USANA Health Sciences' CEO Discusses Q1 2012 Results - Earnings Call Transcript

USANA Health Sciences (USNA)

Q1 2012 Earnings Call

April 25, 2012 11:00 am ET


Patrique Richards -

David A. Wentz - Chief Executive Officer

G. Douglas Hekking - Chief Financial Officer

Kevin G. Guest - President of North America


Scott Van Winkle - Canaccord Genuity, Research Division

Rommel T. Dionisio - Wedbush Securities Inc., Research Division

John P. San Marco - Janney Montgomery Scott LLC, Research Division

Frank A. Camma - Sidoti & Company, LLC



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the USANA Health Sciences First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, April 25, 2012. I'd now like to turn the conference over to Mr. Patrique Richards. Please go ahead, sir.

Patrique Richards

Good morning, everyone. 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 website at Shortly following the call, a replay will be available on the website

As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. Examples of these statements include our 2012 strategies for our North America region, China and other markets, as well as updated outlook for 2012. We caution you that these statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC.

I'm joined this morning by Dave Wentz, our Chief Executive Officer; Kevin Guest, our President of North America; and Doug Hekking, our Chief Financial Officer. We'll hear first from Dave, who will discuss our business activities during the quarter, as well as our strategies moving forward. We will then hear from Doug, who will discuss our financial results and 2012 updated financial outlook.

I will now turn the call over to Dave.

David A. Wentz

Thanks, Pat, and good morning, everyone. I'm pleased to report that USANA began the year with a strong first quarter. We've set new records for both sales and EPS and exceeded our expectations. I'll begin this morning with our regional results and discuss the initiatives that impacted these record results and then update you on our strategies and expectations for the remainder of 2012.

We continue to see positive momentum in our Asia-Pacific region, where sales increased by an impressive 14.3%, while the number of active Associates increased 9.2%. This growth is primarily due to strong results in Southeast Asia and Greater China. The Philippines was the primary contributor to our growth in Southeast Asia, while Hong Kong and Taiwan drove growth in Greater China. Additionally, we experienced nice growth in South Korea. Sales in Greater China and Southeast Asia benefited from a surge in sales ahead of price increases in several of our Asian -- Asia-Pacific markets.

As a reminder, when we implement a price increase in a particular market, we typically inform the market of the increase a few weeks ahead of time. As a result, we often see sales trend up in that market during the week leading up to the price increases, especially in Asia-Pacific, as our Associates increase their product inventory at the lower prices to boost the retail component of their business.

Our internal projections for the first quarter include what we believe were reasonable estimates to reflect the increase in sales anticipated from the price increases. However, the surge in sales that we actually experienced ahead of the price increases was meaningfully exceeded our forecast, particularly in Hong Kong, where we estimate the surge in sales benefited sales by approximately $9 million. Following the price increases, product sales volume in each of these markets returned to typical run rate. So we believe that we're typical run rate after that surge and did not pull sales into the first quarter forward.

During the quarter, we commenced operations in Thailand, which is our newest Asia-Pacific market. Opening this market is consistent with one of our key growth strategies, which is to pursue new market expansion. I'm very pleased with the effort of our employees and Associates, who made the opening of Thailand possible under a very brief timeline and very challenging conditions in Thailand, due to the highly publicized flooding in the country.

Although we began operating in Thailand during the last week of January, our operations were limited for most of the quarter as we worked to finalize all logistics. It was really not until the end of the quarter that Thailand became fully operational. Consequently, we will report sales from this market beginning in the second quarter of 2012.

During the quarter, we continued to invest time and effort to help our Associates understand how to appropriately drive growth in China. We also opened a new branch in Shenzhen, a key city in Southern China. Much of our training this quarter focused on our newly introduced adult nutritional products, which have been eagerly anticipated by our Associates and are already among the bestsellers in China.

We also continue to educate our Chinese Associates on our compensation plan in China, as well as how to build a successful direct selling business. We continue to have high expectations for our China market, as well as our Asia-Pacific region, and believe that the strategies we are executing are positioning the company for long-term growth.

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