USANA’s share price takes beating on weak earnings report

27-Oct-2022 - Last updated on 27-Oct-2022 at 16:03 GMT

©Getty Images - Ju Sin

Inflation and continued COVID related problems in Asia hit network marketing company Usana’s earnings hard. Traders responded by pummeling the company’s stock, which at one point on Tuesday had fallen by more than 17%.

The Salt Lake City, UT-based multi level marketing company reported its earnings after market close on Tuesday and the stock tumbled before experiencing a rebound that saw it regain most of what was lost. But it subsided again before the end of trading, finishing at $56.84. Still, that represents almost a 40% slide in the stock price over the past year, and it’s well off the company’s all-time high of more than $130 a share recorded in August 2018.

Higher costs, pandemic problems

USANA is struggling both with higher costs and continuing effects of the global pandemic in some of the country’s most important markets. In its third quarter of fiscal 2022 the company recorded $233 million in revenue, which was down 15% over the same period a year previously, or about 9% when the current global currency tumult is taken into account.

Earnings per share fell even more steeply, showing a 44% slide. The foundation of those dismal returns was a serious erosion of the company’s customer base. The company reported it had 18% fewer active customers at the end of the quarter compared to the same period a year previously.

Better customer retention is often thought as one of the strengths of the MLM model. By the same token, new customers are harder and may take longer to acquire, in that they generally need to be contacted by one of the company’s distributors first. That’s starting to change with technology, as independent distributors start to use more online sales tools, but the distributors still need to occupy a place in that loop because that’s how they’re compensated.

Falling out of the billion sales club

So the steep drop in active consumers is an ominous sign for USANA, and one that might be difficult to recoup quickly. The company revised its full year sales outlook to $955 to $975 million. USANA has not been below $1 billion in annual net sales since 2015. When asked during an earnings call, chief financial officer Doug Hekking declined to speculate when the company might return to growth, as it has been posting sales declines for a number of quarters in a row. A transcript of the call was posted on the site seekingalpha.com.

However, in public statements in the recent past CEO Kevin Guest said USANA’s strategic planning process has enabled it go get through the pandemic dislocations faster than it might have otherwise and will shorten the interlude before the company returns to growth.

For a number of years now USANA’s main markets have been in the Asia Pacific region. Of the $233 million of net sales in the quarter, $183 million were recorded in Asia, and $110 million within China itself. The Chinese market didn’t fall as steeply as did some others, such as North Asia, which was off by 22%, and Southeast Asia, where sales fell by 27%.

“Our Southeast Asia region has relied much more on in-person type activity than what we've seen in the other markets. And so kind of this prolonged environment with COVID and the economics and inflationary pressures impacted that region,” Hekking said.

Hekking said shipping concerns had eased, but costs of raw materials remained high at the company’s manufacturing facility in Salt Lake City, where USANA makes most of its dietary supplements and functional foods. The company also manufactures in China, where higher costs have not been as much of a problem, he said.