USANA Health Sciences (USNA) Q1 2012 Earnings Call April 25, 2012 11:00 am ET Executives Patrique Richards - David A. Wentz - Chief Executive Officer G. Douglas Hekking - Chief Financial Officer Kevin G. Guest - President of North America Analysts 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 Presentation Operator
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. Read the rest of this transcript for free on seekingalpha.com