OpTree

Stephen Ellison

It’s hard to go wrong in a business where some of your best customers are also your best salespeople.

Just ask Usana Health Sciences Inc. (NasdaqGS:USNA), a nutritional products maker based in Salt Lake City. Usana has built a global following through its direct-selling model, which contracts thousands of independent sales associates, most of whom began as Usana customers.

For those commissioned associates, direct selling is a thriving industry totaling $30.8 billion in the United States and about $112 billion worldwide last year, according to the Direct Selling Association. But the numbers don’t necessarily translate well for all consumer product companies, and those designated as direct sellers tend to come and go, the DSA says.

Usana arrived in 1992 and hasn’t gone anywhere but up. Annual revenue has more than doubled in the past five years, eclipsing $420 million in 2007. Usana credits a trusted product line and a proven marketing strategy for its continued success.

The company made three significant announcements at its annual convention on Aug. 28: a new energy drink product called Rev3; expansion into the Philippines; and new compensation incentives for associates.

Spurred by a challenge from CEO David Wentz, Usana scientists came up with an alternative to the sugary, “crash-and-burn” energy drinks common in today’s market. The resulting Rev3 is a green-tea based drink that contains an advanced formula of antioxidants as well as Usana’s patented olive-fruit extract, Olivol.

“This is a product that will appeal to a wide audience,” Wentz said in a statement.

During the company’s earnings conference call on Oct. 15, Usana chief operating officer Fred Cooper said a growing number of gen-X and gen-Y associates trying to build their businesses have been clamoring for an energy drink to sell.

“Rev3 is a fun product to talk about,” he said. “It’s a way to open doors to people, an ice-breaker. We see this as an opportunity with this (younger) demographic to gain a significant market share.”

The Philippines represents Usana’s 14th global market, and Cooper said the country’s $500 million direct-selling industry makes it “very promising for us.”

The two incentive programs are designed not only to increase sales volume but also to boost enrollment of new associates. One program is geared toward spiking competition among Usana’s top-selling associates. The other is a matching bonus where existing associates who enroll new business builders, referred to as “platinum pacesetters,” can earn up to 100% matching commissions produced by their recruits.

Usana is coming off a disappointing third quarter in which net income dropped 28.6 % year over year to $8.14 million, or $0.50 a share, and revenue increased less than 1% to $107.2 million. Analysts had expected earnings of $0.60 a share on revenue of $112 million. The company said decreased sales in North America, higher base commission payouts and expenses related to litigation contributed to the dip in net income.

Usana shares jumped nearly 10% to $44.22 a day after the earnings report, perhaps on the company’s fourth-quarter guidance. The company expects record sales of $114 million to $120 million and EPS of $0.64 and $0.70 for the period, above analysts’ average earnings forecast of $0.64 a share.

With that optimism, a new product to pitch and incentives for its salespeople to order more and spread the word, Usana can’t go wrong.

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USANA Health Sciences has received yet another award in recognition of its continued devotion to the health of their employees. Last week, the health and wellness company received an award on from the Utah Council for Worksite Health Promotion in recognition of the company’s outstanding wellness program.

At an awards luncheon last week in Salt Lake City, the company was presented with a Platinum award for supporting their employees in staying fit and healthy by providing them with the tools they need to maintain good health.

Brad Pace, USANA wellness coordinator and personal trainer, accepted the award on behalf of the company.

USANA’s employees have a wealth of tools available to them through the wellness program. All employees have access to a fully equipped in house gym, personal trainers, nutritional products for employees, smoking cessation programs and annual health fairs.

“USANA works hard to help its employee’s live healthier lives and provides them with many opportunities to do so,” said Dan Macuga, USANA vice president of marketing and public relations. “It is an honor to be recognized for all of the hard work USANA has put into its wellness program.”

In order to be eligible to receive the Platinum Award, a company must have had a wellness program running for a minimum of five years, and must be available to all employees and their spouses.
In addition, the company and program must have a mission statement and a budget, and complete a variety of activities outlined by the Utah Council for Worksite Health Promotion.

USANA has now received this award four consecutive years. Earlier this year, USANA received the 2008 Work/Life Award in July from the Utah Department of Workforce Services and the Office of Work & Family Life in recognition of the company’s exceptional workplace and wellness programs.

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Well, it’s almost that time again, time for companies to begin releasing their 3rd quarter results. In the next few weeks we will hear from several of the major companies about what their business has been like the last few months and practically speaking, we aren’t expecting anything great (maybe overseas).

As we all know, the economy has struggled quite a bit lately, and although history shows that direct sales companies generally thrive in times of financial crisis, the current economic landscape is unlike anything we’ve seen since the 1920’s - especially since this is affecting all global economies.

Reliv (NASDAQ: RLV), NuSkin (NYSE: NUS) and USANA (NASDAQ: USNA) are the first of many companies who have set dates to release the news. USANA will be the first of the group to release the results on October 14, 2008. Executives will hold a conference call to discuss the announcement the following morning at 11 am Eastern time.

NuSkin will release their results prior to the market opening on October 29th. Truman Hunt, NuSkin President and CEO will hold a conference call with investors that same day at 11 am. And finally, on Wednesday, October 29, 2008 Reliv will hold a conference call to discuss results of the third quarter which will be hosted by President, CEO and Chairman Robert L. Montgomery and VP and CFO Steven D. Albright.

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USANA has announced that a California State Court has dismissed a class action suit filed against the company in 2007.

The suit, filed by former USANA distributors, Jeannette Johnson and Christopher Crane-Johnson v USANA, on behalf of themselves and all others distributors was filed last summer not only against the company, but also certain officers, distributors and directors. The plaintiffs allege that, USANA failed to disclose material adverse facts about the company, its business relationships and its future business prospects. There were also claims of concealment of fraudulent activity and that USANA maintained an unsustainable business model.

An official statement from the court states that The Plaintiffs agreed to request that the court dismiss the case with prejudice and determined there was no longer any merit to maintaining a class action lawsuit

USANA and its CEO, Dave Wentz, were also pleased at the outcome, “We are pleased that the court approved this motion to dismiss. We will continue to move forward without further distraction or expense.”

This is more good news for the company that has a had a very interesting year including being able to rid itself from the annoyance of Barry Minkow’s lawsuit and move beyond the unsuccessful attempt to take the company private.

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