USANA Health Sciences, Inc. (NYSE: USNA) today reported
financial results for its fiscal third quarter ended October 1,
2011.
Financial Performance
Net sales in the third quarter of 2011 increased by 6.3% to
$143.5 million, compared with $135.0 million in the prior year
period. This net sales growth was driven by higher product sales in
the Company’s Asia Pacific region. In addition, favorable currency
exchange rates added $5.1 million to the quarter’s net sales
growth. Net earnings in the third quarter decreased as compared
with the prior year period by 3.6% to $12.4 million due to a 172
basis point increase in operating expenses, which was partially
offset by improved gross profit margins. The increased operating
expenses were predominantly due to an increase in Associate
Incentives. Earnings per share for the quarter increased 2.5% to
$0.81, compared with $0.79 in the third quarter of the prior year.
This increase resulted from a decreased number of diluted shares
outstanding from share repurchases over the last 12 months and was
partially offset by lower net earnings.
Chief Executive Officer Dave Wentz said, “During the third
quarter, our executive team continued to work closely with the
Company’s Associates to meet challenges and drive performance. At
our 19th annual International Convention in August, we hosted
thousands of Associates in Salt Lake City, Utah and made several
exciting announcements, including the opening of France and Belgium
in the first quarter of 2012. Our entry into these two markets will
follow our expansion into Thailand in the fourth quarter of 2011,
and is consistent with our plan to be more aggressive in our
international expansion efforts. The announcement of these new
markets has been well received by our Associates and will help
drive momentum as we finish off 2011 and begin 2012.”
Regional Results
Net sales in the Asia Pacific region increased by 12.6% to $84.5
million, compared with $75.0 million for the third quarter of the
prior year. This improvement was due to strong sales growth in the
Philippines, South Korea and BabyCare, the Company’s operating
entity in China. BabyCare’s sales increased $2.7 million during the
quarter, in comparison with partial third quarter 2010 operating
results. The Company acquired BabyCare on August 16, 2010. In the
third quarter, the number of active Associates in this region
decreased by 6.3%, which was primarily the result of an anticipated
decline in the number of Hong Kong Associates. This decline,
however, was partially offset by impressive growth in the number of
active Associates in the Philippines, South Korea and BabyCare. In
particular, Associate counts increased 87.5% in the Philippines and
50% in each of South Korea and BabyCare.
“We believe that our business in Asia Pacific remains strong
notwithstanding the decrease in the number of active Associates in
Hong Kong during the quarter,” continued Mr. Wentz. “As we have
previously explained, early in the second quarter of 2011, we
communicated our initial China integration plan to our Hong Kong
Associates. This plan included policy changes that we ultimately
did not implement, largely because of Associate feedback. Although
we did not implement these changes, many of our Hong Kong
Associates meaningfully increased their product purchases during
the second quarter prior to the anticipated policy changes and did
not purchase from us in the third quarter. Consequently, our third
quarter results in Hong Kong reflect the anticipated softening in
Associate activity following the second quarter run-up. Going
forward, we anticipate modest sequential growth in Asia Pacific as
we continue to integrate BabyCare, open Thailand, and support
emerging markets such as the Philippines and South Korea.”
During the third quarter of 2011, net sales in the North America
region decreased by 1.6% to $59.0 million, compared with the third
quarter of the prior year. The number of Active Associates in North
America during this period also declined by 12.1%, compared with
the third quarter of the prior year.
Mr. Wentz added, “We continue to develop our strategy for North
America, which focuses on personalization and innovation, coupled
with market-specific incentive offerings. This strategy resulted
from information gathered from recent market research and will be
implemented initially in North America and is intended to drive
long-term growth in this region. While we recognize that North
America is a mature direct selling region and a difficult region to
grow for direct selling companies, we believe that this region will
grow with time, effort and the successful execution of our
strategy.”
Nine Month Results
For the nine months ended October 1, 2011, net sales increased
by 14.7% to $436.0 million, compared with $380.1 million in the
prior year. This growth was driven by higher product sales and an
increased average number of active Associates in the Asia Pacific
region. For this period, BabyCare increased net sales by $14.0
million in comparison with the prior year period, which included
only partial third quarter 2010 results. Favorable changes in
currency exchange rates accounted for $15.0 million of the $55.9
million increase.
Net earnings for the nine months ended October 1, 2011,
increased by 13.0% to $37.6 million, or $2.39 per share, compared
with $2.11 per share in the prior year. This growth in net earnings
resulted from improved gross profit margins on higher sales. These
improvements were partially offset by higher Associate incentive
expenses and higher selling, general and administrative expenses
that can primarily be attributed to the inclusion of BabyCare’s
operations.
The Company continued its successful track record of generating
cash from operations during the third quarter and fiscal year to
date. Cash generated from operations totaled $22.1 million for the
third quarter and $53.5 million for the first nine months of 2011.
As of October 1, 2011, the Company had approximately $36.3 million
in cash and cash equivalents. During the quarter, the Company
repurchased a total of 268,000 shares under its authorized stock
repurchase program for a total investment of $7.4 million and ended
the quarter with $29.0 million remaining under the current
authorization.
Outlook
Chief Financial Officer Doug Hekking commented, “Based on our
performance during the first three quarters of the year, we are
raising our outlook for 2011. We now project consolidated net sales
to be between $577 million and $581 million for the year, versus
our previous outlook of $565 million to $575 million. In addition,
we now expect to generate earnings per share between $3.20 and
$3.25 versus our previous outlook of $3.05 to $3.10. We will remain
focused on operational efficiency as we continue to integrate
BabyCare into our business and work to successfully launch three
new markets in the coming quarters. Overall, we are pleased with
how the company has responded to the challenges presented in 2011
and expect to finish the year strong.”
Conference Call
USANA will hold a conference call and webcast to discuss this
announcement with investors on Wednesday, October 26, 2011, at
11:00 a.m. Eastern Time. Investors may listen to the call by
accessing USANA’s website at
http://www.usanahealthsciences.com.
About USANA
USANA develops and manufactures high-quality nutritional,
personal care, and weight-management products that are sold
directly to Associates and Preferred Customers throughout the
United States, Canada, Australia, New Zealand, Hong Kong, Japan,
Taiwan, South Korea, Singapore, Mexico, Malaysia, the Philippines,
the Netherlands, and the United Kingdom. Additionally, USANA’s
wholly-owned subsidiary, BabyCare, Ltd., operates a direct selling
business in China. More information on USANA can be found at
http://www.usanahealthsciences.com.
Safe Harbor
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act. Our actual results could differ
materially from those projected in these forward-looking
statements, which involve a number of risks and uncertainties,
including global economic conditions generally, reliance upon our
network of independent Associates, the governmental regulation of
our products, manufacturing and marketing risks, adverse publicity
risks, and risks associated with our international expansion. The
contents of this release should be considered in conjunction with
the risk factors, warnings, and cautionary statements that are
contained in our most recent filings with the Securities and
Exchange Commission.
USANA Health Sciences, Inc. Consolidated Statements of
Earnings (In thousands, except per share data) (Unaudited)
Quarter Ended
Nine Months Ended 2-Oct-10 1-Oct-11
2-Oct-10 1-Oct-11 Net sales $ 135,006 $
143,501 $ 380,104 $ 435,992 Cost of sales 25,157
25,202 70,912 77,072
Gross profit 109,849
118,299 309,192 358,920 Operating expenses Associate
incentives 60,560 66,158 171,743 198,725 Selling, general and
administrative 30,751 33,365 87,358
103,038
Earnings from operations 18,538 18,776 50,091
57,157 Other income (expense) 551 133
303 234
Earnings before income taxes 19,089 18,909
50,394 57,391 Income taxes 6,240 6,524
17,134 19,800
NET EARNINGS $ 12,849 $ 12,385 $
33,260 $ 37,591 Earnings per
share - diluted $ 0.79 $ 0.81 $ 2.11 $ 2.39 Weighted average shares
outstanding - diluted 16,247 15,205 15,763
15,712
USANA Health Sciences, Inc. Consolidated
Balance Sheets (In thousands) (Unaudited)
As of As of
1/1/2011 (1)
1-Oct-11 ASSETS Current Assets Cash and cash
equivalents $ 24,222 $ 36,317 Inventories 34,078 36,199 Other
current assets 23,377 17,461
Total current
assets 81,677 89,977 Property and equipment, net 57,568
59,756 Goodwill 17,267 17,596 Intangible assets, net 41,915 42,370
Deferred income taxes 9,797 13,486 Other assets 8,416
6,108
Total assets $ 216,640 $ 229,293
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities Accounts payable $ 6,445 $ 9,096 Other current
liabilities 52,584 50,193
Total current
liabilities 59,029 59,289 Other long-term
liabilities 1,012 969 Deferred income taxes 9,797 9,896
Stockholders' equity 146,802 159,139
Total
liabilities and stockholders' equity $ 216,640 $ 229,293
(1)
Certain amounts have been revised to
reflect adjustments for deferred tax gross up and translation
adjustments.
USANA Health Sciences, Inc. Sales by Region
(Unaudited) (In thousands)
Quarter
Ended 2-Oct-10 1-Oct-11
Region
North America United States $ 38,228 28.3 % $ 37,975 26.5 %
Canada 16,419 12.2 % 16,107 11.2 % Mexico
5,314 3.9 % 4,946 3.4 % North America Total 59,961
44.4 % 59,028 41.1 % Asia Pacific Southeast
Asia/Pacific 25,730 19.1 % 30,117 21.0 % Greater China
43,456 32.2 % 47,012 32.8 % North Asia 5,859 4.3 %
7,344 5.1 % Asia Pacific Total 75,045 55.6 %
84,473 58.9 % Total $ 135,006 100.0 % $ 143,501 100.0
%
Active Associates by Region (1) (Unaudited)
As of 2-Oct-10 1-Oct-11
Region
North America United States 55,000 23.5 %
47,000 22.0 % Canada 25,000 10.7 % 23,000 10.7 %
Mexico 11,000 4.7 % 10,000 4.7 % North America Total 91,000
38.9 % 80,000 37.4 % Asia Pacific Southeast
Asia/Pacific 46,000 19.7 % 47,000 22.0 % Greater China
89,000 38.0 % 78,000 36.4 % North Asia 8,000 3.4 % 9,000 4.2
% Asia Pacific Total 143,000 61.1 % 134,000 62.6 %
Total 234,000 100.0 % 214,000 100.0 %
(1)
Associates are independent distributors of
our products who also purchase our products for their personal use.
We only count as active those Associates who have purchased product
at any time during the most recent three-month period, either for
personal use or for resale.
Active Preferred Customers by Region (2) (Unaudited)
As of 2-Oct-10 1-Oct-11
Region
North America United States 37,000 50.0 %
35,000 53.0 % Canada 14,000 18.9 % 13,000 19.7 %
Mexico 3,000 4.1 % 3,000 4.6 % North America Total 54,000
73.0 % 51,000 77.3 % Asia Pacific Southeast
Asia/Pacific 7,000 9.5 % 7,000 10.6 % Greater China 12,000
16.2 % 7,000 10.6 % North Asia 1,000 1.3 % 1,000 1.5 %
Asia Pacific Total 20,000 27.0 % 15,000 22.7 %
Total 74,000 100.0 % 66,000 100.0 %
(2)
Preferred Customers purchase our products
strictly for their personal use and are not permitted to resell or
to distribute the products. We only count as active those Preferred
Customers who have purchased product at any time during the most
recent three-month period.
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