In its third quarter 2017 earnings release, Usana, which is based in Salt Lake City, UT, recorded record revenue of $261.8 million, a 3% year over year increase compared to the Q3 2016 figure of $254.2 million. This puts the company on track to break the $1 billion annual revenue barrier for the full 2017 fiscal year, said CEO Kevin Guest.
As has been the case for a number of years, Usana has derived the lion’s share of its income from its operations in Asia, with the two brightest spots being Mainland China and South Korea. In the quarter, Usana brought in $199.3 million from its Asia Pacific operations, which was a 4.7% increase year over year. Sales in North Asia increased 35.9%, while those in Southeast Asia decreased by 3.8%. Sales in China were up by 5.5% and increased a whopping 39.1% in South Korea.
Going all in on WeChat
The growth in China is being supported by significant IT investments in that market, Guest said. The company, which sells a variety of dietary supplements, foods and personal care and beauty products, is basing its online presence there on the WeChat platform, now the biggest social media channel in the country.
“As we talk technology, WeChat is at the top of the list in making it easy for people to enroll, easy for people to become involved in Usana, and to simply do their business through WeChat platforms and order products which we believe will have a very positive impact in our China business,” Guest said during an earnings call with analysts that was posted on the site seekingalpha.com.
Usana, like some other MLMs in the nutritional products space, has seen sales decline in North America and in Europe. Sales in that combined region now account for less than a third of overall revenue. Usana recorded $62.5 million in sales in the region during 2017 Q3, a decline of 2.1% year over year. The company said it ha 8.6% fewer active customers in the region during the quarter.
Despite the sluggish European sales, the company is not giving up on the region. Usana recently announced plans to open four new markets there in 2018: Romania, Spain, Germany and Italy.
Bribery probe
The good news in China is overshadowed by a continuing internal investigation into Usana’s operations there, which are conducted under the aegis of its subsidiary, BabyCare Ltd. The probe is looking into whether company officials may have crossed the line drawn by a US federal anti-bribery law. The company offered no update on the progress of the investigation, which has now been underway for almost a year. Usana officials said they could not comment beyond their official statement, which read in part:
“The Company is voluntarily conducting an internal investigation of its China operations, BabyCare Ltd. The investigation focuses on compliance with the Foreign Corrupt Practices Act (“FCPA”) and certain conduct and policies at BabyCare, including BabyCare’s expense reimbursement policies. The Audit Committee of the Board of Directors has assumed direct responsibility for reviewing these matters and has hired experienced counsel to conduct the investigation. While the Company does not believe that the subject amounts are quantitatively material or will materially affect its financial statements, it cannot currently predict the outcome of the investigation on its business, results of operations or financial condition.”
Market reaction
Stock traders reacted positively to the company’s earnings report, which beat expectations by a small margin. The price of the company’s shares, which trade on the New York Stock Exchange, rose yesterday from $61.95 to $68.70 after the announcement. Still, the company’s share price has traded in the $60 to $70 region for about the past two years, indicating some trepidation on the part of traders as to the company’s long term prospects.