Q1 2024 Nature's Sunshine Products Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss nature Sunshine financial results for the first quarter ended March 31st 2024.
Operator: Good afternoon everyone, and thank you for participating in today's conference call to discuss Natures Sunshine's financial results for the first quarter ended March 31, 2024. Joining us today are Natures Sunshine CEO, Terrence Moorhead, CFO, Shane Jones, and General Counsel, Nate Brower. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company's Safe Harbor Statement under the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Nate, please go ahead.
Operator: Joining us today I'm Nature's Sunshine.
Operator: L Terrence Moorehead, CFO, Shane Jellies, and general Counsel Nate Brower.
Operator: Following their remarks, we'll open the call for analyst questions.
Nathan G. Brower: Before we go further I would like to turn the call over to Mr. Bauer as he reads the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 90 95 that provides important cautions regarding forward looking statements. Nate. Please go ahead.
Nathan G. Brower: Thank you good.
Nathan G. Brower: Thank you. Good afternoon, and thanks for joining our conference call to discuss our first quarter 2024 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through May 21st and via a live webcast that will be posted on the investor relations portion of our website, at www.ir.naturesunshine.com. Forward-looking statements are often characterized by terminology such as believe, hope, may, anticipate, expect, will, and other similar expressions.
Nathan G. Brower: Good afternoon, and thanks for joining our conference call to discuss our first quarter 2024 financial results.
Nathan G. Brower: I'd like to remind everyone that this call is available for replay via telephonic Dylans through may 21st and via a live webcast that will be posted in the investor relations portion of our website.
Nathan G. Brower: At IR Dot Nature's Sunshine Dotcom.
Nathan G. Brower: The information on this call contains forward looking statements.
Nathan G. Brower: Forward-looking statements are not guarantees of future performance, and actual results may be materially different from those implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the caption Risk Factors and Other Reports Filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now, I would like to turn the call over to the CEO of Natures Sunshine, Terrence Moorhead. Terrence? Thank you, Nathan.
Terrence O. Moorehead: These statements are often characterized by terminal terminology such as believe hope may anticipate expect will and other similar expressions.
Nathan G. Brower: Forward looking statements are not guarantees of future performance.
Terrence O. Moorehead: And the actual results may be materially different from the results implied by forward looking statements.
Nathan G. Brower: Factors that could cause results to differ materially from those implied herein include.
Nathan G. Brower: But are not limited to those factors disclosed in the company's annual report on Form 10-K under the caption risk factors and other reports filed with the Securities and Exchange Commission.
Terrence O. Moorehead: The information on this call speaks only as of today's date.
Terrence O. Moorehead: And the company disclaims any duty to update the information provided herein.
Nathan G. Brower: Now I would like to turn the call over to the CEO of Nature's Sunshine Terrence Moorehead, Terence. Thank you Nate and good afternoon, everyone I want to thank you for joining today's call to discuss our first quarter results as we continue to advance our global growth growth strategies digital first brainpower and field energy.
Terrence O. Moorehead: Thank you Nate and good afternoon everyone. I want to thank you for joining today's call to discuss our first quarter results as we continue to advance our global growth strategies of digital first, brand power, and field energy. And in the first quarter, we continued to gain traction and deliver positive results. Today, I'll provide some context for our first quarter performance and offer some insights on how we believe the business is progressing. From there, Shane will take you through our financials in more detail.
Terrence O. Moorehead: And in the first quarter, we continued to gain traction and deliver positive results.
Terrence O. Moorehead: Today I'll provide some context for our first quarter performance and offer some insights on how we believe the business is progressing.
Terrence O. Moorehead: From there Shane will take you through our financials in more detail.
Terrence O. Moorehead: During the first quarter, our Omnichannel approach high quality products and field activation initiatives combined to drive continued momentum in the business as net sales came in at $111 million up 4% versus prior year on a constant dollar basis outpacing the market once again.
Terrence O. Moorehead: During the first quarter, our omni-channel approach, high-quality products, and field activation initiatives combined to drive continued momentum in the business as net sales came in at $111 million, up 4% versus the prior year on a constant dollar basis, outpacing the market once again. EBITDA slightly improved in the quarter, coming in at $9.2 million, flat versus the prior year, as increased macroeconomic headwinds placed added pressure on the I'll come back to discuss gross margins a little bit later, but first, I want to talk about our strategic investments in digital and field activation that continue to have a positive and transformative impact on our business.
Terrence O. Moorehead: Yes.
Terrence O. Moorehead: EBITDA slightly improved in the quarter coming in at $9 $2 million flat versus prior year.
Terrence O. Moorehead: As increased macroeconomic headwinds placed added pressure on the business, especially gross margins.
Terrence O. Moorehead: We'll come back to discuss gross margins a little bit later, but first I want to talk about our strategic investments in digital and field activation that continued to have a positive and transformative impact on our business.
Terrence O. Moorehead: For the quarter, we continued to see strong results in North America as revenue outpaced industry trends with a 5% increase in net sales. Importantly, digital sales surged 33 percent as new customer growth increased 34 percent, driven by strong consumer campaigns and attractive creative content. Our New Year, New You digital campaign kicked off the year, generating strong sales and consumer engagement by featuring some of our most attractive products.
Terrence O. Moorehead: For the quarter, we continued to see strong results in North America as revenue outpaced industry trends with a 5% increase in net sales importantly.
Terrence O. Moorehead: Importantly, <unk>.
Terrence O. Moorehead: Digital sales surged, 33% as new customer growth increased 34% driven by strong consumer campaigns and attractive creative content.
Terrence O. Moorehead: Our new year, New you digital campaign kicked off the year generating strong sales and consumer engagement by featuring some of our most attractive products.
Terrence O. Moorehead: Beyond the strong digital performance, we were also pleased to see continued stability with our nutritional health practitioners and specialty retailers. Overall, we're very excited about the momentum we're seeing and believe our omni-channel approach is the key to long-term sustainable growth. In 2024, we expect to build on this momentum by further expanding our digital footprint while increasing the performance of our practitioners and retailers. In Asia Pacific, first quarter sales were up 5% in local currency, led by strong growth in Taiwan and South Korea.
Terrence O. Moorehead: Beyond the strong digital performance. We were also pleased to see continued stability with our nutritional health practitioners and specialty retailers.
Terrence O. Moorehead: Overall, we're very excited about the momentum were seeing and believe our Omnichannel approach is the key to long term sustainable growth.
Terrence O. Moorehead: In 2024, we expect to build on this momentum by further expanding our digital footprint, while increasing the performance of our practitioners and retailers.
Terrence O. Moorehead: In Asia Pacific first quarter sales were up 5% in local currency led by strong growth in Taiwan, and South Korea.
Terrence O. Moorehead: The challenging economic environment in China negatively impacted performance as macroeconomic headwinds reduced the effectiveness of our customer activation initiatives.
Terrence O. Moorehead: The challenging economic environment in China negatively impacted performance as macroeconomic headwinds reduced the effectiveness of our customer activation initiative. Our digital live streaming model is a powerful customer growth driver, but the current economic environment is extremely challenging. Importantly, we continue to believe, excuse me, we continue to be very positive about the long-term potential of our business in China. In Europe, the first quarter marked a return to growth as sales increased 2% in local currencies.
Terrence O. Moorehead: Our digital live streaming model is a powerful customer growth driver.
Terrence O. Moorehead: But the current economic environment is extremely challenging.
Terrence O. Moorehead: Importantly, we continue to believe Pete excuse me, we continue to be very positive about the long term potential of our business in China.
Terrence O. Moorehead: In Europe, the first quarter marked a return to growth as sales increased 2% in local currency.
Terrence O. Moorehead: The successful launch of our new Powerline products in Central and Eastern Europe helped generate increased customer activation as orders increased 7%, supported by strong field activation. We expect the positive momentum to continue to generate year-over-year sales growth for the remainder of the year. Returning to Gross Marge, we remain committed to delivering the $10 million of gross cost of goods savings we previously discussed. Our team has already verified the savings and is making excellent progress implementing our key supply chain initiatives.
Terrence O. Moorehead: The successful launch of our new power line products in central and Eastern Europe helped generate increased customer activation as orders increased 7% supported by strong field activation.
Terrence O. Moorehead: We expect the positive momentum to continue to generate year over year sales growth for the remainder of the year.
Terrence O. Moorehead: Returning to gross margins, we remain committed to delivering the $10 million of gross cost of goods savings. We previously discussed.
Terrence O. Moorehead: Our team is already verified the savings and is making excellent progress implementing our key supply chain initiatives in.
Terrence O. Moorehead: In 2024, we expect to see gradual improvement in our gross margins with quarterly fluctuations driven by mix, seasonal promotions, and fluctuating costs. Importantly, we're taking the appropriate steps to ensure we achieve our goal. Finally, I'm pleased to announce that we recently released our 2023 Impact Report. Our sustainability and transparency initiatives demonstrate our commitment to making a positive difference for our planet and its people. And we continue to set bold goals around emissions, waste reduction, renewable energy, and more.
Terrence O. Moorehead: In 2024, we expect to see gradual improvement in our gross margins with quarterly fluctuations driven by mix seasonal promotions and fluctuating costs importantly, we're taking the appropriate steps to ensure we achieve our goal.
Terrence O. Moorehead: Finally, I'm pleased to announce that we recently released our 2023 impact report.
Terrence O. Moorehead: Our sustainability and transparency initiatives demonstrate our commitment to making a positive difference for our planet and its people and we continue to set bold goals around emissions waste reduction renewable energy and more.
Terrence O. Moorehead: As we near the completion of our 2025 goals, we know that there's still much more to do, and we look forward to making additional strides that will take us to an entirely new level in the years that come. Our 2023 Impact Report can be found in the Sustainability section of our website, and I encourage you to look at some of the exciting things that our organization is doing. In summary... We're very pleased with the progress we've made on our key strategies, and our first quarter results demonstrate the strength and resilience of our business. I'd like to leave you with the following thoughts.
Terrence O. Moorehead: As we near the completion of our 2025 goals. We know that there is still much more to do and we look forward to making additional strides that will take us to an entirely new level in the years to come.
Terrence O. Moorehead: Our 2023 impact report can be found on the sustainability section of our website and I encourage you to look at some of the exciting things that our organization is doing.
Terrence O. Moorehead: In summary.
Terrence O. Moorehead: We're very pleased with the progress we've made on our key strategies in our first quarter results demonstrate the strength and resilience of our business.
Terrence O. Moorehead: I'd like to leave you with the following thoughts.
Terrence O. Moorehead: First... Our business continues to outperform the market with sales growth driven by strategic investments in digital, field activation, and brand building initiatives. Working in combination, these investments have allowed us to attract and retain more new customers, drive order growth, and build momentum in the market. Second, we're committed to delivering the $10 million of gross cost of goods savings that we've previously discussed. We're already well into the process, and we expect to see gradual improvements in our 2024 gross margin.
Terrence O. Moorehead: <unk>.
Terrence O. Moorehead: Our business continues to outperform the market with sales growth driven by strategic investments in digital field activation and brand building initiatives.
Terrence O. Moorehead: Working in combination these investments have allowed us to attract and retain more new customers drive order growth and build momentum in the market.
Terrence O. Moorehead: Second we're committed to delivering the $10 million of gross cost of goods savings that we've previously discussed.
Terrence O. Moorehead: We're already well into the progress process and we expect to see gradual improvements in our 2020 for gross margins.
Terrence O. Moorehead: Third and finally.
Terrence O. Moorehead: Third, and finally... We've built a strong financial position with a solid balance sheet and strong positive cash flow that will allow us to continue to invest in our growth strategies as we move forward. We're still operating in a very challenging external environment, but our team is focused. They continue to execute our strategies well, and we believe that as we look forward, we'll continue to drive positive momentum in 2024 and beyond. With that, I'd like to turn the call over to our Chief Financial Officer, Shane Jones. Okay, Shane? Thank you, Terrence.
Shane Jones: We've built a strong financial position with a solid balance sheet and strong positive cash flow that will allow us to continue to invest in our growth strategies as we move forward.
Shane Jones: We're still operating in a very challenging external environment, but our team is focused they continue to execute our strategy as well and we believe that.
Shane Jones: As we look forward, we will be continue to drive positive momentum in 2024 and beyond with that I'd like to turn the call over to our Chief Financial Officer Changeovers Shane Thank.
Shane Jones: Thank you, Terrence. We are excited about the momentum in our key markets, especially in North America, where the turnaround continues, driven by our healthy and growing digital business. Consolidated net sales in the first quarter were $111 million compared to $108.6 million in the year-ago quarter, representing a 4% increase on a local currency basis or 2% including the impact of foreign exchange. The increase was driven by strong performance in our digital business along with continued robust growth in Taiwan.
Shane Jones: Thank you Terence we are excited about the momentum in our key markets, especially in North America, where the turnaround continues driven by our healthy and growing digital business.
Shane Jones: Consolidated net sales in the first quarter were $111 million compared to $108 6 million in the year ago quarter, representing a 4% increase on a local currency basis or 2%, including the impact of foreign exchange the.
Shane Jones: The increase was driven by strong performance in our digital business, along with continued robust growth in Taiwan.
Shane Jones: Looking at results by market in the first quarter, Asia Pacific sales grew 5% on a local currency basis to $46.2 million despite significant macroeconomic pressure; foreign exchange rates posed a $2.5 million headwind, yielding basically flat year-over-year results net of FX. In addition to the foreign exchange impact in Asia, poor macroeconomic conditions along with deteriorating consumer sentiment in China impacted results in that market, with sales down 13% or 9% on a local currency basis. While our digital live streaming approach has been well received by consumers, current leading indicators suggest that the difficult macroeconomic situation is likely to deter growth in China for the near term.
Shane Jones: Looking at results by market in the first quarter.
Shane Jones: Asia Pacific sales grew 5% on a local currency basis to $46 $2 million despite significant macroeconomic pressure.
Shane Jones: Foreign exchange rates post a $2 $5 million headwind, yielding basically flat year over year results net of FX.
Shane Jones: In addition to the foreign exchange impact in Asia.
Shane Jones: Poor macroeconomic conditions, along with deteriorating consumer sentiment in China impacted results in that market with sales down, 13% or 9% on a local currency basis.
Shane Jones: While our digital live streaming approach has been well received by consumers current leading indicators suggest that the difficult macroeconomic situation is likely to deter growth in China for the near term.
Shane Jones: In Japan, sales were up 3% on a local currency basis, but due to the recent spike in the yen dollar exchange rate, sales were down 8% net of foreign exchange. This sequential dip in growth is primarily due to the timing of events, and we expect to be back on track with stronger growth through the remainder of the year. Taiwan continues to show strong momentum, reporting 15% growth on a local currency basis or 11% including foreign exchange.
Shane Jones: In Japan sales were up 3% on a local currency basis, but due to the recent spike in the yen dollar exchange rate sales were down 8% net of foreign exchange.
Shane Jones: The sequential dip in growth is primarily due to the timing of events and we expect to be back on track with stronger growth through the remainder of the year.
Shane Jones: Taiwan continued to show strong momentum reporting 15% growth on a local currency basis, or 11%, including foreign exchange during Q1, driven by the adoption of subscribed and thrive.
Shane Jones: During Q1, driven by the adoption of Subscribe and Thrive, along with strong overall execution in the field, Korea also showed good momentum in Q1, with sales on a local currency basis growing 8%, or up 3% including the impact of foreign exchange. This represents their best quarter in nearly two years and supports our belief that we are in the early stages of a turnaround there as the team builds out sales tools and capabilities, focuses on improved customer acquisition and activation, and continues to drive sequential improvement and order growth. We anticipate this turnaround will take additional time, but are confident that we are taking the right steps to return to sustained growth later this year.
Shane Jones: Along with strong overall execution in the field.
Shane Jones: Korea also showed good momentum in Q1 with sales on a local currency basis growing 8% were up 3%, including the impact of foreign exchange.
Shane Jones: This represents their best quarter in nearly two years and supports our belief that we are in the early stages of a turnaround there as the team builds out sales tools and capabilities focuses on improved customer acquisition activation and continues to drive sequential improvement in order growth.
Shane Jones: We anticipate this turnaround will take additional time.
Shane Jones: But are confident that we are taking the right steps to return to sustained growth later this year.
Shane Jones: In North America, Q1 sales grew 5% versus last year to $36 5 million as a result of strong digital at top adoption.
Shane Jones: In North America, Q1 sales grew 5% versus last year to $36.5 million as a result of strong digital adoption combined with a continued robust increase in new customers during the quarter. Digital sales grew 33%, new customers increased by 34%, and average order value improved 10% versus the prior year. These metrics, along with a 6% increase in subscriber and thrive revenue, provide a strong signal regarding the opportunity of this channel and continue to validate our belief regarding its value.
Shane Jones: Combined with the continued robust increase in new customers during the quarter.
Shane Jones: Digital sales grew 33% new customers increased by 34% and average order value improved 10% versus prior year.
Shane Jones: These metrics along with a 6% increase in subscribing drive revenue provide a strong signal regarding the opportunity of this channel and continue to validate our belief regarding its potential.
Shane Jones: Sales in Europe increased 2% on a local currency basis, or 4%, including the impact of foreign exchange.
Shane Jones: Sales in Europe increased 2% on a local currency basis, or 4% including the impact of foreign exchange. This is reflective of strong performance in Central Europe, driven by outstanding customer engagement with our recently launched Powerline products, along with relative stability in Eastern Europe.
Shane Jones: This is reflective of strong performance in central Europe, driven by outstanding customer engagement with our recently launched power line products, along with relative stability in eastern Europe.
Shane Jones: Now shifting to margins.
Shane Jones: Now Shifting to Margin. Gross margin in the first quarter increased 33 basis points to 71.2% compared to 70.8% a year ago. The increase was driven by our gross margin improvement initiatives, which were partially offset by increases related to inflation and unfavorable foreign currency exchanges. We continue to be pleased with the progress that we are making with our gross margin initiatives, expect continued savings throughout this year, and reiterate our commitment to meet or exceed our $10 million goal.
Shane Jones: Gross margin in the first quarter increased 33 basis points to 71, 2% compared to 78% a year ago. The increase was driven by our gross margin improvement initiatives, which were partially offset by increases related to inflation and unfavorable foreign currency exchange.
Shane Jones: We continue to be pleased with the progress that we're making with our gross margin initiatives expect continued savings throughout this year and reiterate our commitment to meet or exceed our $10 million goal.
Shane Jones: In addition to our gross margin initiatives, we will continue to consider targeted price increases on certain products and in certain markets to account for increases in inflation and foreign exchange. Volume incentives as a percentage of net sales were 30.2% compared to 30.5% in the year-ago quarter. The decrease was primarily due to changes in market and channel mix.
Shane Jones: In addition to our gross margin initiatives, we will continue to consider targeted price increases on certain products and in certain markets to account for increases in inflation and foreign exchange.
Shane Jones: Volume incentives as a percentage of net sales were 32% compared to 35% in the year ago quarter there.
Shane Jones: The decrease was primarily primarily due to changes in market and channel mix as.
Shane Jones: As our digital business continues to grow, we would expect volume incentives as a percentage of net sales to continue to decline. Selling general and administrative expenses during the first quarter were $40.8 million compared to $43.6 million in the year-ago quarter. The decrease was driven primarily by a non-recurring loss in Japan in the prior year.
Shane Jones: As our digital business continues to grow we would expect volume incentives as a percentage of net sales to continue to decline.
Shane Jones: Selling general and administrative expenses during the first quarter were $48 million compared to $43 6 million and a year ago quarter. The decrease was driven primarily by a nonrecurring loss in Japan in the prior year.
Shane Jones: As a percentage of net sales, SG&A expenses were 36.7% in the first quarter compared to 40.2% in the year-ago quarter. Excluding Japan-related charges of $5.8 million, SG&A was 36.7 percent in the first quarter compared to 34.8 percent a year ago, with the increase driven by global compensation and the timing of event expenses. Operating income increased to $4.6 million compared to $0.2 million in the year-ago quarter. Gap net income attributable to common shareholders for the first quarter was $2.3 million, or $0.12 per diluted common share, compared to $0.9 million or $0.04 per diluted share in the year-ago quarter.
Shane Jones: As a percentage of net sales SG&A expenses were 36, 7% in the first quarter compared to 42% in the year ago quarter.
Shane Jones: Excluding Japan related charges of $5 $8 million SG&A was 36, 7% in the first quarter compared to 34, 8% a year ago with the increase driven by global compensation and the timing of event expenses.
Shane Jones: Operating income increased to $4 6 million compared to zero point $2 million and a year ago quarter.
Shane Jones: GAAP net income attributable to common shareholders for the first quarter was $2 $3 million or <unk> 12 per diluted common share compared to <unk> 9 million or four cents per diluted share in the year ago quarter.
Shane Jones: Adjusted EBITDA as defined in our earnings release increased slightly to $9 $2 million compared to $9 1 million in the year ago quarter.
Shane Jones: Adjusted EBITDA, as defined in our earnings release, increased slightly to $9.2 million compared to $9.1 million in the year-ago quarter. Our balance sheet remains clean, with cash and cash equivalents of $77.8 million and $2.1 million of debt. Inventory was $62.7 million at the end of the first quarter, which is $4.2 million less than we ended 2023. Net cash provided by operating activities was $3.1 million compared to $9.3 million in a prior year period, reflecting the timing of incentive compensation payments in 2024.
Shane Jones: Our balance sheet remains clean with cash and cash equivalents of $77 $8 million and $2 $1 million of debt.
Shane Jones: Inventory was $62 $7 million at the end of the first quarter, which is $4 $2 million less than we ended 2023.
Shane Jones: Net cash provided by operating activities was $3 1 million compared to $9 3 million in the prior year period.
Shane Jones: Reflecting the timing of incentive compensation payments in 2024.
Shane Jones: As part of our capital allocation plan, we repurchased 105,000 shares in the quarter for $1.8 million, or an average price of $17.61 per share. As of March 31st, 2024, $15.8 million remains in our $30 million share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives, now turning to our 2024 store. We are reiterating our financial targets and continue to expect full year 2024 net sales to range between $455 million and $480 million.
Shane Jones: As part of our capital allocation plan, we repurchased 105000 shares in the quarter for $1 $8 million or an average.
Shane Jones: <unk> price of $17 61 per share.
Shane Jones: As of March 31, 2024.
Shane Jones: <unk> $15 8 million remains of our $30 million share repurchase program.
Shane Jones: Looking beyond share repurchases are healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives.
Shane Jones: Now turning to our 2024 outlook.
Shane Jones: We are reiterating our financial targets and continue to expect full year 2024, net sales to range between 455 billion.
Shane Jones: Dollars and $480 million.
Shane Jones: As a reminder, this includes an estimated 100 basis point headwind to growth due to foreign exchange. As such, our guidance equates to constant currency growth of 3% to 9%. Please note that we expect sequential improvement in sales as we progress through the year, but due to the difficult year-over-year comparison in Q2, growth is likely to be more weighted to the back half of 2024. We also continue to expect Adjusted EBITDA to range between $42 million and $48 million.
Shane Jones: As a reminder, this includes an estimated 100 basis point headwind to growth due to foreign exchange as such our guidance equates to constant currency growth of 3% to 9%.
Shane Jones: Please note that we expect sequential improvement in sales as we progressed through the year, but due to the difficult year over year comparison in Q2 growth is likely to be more weighted to the back half of 2024.
Shane Jones: We also continue to expect adjusted EBITDA to range between $42 million and $48 million.
Shane Jones: Overall, we are pleased with the progress we are making in each of our markets. Encouraged by continued customer growth in digital and confident in our ability to continue to drive strong shareholder returns through growth in sales and profitability in 2024 and beyond, Now I will turn the time back to the ops.
Shane Jones: Overall, we are pleased with the progress we're making in each of our markets encouraged by continued customer growth in digital and confident in our ability to continue to drive strong shareholder returns to growth in sales and profitability in 2024 and beyond.
Speaker Change: Now I will turn it the time back to the operator.
Speaker Change: Thank you, Sir ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press star followed by the number one on your Touchtone phone line Youll hear today, Tom Tom acknowledging your request.
Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift your hands up before pressing any key.
Speaker Change: We wish to decline from the pooling process. Please press star followed by the number camp.
Operator: If you are using a speaker phone please lift the handset preferred pressing any clue.
Speaker Change: Our first question comes from the line of Linda Bolton Weiser from D. A Davidson go ahead. Please.
Operator: Our first question comes from the line of Linda Bolton-Weiser from D.A. Davidson.
Operator: Hi.
Linda Ann Bolton: Hi, um, so, um, on top line growth, your 4% in constant currency actually kind of beat our estimate, but the FX aspect was a little more negative than expected. And I mean, I don't know about my calculations, but it seems to me that currency translation for the year might be closer to negative 2%, not negative 1%. It is that although you said negative 1%, so I don't know. Can you shed some light on that?
Operator: So.
Linda Ann Bolton: I guess on top line growth, you're 4% in constant currency actually kind of beat our estimate but the FX aspect was a little more negative than expected.
Linda Ann Bolton: I mean, it seems to me.
Linda Ann Bolton: I don't know by my calculations, but it seems to me that currency translation for the year might be closer to a negative 2% negative 1%.
Linda Ann Bolton: Is that all.
Linda Ann Bolton: But you said negative 1%. So I don't know can you shed some light on that.
Linda Ann Bolton: Jay do you want to comment on that yes, absolutely. So it really depends Linda what exchange rates continue to do through the remainder of the year.
Shane Jones: Shane, do you want to comment on that? Absolutely.
Shane Jones: So it really depends, Linda, on what exchange rates continue to do through the remainder of the year. Our expectation is that they don't get any worse, they get a little bit better. But you could be right if exchange rates continue where they're at or get a little worse, that it could be more than the 100 basis points that we've talked about.
Shane Jones: Expectation is they don't get any worse things get a little bit better, but you could be right.
Shane Jones: If exchange rates continue where they are at to or get a little worse than it could be more than a 100 basis points that we've talked about.
Shane Jones: Okay.
Shane Jones: And.
Shane Jones: And, um, so. You rightly said and pointed out that the comparison, the prior year comp, is pretty hard in the second quarter. I mean, do you feel pretty confident you'll have constant currency sales growth, you know, positive growth year over year? Or is it possible that sales could actually be down a little bit in constant currency?
Shane Jones: So.
Shane Jones: You rightly said and pointed out that the comparison to prior year comp is pretty hard in the second quarter.
Shane Jones: I mean do you feel pretty confident you'll have core constant currency sales growth positive growth year over year or is it possible that sales could actually be down a little bit in constant currency.
Shane Jones: In Q2, and obviously, we're giving guidance only for the year our year guidance, we're sticking to what we said, but Q2 is a difficult comp and so difficult to say exactly what will happen there, but we expect to be close to flat.
Shane Jones: In Q2, and obviously we're giving guidance only for the year, your guidance is, we're sticking to what we said, but Q2 is a difficult comp, and so it's difficult to say exactly what will happen there, but we expect to be close to flat.
Shane Jones: Okay.
Shane Jones: in constant currency.
Shane Jones: In constant currency.
Shane Jones: Yes. Yes.
Shane Jones: In constant currency, yes, yeah. Okay. That's very helpful. Thank you and then.
Linda Ann Bolton: Yeah, okay, that's very helpful. Thank you.
Linda Ann Bolton: So on the gross margin.
Shane Jones: So, on the gross margin... Again, you really weren't far off from where we were at. So when you say the difficult environment, do you mean that you need to promote a little bit more to get consumers to kind of step up and buy, and that affects your growth margin? Or what is the connection between, you know, the macro and the growth margin? Just if you could clarify that.
Shane Jones: Daniel you really weren't far off from where we were at.
Shane Jones: When you say the difficult environment do you mean that you need to promote a little bit more.
Shane Jones: She'll get consumers to kind of step up and buy in that as well.
Speaker Change: Thanks, your gross margin or what what was the connection between.
Shane Jones: The macro and the gross margin just if you could clarify that.
Speaker Change: Yes. It was it was actually a couple of things in and we actually didn't do a tremendous amount more promotions, but there was some mix in there.
Shane Jones: It was actually a couple of things, and we actually didn't do a tremendous amount more promotions, but there was some mixing in there, inflation, and foreign exchange. Shane, you want to add some more public commentary? Yeah. No, those are primarily the biggest things.
Shane Jones: Inflation foreign exchange Shane you want to add some more color commentary, yes. Those are primarily the biggest things as we continue to see some inflation and the ingredients that we purchase as well as in labor.
Shane Jones: Yeah, those are primarily the biggest things, which is that we continue to see some inflation in the ingredients that we purchase as well as in labor for the manufacturing that we do. But in addition to that, the FX impact, the foreign exchange impact, actually hurts our gross margins as well. So those are the two primary things. There is a little bit of promotional material there. We were a little bit more promotional in Q1 than we had been in the previous Q1, previous
Shane Jones: For the manufacturing than we do but in addition to that the FX impact the foreign exchange impact does actually hurt our gross margins as well. So those are the two primary things there is a little bit of promotion Ality. There we were a little bit more promotional in Q1 than we had been in the previous Q1.
Shane Jones: On previous.
Shane Jones: Previous year, but that's not the biggest yes margin yes.
Shane Jones: Okay.
Shane Jones:
Shane Jones: And I think overall, though overall, though Linda we still feel good about our gross margin kind of plan and the trajectory going forward. So.
Shane Jones: I think overall, Linda, we still feel good about our gross margin kind of plan and the trajectory going forward. I think we got, you know, we took a hit in the second quarter. Again, we saw some shifts in mix, especially in some high-margin markets where we had some softness. But, again, going forward, we feel good.
Shane Jones: I think we got.
Shane Jones: We took a hit in the second quarter.
Shane Jones: Again, we saw some shifts in mix, especially in some some high margin markets that where we had some softness.
Shane Jones: But.
Shane Jones: Going forward, we feel good.
Shane Jones: Yes.
Shane Jones: That's the other thing that I should have mentioned, is if we have stronger APAC sales, that helps our gross margin, and if APAC doesn't grow as much, Asia Pacific, then that hurts our gross margins as well, so that mixed impact also was part of Q1.
Linda: That's the other thing I Should've mentioned this.
Shane Jones: If we have stronger APAC sales that helps our gross margin and if the APAC doesn't grow as much or Asia Pacific than that hurts, our gross margin as well so that mix impact also was part of Q1.
Shane Jones: Oh, right, although APAC China.
Linda Ann Bolton: Right, although APAC kind of grew faster than the other regions, didn't it? I thought it was up 7 or something like that.
Linda Ann Bolton: So I asked are there any other reasons.
Linda Ann Bolton: So that was up seven or something like that.
Shane Jones: On a local currency basis, it was up 5%.
Linda Ann Bolton: On a local currency basis and was up 5%.
Shane Jones: Asia Pacific. Oh, up five.
Shane Jones: Asia is up five Oh, yes, yes.
Shane Jones: The same as North America Okay.
Shane Jones: Gotcha.
Shane Jones:
Linda Ann Bolton: Oh yeah, yeah, so it was the same as North America, okay. Gotcha.
Shane Jones: So.
Speaker Change: I mean, given well, let me ask about EMEA, if I could.
Shane Jones: I mean, given, well, let me ask about EMEA, if I could. I mean, EMEA, I guess, return to growth, as you said. And so is it, is it the result of the strategic actions that you've taken there? Or is it just kind of settling in after the whole Russia thing or something like that? Because I don't know if the economy is super great in Europe either, but what do you, what do you, how do you describe the return to growth and, and it sounded like you were pretty confident it would continue. So just give a little more color on that, please. Yeah, two big things.
Shane Jones: I guess return to grow Europe, what you said and so.
Shane Jones: Is it is as a result of the strategic actions that you've taken there or is it just.
Shane Jones: Kind of settling in after the whole, Russia thing or what.
Shane Jones: Because I don't know if the economy Super great in Europe either.
Shane Jones: But but what do you what do you how do you describe the return to the growth and and it sounded like you were pretty confident it would continue so I'll just give a little more color on that please.
Shane Jones: Yeah, two big things, you know, first and foremost, some really good field activation type programs, just to kind of drive orders and keep the field organization, you know, kind of moving forward and growing. And then, secondly, the launch of our Powerline products. Powerline, the Greens product, was the most successful new product launch in the history of our European business unit. So that really helped attract a significant number of new customers to the business, kind of gave the sales force something to again put a little extra bounce in their step and give them an excuse to go out and reactivate some inactive or lapsed customers. So it really was quite a strong order growth driver for them for the quarter. And we expect that strength in their business and that momentum to continue throughout the year.
Speaker Change: Yes, two big things first and foremost.
Shane Jones: <unk> had some really good just field activation type programs, just to kind of drive orders and keep keep the field organization.
Shane Jones: Kind of a movie.
Shane Jones: Moving forward and growing and then secondly, the launch of our power line products power line. The Greens product is the most successful new product launch in the history of our European business unit.
Shane Jones: So that really helped attract a significant number of new customers to the business.
Shane Jones: You kind of gave.
Shane Jones: Kind of the sales force something to again put a little extra bounce in their step in government, an excuse to go out and and reactivate some some.
Shane Jones: Inactive or lapsed customers. So it really was quite a strong order growth driver for them for the quarter and we expect that.
Shane Jones: That strength in their business and that momentum to continue throughout the year.
Shane Jones: Okay.
Linda Ann Bolton: and then um, Let's see, um, just going back to the numbers and the guidance. So even though I was flattish in this quarter, and you're saying up to a 19% range for the year. I mean, how confident are you? I guess that growth is going to be all kind of second half weighted because the second quarter has a hard comp. Um, are you feeling more comfortable at the lower end of the range? Or is the middle still something you see as doable? I'm just kind of.. wanting to know how you feel about that.
Shane Jones: And then.
Speaker Change: Let's see.
Linda Ann Bolton: Just going back to the to the numbers in the guidance.
Linda Ann Bolton: So EBITA was flattish in this quarter, and you're saying up 4% to 19% range for the year.
Linda Ann Bolton: I mean, how confident are you I guess, that's kind of the growth is going to be all kind of second half weighted because the second quarter has has the hard comp.
Linda Ann Bolton: I mean are you feeling more comfortable at the lower end of the range.
Linda Ann Bolton: Or is the middle scale something you see is doable.
Linda Ann Bolton: I'm just kind of.
Linda Ann Bolton: Wanting to know how youre, how youre feeling about that.
Shane Jones: Obviously, we're in May now, but there's still a lot to come. We're excited about what we're seeing with a lot of our initiatives. We're seeing some good progress, but we're also seeing some significant headwinds in FX and other things. So at this point, we are keeping that guidance, but if you had to, you know, ask me if you pin me down, we'd be at the lower end or lower half of that guidance at this point.
Linda Ann Bolton: Obviously, where we're at.
Shane Jones: We are in May now, there's still a lot to come and we're excited about what we're seeing with a lot of our initiatives. We're seeing some good progress, but we're also seeing some some significant headwinds in FX and other things.
Shane Jones: So at this point, we are keeping that guidance, but if you had to ask.
Shane Jones: Your pin me down we'd be at the lower end or lower half of the of that guidance at this point.
Speaker Change: Okay. That's helpful.
Linda Ann Bolton: Okay, that's helpful. You know, I don't mean to, uh..., whatever, compare you to another company because I know you're all very different. But in the direct selling area, USANA Nutritional Supplements actually said that their promotion in China helped them quite a bit in the quarter. It really seemed that there was a lot of responsiveness to it. You know, I'm just, it's interesting to hear you sort of just more negative about China. I guess they had more of a positive tone, like maybe things are coming around.
Linda Ann Bolton: And.
Linda Ann Bolton: You know I don't mean to.
Linda Ann Bolton: Whatever compare you to another company because I know you are all very different but in the direct selling area.
Linda Ann Bolton: Yes.
Linda Ann Bolton: Nutritional supplements actually said that their promotion in China helped them quite a bit in the quarter.
Linda Ann Bolton: It really seem that there was a lot of responsiveness to it.
Shane Jones: Is there any way you can give a little more color? I guess maybe you don't do the same kind of promotion to drive sales activity, maybe. Any color?
Linda Ann Bolton: I'm, just it's interesting to hear.
Shane Jones: You sort of just more negative about China, I guess, they had more of a positive tone like maybe things are coming around is there is there any way you can give a little more color.
Shane Jones: I guess, maybe you don't do the same kind of promotions to drive sales activity maybe.
Linda Ann Bolton: We don't. Yeah, we don't, Linda, but I also think...
Linda Ann Bolton: Well.
Speaker Change: We don't.
Shane Jones: Yeah, we don't Linda, but I also think, you know, the momentum behind our business had been, you know, previously, you know, kind of, we'd had consecutive quarters of positive growth, and I'm not sure if they were necessarily in the same place where we were. I think the headwinds are, you know, they hit us in Q1.
Linda Ann Bolton: Yes, we don't Linda but I also think the momentum behind our business had been previously.
Shane Jones: <unk> had six consecutive quarters of positive growth and I'm not sure. If they were necessarily in the same place where we've been so.
Shane Jones: I think the headwinds are they hit us in Q1 of.
Shane Jones: Again, we believe in the business. Our digital approach to the marketplace is really quite powerful. Going forward, though, we'll have to make sure that we're truly engaging consumers because they're under a lot of pressure right now. So, we've got some things to address in China, but again, we've got a powerful model to help us do that with our digital live streaming.
Shane Jones: Again, we believe in the business, our our digital approach to the marketplace is really quite powerful.
Shane Jones: Going forward, though we will have to make sure that we are.
Shane Jones: <unk>.
Shane Jones: Truly engaging consumers because they're under a lot of pressure right now so we've got some things to address in China, but again, we've got a powerful model to help us do that with our digital live streaming.
Shane Jones: Okay.
Shane Jones: And then.
Linda Ann Bolton: And then just on Korea, South Korea, that was actually really encouraging because I think you've been declining in South Korea for quite some time, if I'm not mistaken. So, again, it sounds like you're not, you know, promising, you know, it's going to continue, but it sounds encouraging. Could you give a little more color on what's going on there? Yeah, they had a great quarter.
Shane Jones: Just on Korea.
Linda Ann Bolton: South Korea that was actually really encouraging because I think you said declining in South Korea for quite some time, if I'm not mistaken so again it sounds like youre not.
Linda Ann Bolton: Promising.
Linda Ann Bolton: It's going to continue but it sounds encouraging could you give a little more color on what's going on there.
Shane Jones: Yeah, they had a great quarter. They kind of just went back to some good solid field fundamentals. They're trying to reconstitute the business after being essentially shut down due to COVID for several years. So they still have a lot of work to do ahead of them, and for the full year, I think we're looking at some positive momentum for them, but you know, there'll be fluctuating results from quarter to quarter, but I think they're putting in place all the right building blocks to get them back on track for a positive year.
Speaker Change: Yes, they had a great quarter.
Shane Jones: Really just went back to some good solid field fundamentals, they're trying to reconstitute the business after being essentially shut down due to COVID-19 for several years.
Shane Jones: So they still have a lot of work to do ahead of them.
Shane Jones: And for the full year I think we're looking at some sort of positive momentum for them, but there'll be fluctuating results from quarter to quarter, but.
Shane Jones: I think they are putting in place all the right building blocks to get them back on track for a for a positive year.
Shane Jones: Okay.
Linda Ann Bolton: And just finally, I was curious about getting an update on the personalization effort, which I think is just in North America. What's going on with these pill packs and things of that nature? Are you proceeding with that? Where are we on that initiative?
Shane Jones: And just finally I was curious about getting an update on the personalization effort, which I think is just in North America.
Linda Ann Bolton: What's going on with that.
Linda Ann Bolton: This pill packs and things of that nature are you are you proceeding with that where are we on that initiatives.
Shane Jones: Yeah, that's still a slow growth initiative for us right now. I think I mentioned a couple of quarters ago that we believe personalization is very important in this space as it allows for convenience, it allows for easy kind of re-engagement of the consumers every single month, but we also believe that it's going to take some time just to build adoption rates. So it's up and running, and it's just a slow build for us over time, as expected.
Speaker Change: Yes, that's still a slow growth initiative for US right now I think I had mentioned a couple of quarters ago, We believe in.
Shane Jones: Yeah, that's still a lot of...
Shane Jones: Believe personalization is very important in this space.
Shane Jones: Is it allows for convenience it allows for easy.
Shane Jones: Kind of Reengagement of the consumers every single month, but we also believe that it's going to take some time to just to build adoption rates. So it's up and running and it's just a slow build for us over time as as expected. So right now our our marketing dollars are focused on driving.
Shane Jones: So right now, our marketing dollars are focused on driving engagement with areas like the power line where we've seen tremendous success, driving a kind of digital activation where we're seeing great success and new customer growth, and making sure that we're getting people in to subscribe and thrive. So those are probably priorities that we're putting at the front of the line right now, Linda, but personalization is still there, and we're making sure that we're providing that service.
Shane Jones: <unk> engagement with areas like the power line, where we've seen tremendous success.
Shane Jones: Driving kind of digital activation, where we're seeing great success in new customer growth and making sure that we're getting people into subscribing thrived. So those are probably our priorities that we're that we're putting at the front of the line right now Linda but personalization is still there and we're making sure that we're providing that service to people.
Shane Jones: Okay.
Linda Ann Bolton: Okay, I guess that's all for me. Thank you very much. That's great.
Speaker Change: I guess, that's all for me thank you very much.
Shane Jones: It's great. Thank you. Great to hear from you.
Speaker Change: That's great. Thank you Greg here for me.
Speaker Change: And there seems to be no further questions at this time I'd now like to turn the call back over to management for final closing comments.
Operator: And there seem to be no further questions at this time; I'd now like to turn the call back over to management for final closing comments.
Speaker Change: Okay, well. Thank you very much we'd like to thank everyone for listening to today's call and we look forward to speaking with you. When we report our second quarter 2024 results in August so once again, thank you and take care.
Operator: Okay, well, thank you very much. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our second quarter 2024 results in August. So once again, thank you, and take care.
Operator: Okay.
Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Have a lovely day.
Speaker Change: Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask could you. Please disconnect your lines have a lovely day.
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Speaker Change: Thank you.
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