USANA Health Sciences Inc released their first quarter financial results, which were far less spectacular than they had hoped for. The nutritional and personal care company posted a fall of 36% in first quarter profits. The company blames higher operating costs, which rose 10 percent this year, and declining sales in North America as reasons for the decline.
USANA reported that first quarter earning this year were only $7.5 million a significant fall from last year when first quarter earnings were $11.7 million. Stocks went from 63 cents a share last year to 46 cents first quarter this year.
The news wasn’t completely unexpected and the true test of the ‘MLM Economy” will be clearer when we Nu Skin and Avon release their earnings in the coming weeks.
But news is not all bad, overall sales rose 0.9 percent to just over $101 million dollars due to strong sales overseas and strong foreign currencies. Sales in this country fell by 3.5 percent to $62.3 million dollars.
“Our first quarter financial results were disappointing. Unfortunately, new promotional activities during the first quarter did not increase sales, as we had anticipated,” said the company’s President Dave Wentz.
For the second quarter, the company forecast a profit of 48 cents to 51 cents a share, on sales of $103 million to $106 million and is optimistic about overall net sales for the year. USANA anticipates that full-year net sales will increase about 2 percent, but earning per share will decline by as much as 20%.
The struggling U.S. economy seems to be taking its toll on everyone, and while analysts feel that generally during tough economic times MLM’s still tend to do well, even better, because of a surge of new distributors, the weak dollar means lower sales and higher operating costs. It will be interesting to see how other nutraceutical companies do when their first quarter financials are released.
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This news was disappointing to me. I am eager to see how the other publicly traded companies are doing. How long do we wait?
USANA has had an amazingly consistent growth history for what, nearly 20 quarters.
Those of us with a few miles of experience in Network Marketing know that a lot of a companies reported sales volume comes from the starter packages purchased at the time of enrollment. This is really inventory, not consumption. No surprise that when sign ups sag; so does sales volume.
So many what to promote a sign up frenzy in a down turn economy. When folks are spending a fifty or better for a tank of fuel that for many won’t last a week, it really pinches hard. It is not a good time to be spending more than you are making.
When the huge Time-Warner acquired AOL is became AOL/Time-Warner. No one could explain this to me except Kim Klaver. AOL had millions of monthly users spending money every month for their Internet. It was an enormous residual cash flow.
Listen well….monthly autoship customers are a wonderful thing. The sales volume they collectively produce helps to fund commissions. Yet when enrollments slump, company profits tank.
So even a class act like USANA could be questioned about it’s identity. Is it a manufacturing and distribution company or a recruiting machine?
Customers please,
Tom Doiron
Comment by Tom Doiron — April 22, 2008 @ 5:59 pm
Tom,
Herbalife and Avon are all within the next 2 weeks and YTB is as well.
I like the question about whether it is manufacturing and distribution or recruiting? Having spent a lot of time in investment banking and being a part of a public Co, it is my opinion that companies like USANA and others in the space are going to be compared to retail stocks. So things like “same store sales” which is similar to same product sales compared by previous quarter and year are important. Same thing with regions.
I believe the “success” of companies like Herbalife and Avon (as stocks) can be traced back to the product line growth. Adding more products to the mix typically doesn’t cost a great deal to the bottom line but can offer residual growth on the upside revenues and thereby drive profitability. With the exception of a few non-public companies that have seen great success off of one-product or few-product lines, in a public world, you are very vulnerable to showing growth quarter after quarter and that is not a model which can sustain itself over time.
USANA needs to stay ahead of the curve and keep churning out great products that they can feed into the distribution chain. That will offer two things: 1 - Retain distributors by offering them a more diversified line and 2- Increase revenue without increasing the cost of distribution because you are leveraging a “fixed” asset.
I dont agree that this economy hurts MLM but the opposite. There is no better time to be in MLM then now as more and more retail shops are closing and people are still relying on goods and services that are closer to home. With corporate resentment growing and a fear that companies and banks are not as reliable as we once expected them to be, it is my opinion that people will look to their neighbors and co-workers for things other than advice but goods and services as well.
Really liked your post.
Comment by Steven — April 22, 2008 @ 7:22 pm
Really great discussion thread. I like what you have both said.
Comment by Jack W — April 23, 2008 @ 2:43 pm
[...] more of a leadership position as it relates to athletes. The news comes at a time when the company reported less than stellar earnings this week but moves like this are [...]
Pingback by OpTree - MLM News » USANA Becomes Official Supplement Supplier of USA Bobsled Team Radcliff — April 23, 2008 @ 6:11 pm
[...] is really great news for both Avon and for the sector as a whole. We reported that USANA had some hiccups in the first quarter but companies like Avon, Nu Skin and Herbalife were also bell-weather stocks [...]
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