China over the next few weeks and few months because even though we have offices opened, there are still restrictions on those where a limited amount of people can come into those offices. We have smaller meetings. So the smaller meetings really are the challenge for us to see that momentum pick up. Luckily, what we have done over the past couple of years from an IT standpoint and having a lot of systems in place online really has prepared us for this where its forced us to go online, but we were ahead of that curve just because we were working on our IT systems and getting them up and running,” Brown said. He made his comments during a recent first quarter earnings call with analysts that was posted in transcript form on the site seekingalpha.com.
High demand compesates for sales roadblocks
But compensating for the smaller meetings, and the fact that the company has had to do away with its big sales conferences in Asia and elsewhere this year, is the high demand for many kinds of dietary supplements, especially those that have some sort of immunity tie in. Brown said Usana has sucessfully managed the inventory challenge that rapid spike in demand implies.
“Generally, we have ample inventory in all of our markets and our operations teams, has quickly addressed any temporary backlog orders,” he said.
Brown also said Usana is still vigorously pursuing new product development.
Usana repored a small drop in revenue in its first quarter. It brought in $266 million in overall revenue, a 2.2% drop over the year previously. In China, sales dropped by 8.8% to $134 million. But the comany forecasted that full year earnings will be in the $1 billion to $1.08 billion range, only a small drop from the $1.03 billion to $1.13 billion it had forcasted previously. Based on that relatively good news, the company’s stock price rose from about $67 a share before the earnings release to almost $85 today.