Q1 2021 USANA Health Sciences Inc Earnings Call

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Good day and welcome to the East on the Health Sciences.

Science first quarter Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Patrick Richards Executive director of Investor Relations and business development. Mr. Richards. Please go ahead.

Thank you. Good morning, 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 IR Dot you saw net dot 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 2021.

As well as uncertainty related to the magnitude scope and duration of the impact of the COVID-19 pandemic to our business 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 this morning by our CEO and chairman of the Board Kevin guest our President Jim Brown, our Chief Financial Officer, Doug hacking as well as other executives yesterday. After the market closed we announced our first quarter results and posted our management commentary results and outlook document on the company's website, we'll now hear brief remarks from Kevin before.

For opening the call for questions.

Thank you Pat and good morning, everyone. We appreciate you joining us to review our first quarter results.

This was another excellent quarter and a great start to an exciting year for you saw on them.

We generated double digit sales growth in each of our regions and total customers increased both year over year and sequentially.

This was better than expected performance was driven by the successful execution of our first quarter initiatives and continued strong demand for our high quality nutritional products.

Accordingly, we've raised our full year net sales and diluted EPS outlook.

In addition to our financial performance, we accomplished several other key initiatives.

In late March we launched our new much appreciated and anticipated active nutrition product line and the initial reactions from our customers has been very encouraging.

This product line promotes a holistic approach to healthy weight management as well as digestive health energy and hydration.

While the initial launch of the line was limited to the United States, Canada, Mexico, Australia, and New Zealand, we plan to roll the line out to additional markets as.

As the year progresses.

Additionally, we continued to execute our digital experience strategy.

Which entails further enhancing the overall shopping experience for our customers with a particular emphasis on the China market.

These enhancements allow consumers to easily interact with you saw on a while sharing their experiences with others. Finally I'll comment on briefly comment briefly on our updated guidance as we noted yesterday in yesterday's release, we raised both net sales on diluted EPS guidance.

While we don't provide quarterly guidance. We noted that we have planned for and are offering a worldwide short term sales program during the second quarter.

This program is designed to further reward associates for sales to new customers for a limited period of time and it is being offered in each of our markets.

We offered a similar short term sales program during the third quarter of 2020, which was very successful.

We anticipate a reasonably similar response on the second quarter this year.

Accordingly, we expect our net sales in the second quarter to be the highest net sales quarter of the year as we well up our strategy.

In closing, we believe that we're positioned for continued growth and are confident in our overall strategies, both long term and for 2021.

With that I'll now ask the operator to please open the lines for questions.

If you would like to ask a question. Please press star one now on your telephone keypad.

We are using a speakerphone. Please ensure your mute function is turned off to allow your signal to reach our equipment.

If you would like to remove yourself from the kids you May press Star two.

To ask a question.

You May press Star one now.

Well take our first question from Doug Lane of Lane research.

Yeah, Hi, good morning, everybody I'm, Kevin you mentioned, the active nutrition launch and the markets that you introduced the two recently, but.

Where specifically do you see for the timing.

The Asian markets, particularly China.

I mean third quarter fourth quarter weighted in the second quarter, just a little bit more granularity on that.

Yes, Doug this is Doug so China, just because of the the regulatory timeframe for products is probably going to not be this year. I mean, there are obviously doing some products in line with the kind of the overall product category here, but having kind of the full rollout some of the other stuff I don't think we'll expect in the current fiscal year.

But Korea, Philippines, those kind of markets.

Yeah, maybe Jim if you can maybe just touch on the rollout schedule, yes, we have pretty much six more markets in the Asia Pacific focused happening in the third and fourth quarters of this year and like we've talked about before with active nutrition that it actually started the last day of the in March. So we really didn't have an impact.

On the first quarter, we'll see more of an impact in the second quarter. As you know the sales start going for the first markets that were launched but again, we will see more of the impact in 'twenty two because again the rollout so happened in the third and fourth quarter for the remaining markets and Doug. This is Kevin are part of the active nutrition line is our mill replacement drink, which is new.

Per meal, and we're expecting back to China. It won't be the active nutrition line, but a piece of that line is neutral mail and we're thinking Q3 or Q4 in China.

Got it.

And maybe a follow up maybe a follow up real quick on the active nutrition I think just from an alignment of kind of the strategy that we've been rolling out the investment in the plant the investment and build brands.

I think we're quite excited internally about what this could do on I think initial response, it's obviously during the launch period, but I think we're pretty excited by what we're seeing.

Well I mean, your four weeks into it. So you should have some initial read on it.

Imagine so that's that's good to hear.

Can you talk about I get the near term promotion driving a bump in sales in the second quarter, but then.

The way the numbers work at least from from.

From my math is that we see a pretty sharp deceleration in growth in the third and fourth quarter and is that just because of the comparisons or what what is going on under the surface, particularly when you've got this new product being rolled out that should help cover some of that tough comparison from last year.

Yeah, Yeah, I think your observation is accurate, but the comps if you look at the third quarter of last year. We ran the same promotion that we're talking about in the second quarter. This year in the third quarter of last year and then the fourth quarter of last year, we had that extra fiscal week.

So yes, you're right there are a few events there and doing the other stuff, but you know I think we're I think we're pleased with how we're executing and the results in the first quarter for us where were beyond our expectations modestly.

Yes, yes.

And then just lastly, the organic growth in mainland China of eight 1% Paul.

The best quarter in at least a couple of years here. So is that again, just trying to get a feel for sustainability.

Elevated growth in mainland China was there on a one off event promotion something going on there or can we expect to see some sustainability of this of this.

On a growth rate.

Yeah, and I think you have to be mindful that like what we talked about we're running in the second quarter. I mean, that's that's on all of the markets. So we'd obviously expect to go back and see China benefit from that as well.

We often offer promotional packs right around Chinese new year, the lunar new year, and China had similar type tax last year, but they just sold a little bit better this year and that was that was definitely additive.

We talk to our management team in China, and the executives with responsibility for that and I think what we're hearing is positivity and we just got to go back and keep driving on that customer count growth number and then that really takes care of itself going forward.

Okay fair enough thanks, guys.

Yeah.

Thank you.

We will take our next question San Sebastian <unk> of Jefferies.

Hi team thanks for taking the question.

Especially when it Shouldnt turn on in this encouraging to see the growth accelerating from Q1, but wondering if you could give a little bit more color on the recent trends from the Chinese consumer health market any changes in consumer behavior.

What's your ability to hold meetings and also what percentage of net sales are now going through the wechat platform.

Yeah. So we're going to we're going on so Brent <unk>, who has responsibility for the China market is sitting with his room, let him chime in and comment on that.

Yeah.

I would say that the the.

The market is returning to somewhat normal condition the impacts from the Corona virus last year.

Really helped us.

Slow down growth and I think things are somewhat returning to normal this year.

So its returning to somewhat normal state.

Okay.

Okay.

Kevin ability to be holding meetings today and get some relative size of them.

Yes meetings have returned theyre not at the same degree as we were holding in years past.

So it is going on in an upward trend there.

You also referenced the wechat enrollments that were experienced about 10% of our weekly enrollments come through that Wechat platform.

Got it okay.

And in Tims.

And in the Q4 'twenty results exceeded guidance with China growth of 6% to 12% per year.

Q1 gross.

<unk> per cent.

So a bit of an over delivery day.

Have any changes to your full year guide intense.

Intensive blissful China growth.

No. We don't I think we're still right in that range.

Relative to our numbers and I think there's ebbs and flows in different periods and like we said a few of these short term promotional things surrounding the Chinese new year outperformed what we expected and maybe that same level isn't present every quarter. We do expect kind of that as indicated kind of good growth in China This year and.

Expect to see some good progress.

Okay. Thank you.

And then.

Though it's still early day study to be evidence.

The digital on Boston, So Justin on the Polish up the model more towards Hollywood based on fulfill customer which has been a goal of yours over the past couple of years.

Cash learn more about the feedback you've been going on from associates on the new digital tools and training you're providing.

So.

How do you expect from portion of amortization conclude.

Touching on schools.

Yeah, I mean, obviously, we've over the last several years we have.

Really Inc.

Creased are focused on the preferred customers all the gain you can go back and definitively see that with accounts on the preferred customers. Our general belief is the more and more we market directly to consumer the easier the job is by the associate and the easier it is to build a business, but youre right training programs and information and just better and more refined.

<unk> is something that's well underway, we have a host of teams that are working on on boarding and customer listening and we're able to go back in and be pretty responsive to kind of short term feedback that we're seeing we're also actively looking at re targeting.

Our associates and customers with certain behaviors that have purchased from us in the past.

And seeing some success there and we're fairly early in the game, but it's something that we see some opportunity for going forward.

Okay and last one from me.

We bought about $70 million of sales from Q1 on the older one remaining on our existing.

Existing plan.

Help us think through proper allocation Paul this for the remainder of the year.

Yeah.

Sebastian you're right I mean, you could go back and see what the cash level were down a little bit from where we'd been running well.

We still see some opportunity obviously with what we're seeing in the price of day, which relative to how we viewed our performance a little bit of a disconnect but.

Yeah, I think you'd see similar stuff. We've obviously you can go back and I think even in looking at different models out there our spend level is expected to be up this year from a lot of strategic initiatives and we laid out those things in <unk> that we kind of provided in our first released for the year with the annual guidance.

But I think.

Youre going to see a pretty similar pattern and I think we'll be opportunistic relative to the environment that we see out there and as we've mentioned to you on the path we've been evaluating a variety of business development and maybe one of those things come to fruition too. So we'll keep pushing down that path.

Our primary focus is growing our existing business and then everything else kind of falls into a priority rank after that.

Thank you.

Thank you. This concludes today's question and answer session I would now.

Now, let's turn it back over to Patrick Patrick Richards.

Okay.

Yeah.

Thank you for your questions and for your participation on today's conference call. If you have any remaining questions. Please feel free to contact Investor Investor Relations a day zero 195 for 796 one.

Thank you ladies and gentlemen, please so your participation on today's call you may now disconnect.

Okay.

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