USANA Health Sciences, Inc.
Q1 2021 Earnings Call Transcript

Published: 28 Apr 2021

[Operator:]

Good day, and welcome to the USANA Health Sciences First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrique Richards, Executive Director of Investor Relations and Business Development. Mr. Richards, please go ahead.

[Patrique Richards:]

Thank you. Good morning. We appreciate you joining us this morning to review our first quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our Web site at ir.usana.com. Shortly following the call, a replay will be available on our Web site.

[Kevin Guest:]

Thank you, Pat, and good morning everyone. We appreciate you joining us to review our first quarter results. This was another excellent quarter and a great start to an exciting year for USANA. We generated double-digit sales growth in each of our regions and total customers increased both year-over-year and sequentially. This is better than expected performance and was driven by the successful execution of our first quarter initiatives and continued strong demand for our high-quality nutritional products. Accordingly, we've raised our full year net sales and diluted EPS outlook. In addition to our financial performance, we accomplished several other key initiatives. In late March, we launched our new, much appreciated and anticipated active nutrition product line and the initial reactions from our customers has been very encouraging. This product line promotes a holistic approach to healthy weight management, as well as digestive health, energy and hydration. While the initial launch of the line was limited to the United States, Canada, Mexico, Australia and New Zealand, we plan to roll the line out to additional markets as the year progresses. Additionally, we continue to execute our digital experience strategy, which entails further enhancing the overall shopping experience for our customers with a particular emphasis on the China market. These enhancements allow consumers to easily interact with USANA while sharing their experiences with others.

[Doug Lane:]

Kevin, you mentioned the active nutrition launch in the market since you introduced to recently, but what where specifically do you see for the timing into the Asian markets, particularly China? I mean, third quarter, fourth quarter or late in the second quarter just a little bit more granularity on that?

[Doug Hekking:]

Yes, Doug. This is Doug. So China, just because the regulatory timeframe for products is probably going to not be this year. I mean, they're obviously doing some products in line with the kind of the overall product category here. But having kind of the full rollout some of the other stuff, I don't think we'll expect in the current fiscal year.

[Doug Lane:]

But Korea, Philippines, those kind of markets?

[Doug Hekking:]

Yes, maybe Jim, if you maybe just touch on the rollout schedule.

[Jim Brown:]

Yes. We have pretty much six more markets in Asia Pacific focused happening in the third and fourth quarters of this year. And like we've talked about before, with active nutrition it actually started the last day in March. So we really didn't have an impact on the first quarter, we'll see more of an impact in the second quarter, as you know, the sales start going for the first markets that were launched. But again, we'll see the more of the impact in '22 because, again, the rollouts happened in the third and fourth quarter for the remaining markets.

[Kevin Guest:]

And Doug, this is Kevin. Part of the active nutrition line is our meal replacement drink, which is NUTRIMEAL. And we're expecting back to China and it won't be the active nutrition line. But a piece of that line is NUTRIMEAL and we're thinking Q3 or Q4 in China.

[Doug Lane:]

Well, I mean, you're four weeks into it. So you should have some initial read, I would imagine. So that's good to hear. Can you talk about -- I get the near-term promotion driving a bump in sales in the second quarter. But then, the way the numbers work, at least from my math is that we see a pretty sharp deceleration in growth in the third and fourth quarter. And is that just because of the comparisons or what is going on under the surface, particularly when you've got this new product being rolled out that you help cover some of that stuff comparisons with last year?

[Kevin Guest:]

Yes, I think your observations are accurate, but the comps if you look at the third quarter of last year, we ran the same promotion that we're talking about in the second quarter this year and the third quarter of last year. And then, the fourth quarter of last year, we had that extra fiscal week. So yes, you're right. There are a few events that are doing the other stuff. But I think we're pleased with how we're executing and the results in first quarter for us were beyond our expectations modestly.

[Doug Lane:]

Yes, yes. And then, just lastly, the organic growth in Mainland China of 8.1%. Probably the best quarter in the least a couple of years here. So is that again, just trying to get a feel for sustainability of the accelerated growth in Mainland China? Was there a one-off event promotion something going on there? Or can we expect to see some sustainability of this kind of growth rate?

[Kevin Guest:]

I think it would be mindful, like what we talked about, we're running in the second quarter. I mean, that's in all the markets. So we did obviously expect to go back and see China, benefit from that as well. We often offer promotional packs, right around Chinese New Year, the Lunar New Year and China had similar type packs last year, but they just sold a little bit better this year and that was definitely additive. We talked to our management team in China and the executives with responsibility for that. And I think what we're hearing is positivity and we just got to go back and keep driving on that customer account growth number and then that really takes care of itself going forward.

[Operator:]

Thank you. And we will take our next question from Sebastian Barbero of Jefferies.

[Sebastian Barbero:]

issue in China, it is encouraging to see the growth accelerating in Q1, but wondering if you could give a little bit more color on the recent trends in the Chinese consumer health market, any changes in consumer behavior, as well as your ability to hold meetings and also what percentage of your sales are now going through the WeChat platform?

[Kevin Guest:]

So Brent Neidig, who has responsibility for the China market is sitting with us. We'll let him chime in and comment on that.

[Brent Neidig:]

Yes, I would say that the market is returning to a somewhat normal condition. The impacts from the Corona virus last year really helped slow down growth. And I think things are somewhat returning to normal this year. So it's returning to somewhat normal state.

[Sebastian Barbero:]

And you have an ability to be holding meetings today. And if so, what's the size of them?

[Brent Neidig:]

Yes, meetings have returned. They're not at the same degree, as we were holding in years past. So it is going on an upward trend there. And you also referenced the WeChat enrollments that -- were experienced about 10% of our weekly enrollments come through that WeChat platform.

[Sebastian Barbero:]

Got it. Okay. And the Q4 20 results, the team guided for China growth of 6% to 12% for the year. Now, Q1 was 13%. So a bit of an over delivery there, do you have any changes to your full year guide in terms of flexibility for China growth?

[Brent Neidig:]

No, we don't. I think we're still right in that range Sebastian, relative our numbers. And I think there's ebbs and flows in different periods. And like we said, a few of these short-term promotional things around in the Chinese New Year outperformed what we expected. And maybe that same level isn't present every quarter, we do expect kind of, as indicated kind of good growth in China this year and expect to see some good progress.

[Sebastian Barbero:]

Okay. Thank you. And then, that was still early, there's starting to be evidence that your digital investments are shifting the of the model more towards, high base of preferred customer, which has been a goal of yours over the past couple of years. Curious to learn more about the feedback you've been getting from associates in the new digital tools and training you're providing? And also, how you're expecting personalization to improve customer experience?

[Kevin Guest:]

Yes. I mean, obviously, we've over the last several years; we have really increased our focus on the preferred customers. And again, you can go back and definitively see that with accounts and the preferred customers. Our general belief is, the more, more we market directly to consumer, the easier the job is by the associate. And the easier it is to build a business. But you're right training programs and information. And just better and more refined communication is something that's well underway. We have a host of teams that are working on on-boarding and customer listening. And we're able to go back and be pretty responsive to kind of short-term feedback that we're seeing.

[Sebastian Barbero:]

Okay. An announcement from you is, you bought back $70 million of shares in Q1 of remaining under this existing plan. Can you help us think through capital allocation priorities for the remainder of the year?

[Kevin Guest:]

Sebastian, you're right. You could go back and see with the cash level we were down a little bit from where we've been running. We still see some opportunity, obviously, with what we're seeing in the price today, which relative to how we viewed our performance a little bit of a disconnect. But I think you'd see similar stuff, we've obviously -- you can go back. And I think even in looking at different models out there, our spend levels expected to be up this year from a lot of strategic initiatives. And we laid out those things in MCRO that we kind of provided in our first release for the year with the annual guidance. But I think you're going to see a pretty similar pattern. And I think we'll be opportunistic relative to the environment that we see out there. And as we've mentioned, you in the past, we've been evaluating a variety of business development and maybe one of those things come to fruition too. So we'll keep kind of pushing down that path. The primary focus is growing our existing business, then everything else kind of falls into a priority rank after that.

[Operator:]

Thank you. This concludes today's question-and-answer session. I would now like to turn it back over to Patrique Richards.

[Patrique Richards:]

Thank you for your questions and for your participation on today's conference call. If you have any remaining questions, please feel free to contact Investor Relations at 801-954-7961.

[Operator:]

Thank you, ladies and gentlemen for your participation in today's call. You may now disconnect.