USANA Health Sciences, Inc. (NYSE:USNA) Q4 2023 Earnings Call Transcript

USANA Health Sciences, Inc. (NYSE:USNA) Q4 2023 Earnings Call Transcript February 7, 2024

USANA Health Sciences, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to USANA Health Sciences Fourth Quarter and Fiscal Year 2023 Earnings Call. My name is Melissa, and I will be your coordinator for today’s event. Please note, this conference is being recorded. [Operator Instructions] I’ll now turn the call over to Andrew Masuda. Please go ahead.

Andrew Masuda: Thank you, Melissa, and good morning, everyone. We appreciate you joining us to review our fourth quarter and fiscal year 2023 results. Today’s conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the 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 those regarding our strategies and outlook for fiscal year 2024.

As well as uncertainty related to the economic and operating environment around the world, our operations and financial results. We caution you that these statements should be considered in conjunction with disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC. I’m joined by our President and CEO, Jim Brown; our Chief Financial Officer, Doug Hekking; as well as other executives. Yesterday, after the market closed, we announced our fourth quarter and fiscal year results and posted our management commentary document to the company’s website. We’ll now hear brief remarks from Jim before opening the call for questions.

Jim Brown: Thank you, Andrew, and good morning, everyone. USANA delivered fourth quarter operating results that exceeded our expectations as our sales force responded positively to an incentive offering in several of our key markets. Notably, our Greater China region delivered double-digit sequential growth in active customers. We are pleased with our year-end results and the adoption of this incentive, particularly because the operating environment in many of our markets in 2023 was challenging as inflation and other economic factors adversely impacted consumer behavior and our ability to generate top line momentum. Despite this environment, we delivered fourth quarter net sales and diluted EPS above expectations. We ended the year with $330 million in cash and essentially debt-free as we continue to generate strong free cash flow.

We officially launched operations in India, the company’s 25th global market at the end of fiscal 2023, which is a significant milestone for USANA following years of preparation. And we continue to make meaningful progress on several strategic initiatives that are foundational for USANA’s future growth. We begin fiscal 2024 with renewed focus on executing our global growth strategy which is generating consistent active customer growth. The initiatives that drive this strategy include increasing engagement with our associate leaders to accelerate associate and customer growth enhancing our incentive opportunities for our sales leaders that are actively generating customer and sales growth, building and expanding our operations in India, product innovation and development and pursuing additional acquisition opportunities.

I’ll briefly provide additional details on our initiative to increase engagement with our associate leaders. While 2023 was a year of reengaging with our associate leaders in a live setting and 2024, we’ll be doubling down on engaging, training and educating our associates with a focus on growing active associates globally. While overall customer growth is always our goal, we recognize that our business model relies upon our independent distributors to market and sell our products. For this reason, we are renewing our focus on associate growth in 2024. USANA offers best-in-class nutritional supplements. And this year, we’ll be collaborating with our associates to help them effectively communicate this product differentiation message. Additionally, we plan to roll out more updates to our existing digital tools, which will help our associates with the necessary onboarding, training, communication and marketing resources essential for growing and managing their business.

In closing, USANA remains well positioned for long-term success in the global health and wellness market. I’m confident that our successful execution of our strategies will expand our business and drive sustainable long-term growth in net sales and earnings. With that, I’ll now ask the operator to please open the lines for questions.

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Q&A Session

Operator: [Operator Instructions] And our first question is from Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski : Certainly a nice job with the fourth quarter results. Good to see China doing better. So just curious, I guess, kind of big picture maybe first. So as you start 2024 now, you’re a little bit more than a month into the current fiscal year. Just wondering if you could just give us a sense as to like which countries do you think other than China are doing better? And maybe conversely, where do you see the weakest pressure points?

Doug Hekking : Anthony, this is Doug. I think it’s pretty early in the game. I think the pattern that you see is — has been fairly consistent. I think we put a little color in our management commentary document talking about kind of the initial response we saw to a promotion to offset the Lunar New Year holiday. And so we’re pretty encouraged by what we saw there, and we reported in the first quarter. But outside of there, I think we’re still kind of watching and evaluating kind of the impact through the Lunar New Year. So it’s a little bit early, but we’ll definitely look to give some color on that after the first quarter.

Anthony Lebiedzinski : Understood. Okay. And then so as far as pricing, so last year, you guys had some customers buying ahead of price increases, which impacted your first quarter in ’23. So what can we expect as far as pricing this year? And could we perhaps see a repeat of that? Or just not looking to do anything like you did last year as far as pricing?

Jim Brown : Yes. I would not expect that, and that’s why we’ve called it out. I think the adjustment we did last year pricing and we’ve been pretty tepid in the several years before as far as how we’ve approached it, we probably had on an average basis, somewhere in that 4% to 5% on a global basis last year. You definitely won’t see that this year. And the response last year was above and beyond what we typically see just because of the — having a little bit bigger adjustment. And we’re definitely not moving as fast as we’ve seen others have. So we’ve been very conscientious in working with our sales leadership and how we approach that, but you won’t see the same magnitude. And I think that’s why it’s appropriate to call both that out and the response to the immunity boost that we saw at the end of the fourth quarter and the first quarter of ’23.

Anthony Lebiedzinski : And then also, can you just talk about the spending that you’ve planned for India and one of your acquisitions, Rise Bar, as far as how should we think about as far as, I don’t know if you want to put a dollar amount on that or maybe just help us understand as far as what the return on that additional spending will be and kind of the expectation as far as the timing of that?

Doug Hekking : Yes. I’ll start here, and I’ll have Jim jump in. But we definitely plan, this year will be an investment year. I think we’re — we wanted with Rise Bar to kind of get everything this way to kind of get — kind of level set with integration, some of the things we’re doing there. And we think there’s some great opportunity there. We’ve — the group has compiled commercial plans. And so this upcoming year will be a year of investment where we won’t be profitable in that, but we do expect some pretty good traction in sales. And India is much the same. I think we opened India really towards the very end of the year, and I think we’re anticipating doing that earlier. And some of those costs with opening events and celebrations and some of these other stuff have really been pushed to ’24.

But we understand the significance of this market long term. And we want to make sure that we get off to a good start and engage those leaders and really kind of put our best foot forward there. And so I think you’ll probably see collectively between those between $4 million and $5 million net negative operating margin between the sales in those two categories, but we think that’s money well invested. And we’ll generate future long-term benefits. Jim, any additional color?

Jim Brown : Yes, Doug, called me out. But quite honestly, I don’t know exactly what else to put out there. I mean this is an investment time for both businesses, and we expect it to basically be flat or down from a profit standpoint this year. And we’re looking forward to what they do in the future. But again, we just want to get the momentum moving in 2024.

Anthony Lebiedzinski : That’s very helpful color. And then lastly, before I pass it on to others. So your balance sheet obviously continues to be strong. It looks like you have more cash than you need to run the business. So how should we think about the capital allocation priorities for you guys?

Doug Hekking : Well, I think it remains very similar to what we’ve done in the past. I think we always look to go back and invest in really organically into our direct selling business and really lean into that. After that, I think we’ve been talking for several quarters now about activity in M&A, and we always have several opportunities in kind of the hopper that we’ve evaluated and moving down the path. And then in the past, we’ve been pretty heavily invested in share repurchase program, but those things are balanced. It’s a quarterly discussion with the Board of Directors, and it’s a very open discussion. So trying to go back and evaluate the opportunities at the stage that they’re at, and invest accordingly.