Q1 2025 Nature's Sunshine Products Inc Earnings Call
Speaker Change: Good afternoon everyone and thank you for participating in today's conference call to discuss nature's on Shine's financial results for the first quarter and at March 31, 2025.
Speaker Change: Joining us today are Natures Sunshine CEO Terrence Moorehead, CFO Shane Jones and General Counsel Nate Brower.
Following the remarks will open the call for analyst questions.
Speaker Change: Before we go further, I would like to turn the call over to Mr. Brower, as he reached the company's safe harbor statements within the meaning of the private securities litigation reform act of 1995 that provides important cautions regarding forward-looking statements. May it please go ahead.
Speaker Change: Good afternoon and thanks for joining our conference call to discuss our first quarter 20-25 financial results
Speaker Change: I'd like to remind everyone that this call is available for replay via telephonic dial-ins through May 20th and via a live webcast that will be posted in the Investor Relations portion of our website at ir.naturessunshine.com
Speaker Change: The information on this call contains forward-looking statements. These statements are often characterized by terminology such as belief, hope, may, anticipate, expect, will, and other similar expressions.
Speaker Change: 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 10k under the caption risk factors.
Speaker Change: and other report files 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.
Speaker Change: Now I would like to turn the call over to the CEO of Nature Sunshine Terrence Moorehead. Terrence?
Terrence Moorhead: Thank you Nate and good afternoon everyone. I want to thank you for joining today's call to discuss our first quarter results. Today I'll provide an overview of our first quarter performance and offer some insights into how the business is building momentum. From there, shame will take you through our financials in more detail.
Terrence Moorhead: We find ourselves operating in an increasingly uncertain macroeconomic environment as international trade tariffs and consumer sentiment have become increasingly volatile. So before I dive in, I want to take a moment to share some thoughts on how we're approaching the current situation.
Terrence Moorhead: And specifically, I'd like to talk about our plans to get ahead of the evolving tariff situation and the actions we're taking to protect the business and our customers.
Terrence Moorhead: Despite increased market uncertainty, the underlying demand for our products remains strong and our outlook for 2025 remains positive.
Terrence Moorhead: Importantly, we've taken some aggressive steps to minimize our exposure to the tariffs, like increasing raw ingredient inventory, enforcing pricing contracts with key suppliers, and moving finished goods into selected markets to avoid retaliatory tariffs.
Terrence Moorhead: For our high-risk products, we're holding anywhere from 9 to 12 months of inventory. This gives us time to realign our supply chain, find alternative suppliers, identify product substitutes, evaluate pricing, or make any other necessary adjustments.
Terrence Moorhead: Based on our plans, we believe we're well-positioned to address the threat posed by the tariffs in 2025.
Terrence Moorhead: We continue to monitor the situation and our particularly sensitive to how consumer spending will be impacted if household budgets come under increased pressure.
Terrence Moorhead: Our goal is to continue our positive customer growth trend, so we've tried to position ourselves in a way that allows us to avoid terra-related price increases that might interrupt our momentum.
Now, with that as a backdrop,
Terrence Moorhead: We're very pleased to report that 2025 is off to a strong start. First quarter results beat analyst expectations as revenue came in at $113 million or $115 million on a constant currency basis up 5% versus prior year.
Terrence Moorhead: Adjusted EBITDA was also strong, coming in at $11 million of 20% versus prior year.
Terrence Moorhead: The results reflect strong execution of our strategies in Asia-Pacific and Europe while leading indicators show us building momentum in North America.
Terrence Moorhead: In Asia Pacific, we continued to benefit from the strategic changes that we made to our marketing mix as first quarter revenue increased 10% versus prior year on our local currency basis.
Terrence Moorhead: Once again, Japan and Taiwan were standout performers as sales increased 24% and 18% respectively on a local currency basis.
Our strategy to refocus the business on high velocity products
Terrence Moorhead: that offer an attractive repeat purchase opportunity continued to drive strong order growth.
Terrence Moorhead: While the expansion of our Subscribe and Thrive Autoship Program helped improve customer activities and drive orders. Overall, we remain very encouraged by the strength of our business in the region.
Terrence Moorhead: In Europe , our performance continued to strengthen as sales increased 9% on a constant
Terrence Moorhead: The strong performance was primarily driven by Central Europe , which was up 16% in local currency as we continue to see positive results from the team's discipline approach and strong execution.
Terrence Moorhead: An intensified focus on the power line continued to drive sales and customer spend, while our expansion into the Baltic States helped increase customer activation.
Terrence Moorhead: Moving forward, we expect to see continued positive momentum in the region.
Terrence Moorhead: In North America, sales were down 4% on a very difficult comparison versus prior year.
Terrence Moorhead: Additionally, our nutritional health practitioners, specialty retailers and affiliates continue to show improved fundamentals in response to some organizational changes that were put in place to improve touch management, discipline, and support.
Terrence Moorhead: In the first quarter, digital sales increased 19% versus prior year, which is more than double the supplement industry's digital growth rate. So we continue to gain share in this segment and are on track with our strategy.
Terrence Moorhead: We're also encouraged by our subscribe and thrive auto shift program that represents approximately 26% of total sales and about 45% of DTC sales.
Terrence Moorhead: We expect to see continued growth from subscribe and thrive as it continues to be the most attractive way to buy our products.
Terrence Moorhead: Moving forward, we believe their significant untapped potential in North America and expect to continue to build momentum in 2025.
Terrence Moorhead: Finally, in March, we launched our 2024 Impact Report that outlines our ongoing commitment to sustainability and transparency.
Terrence Moorhead: Our customers understand and appreciate the value our sustainability initiatives offer and they count on us to bring them the best most reliable products in the world.
Terrence Moorhead: To live up to their expectations, we set bold sustainability goals that include everything from reducing our carbon emissions by 50% to cutting waste by 35%.
Terrence Moorhead: from utilizing 100% solar power at our manufacturing facility to achieving zero waste certification at our U.S. distribution centers and delivering zero waste to landfill in the U.S.
Terrence Moorhead: I'm pleased to share that we achieve most of the sustainability goals we established, which is a testament to the strength of our culture and our commitment to responsible business practices.
Terrence Moorhead: Of course, we look forward to doing more to proactively impact our planet in the future.
Terrence Moorhead: Our investments in field activation, product marketing and digital have been instrumental in strengthening demand for our products as evidenced by our double digit growth in Asia Pacific, exceptional growth in Europe , and double digit customer growth in North America.
Terrence Moorhead: We're excited about the opportunities in front of us and will continue to drive operational improvements and capitalize on emerging opportunities to deliver long-term value for our shareholders.
Terrence Moorhead: With that, I'd like to turn the call over to our Chief Financial Officer, Shane Jones. Shane?
Thank you, Terrence. Let's talk about results in more detail.
Terrence Moorhead: Net sales in the first quarter were $113.2 million compared to $111 million in the year-go quarter. A 2% increase versus the prior year were a 5% increase excluding the impact of foreign exchange rates.
Terrence Moorhead: As Terrence discussed, this was driven by strong performance across both Asia-Pacific and Europe .
Looking at sales by market and Q
I'll start with APEC [inaudible]
Terrence Moorhead: In Asia Pacific, we reported growth of 5% to $48.7 million will rupt 10% when excluding the impact of foreign exchange.
Terrence Moorhead: This was driven by a very strong growth in Taiwan and Japan where sales on a local currency basis grew 18% and 24% respectively in Q1. The strategies we implemented last year continued to produce the results intended, dealing growth in both customers and transactions.
Terrence Moorhead: We're especially excited about the momentum that we see in Japan where new customer growth has exceeded 20% for three straight corners now.
Terrence Moorhead: Sales in Europe during Q1 increased 8% on a reported basis and 9% on a local currency basis.
Terrence Moorhead: Excellent field execution combined with the strong adoption of our Powerline products and continued expansion in the Baltics, drove robust growth in Central Europe where sales increased 15%
Terrence Moorhead: We're also seeing some encouraging signs in Eastern Europe where sales grew 8% year-to-year
Terrence Moorhead: Looking at our North America business, sales declined 4% on both a reported and local currency basis. The sales decline in North America is reflective of the difficult year of your comp, as Q1 2024 was a strong quarter with over 5% growth.
Terrence Moorhead: In addition to that, we continue to see increased uncertainty in the North America macroeconomics environment which is impacting consumer sentiment. Despite that end-wind, we see encouraging signs in both our digital and core businesses.
Terrence Moorhead: The additional business grew 19% in Q1 showing 2 points of sequential acceleration versus Q4. This growth was driven by a 30% increase in DTC customers, along with increases in ordering accounts with tension and Amazon sales.
Terrence Moorhead: In addition to this strength, we are also seeing stabilization and early signs of improvement in our core business which should lead to sequential improvement in sales trends during Q2 and Q3.
Terrence Moorhead: The combination of these factors increases our confidence that we are moving in the right direction as we work to stabilize and re-excelerate growth in the region.
Terrence Moorhead: Gross Margin in the first quarter increased 90 basis points to 72.1% compared to a year ago driven by the results of our Gross Margin initiatives combined with discipline cost management.
Terrence Moorhead: Q1 gross margin results also showed sequential improvement from Q4, reflecting steady margin improvement.
Terrence Moorhead: We expect that trend to continue in coming quarters as we realize saving from our initiatives and as the negative impact of foreign exchange rates diminishes
Terrence Moorhead: This improvement will be despite negative headwinds caused by recent turfed announcements and volatility due to the rapidly evolving trade landscape.
Terrence Moorhead: We have a diverse supply chain and have already taken measures to prepare for and mitigate the impacts of recent trade policy changes.
Terrence Moorhead: Therefore, we believe we are well positioned to be able to adapt and adjust as necessary and expect minimal impact to gross margin in 2025.
Terrence Moorhead: Volume incentives as a percentage of net sales were 30.8% compared to 30.2% in the year to go quarter. The increase was primarily due to changes in market mix.
Terrence Moorhead: Selling General and Administrative Expenses during the first quarter were $40.6 million compared to $40.8 million in the year ago quarter. The decrease was due to our cost at initiatives and strong cost control.
Terrence Moorhead: As a percentage of net sales, SGNA expenses decreased to 35.8% in the first quarter compared to 36.7% a year ago.
Terrence Moorhead: We continue to scrutinize costs closely and ensure that investments have a strong return on investment. As such, we expect SG&A to remain near these levels as we progress through the year.
Terrence Moorhead: Operating income increased to $6.2 million or 5.4% of net sales compared to $4.6 million or 4.2% of net sales in the year to go quarter.
Terrence Moorhead: Adjusted EBITDA, as defined in our earnings release, increased 20% to $11 million compared to $9.2 million in the year ago quarter.
Terrence Moorhead: Our balance sheet remains clean with cash and cash equivalence of $86.5 million and zero debt.
Terrence Moorhead: The inventory increased to $64.9 million at the end of the first quarter, which is $5.5 million more than we ended 2024.
Terrence Moorhead: We made a conscious decision to increase inventory levels of both raw materials and finished goods to support service levels and in preparation for terra-related costs and delays.
Terrence Moorhead: Netcash provided by operating activities was $2.6 million compared to $2.2 million in the prior year period.
Terrence Moorhead: We repurchased 38,000 shares for approximately $0.5 million during the quarter ended March March 31, 2025.
Terrence Moorhead: with $8.3 million remaining on our previous $30 million share repurchase program.
Terrence Moorhead: As announced today, the company's Board of Directors increased our share repurchase authority by an additional $25 million dollars.
Bring in a total of $33.3 million $3.3 million.
Terrence Moorhead: We believe that our shares are substantially undervalued and plan to leverage this increased buyback authority to take advantage of the current opportunity.
Terrence Moorhead: Looking beyond shared repurchases, our healthy capital allocation structure positions as well to continue our digital transformation and other strategic initiatives.
Now turning to our 2025 Outlook
Terrence Moorhead: We are reiterating our previous guidance, expecting full-year 2025 net sales to range between $445 million and $470 million.
Terrence Moorhead: Inclusive of the estimated $5 million dollar headwind to growth due to foreign exchange.
Terrence Moorhead: thereby implying you're over your growth net afford an exchange between negative 1% and 5%
Terrence Moorhead: This guidance includes the assumption of a challenge macroeconomic environment, both in the United States and globally. It also reflects a conservative stance as we assess the impact of terms on raw materials, supply current disruptions and the effect on consumer behavior.
Terrence Moorhead: For Adjusted EBITDAF, we continue to expect to range between $38 million and $44 million.
Terrence Moorhead: This assumes the gross margin will be flat to modestly higher in 2025, and that quarterly SGNA will be 40 to 42 million dollars.
Terrence Moorhead: Overall, we believe that the company is very well positioned to capture current market opportunities while navigating and adjusting to shifting trade policy and macroeconomic uncertainty.
Terrence Moorhead: Our strategic initiatives are yielding good results and our cost out measures have made us more streamlined and more efficient.
Terrence Moorhead: This work combined with our best in class product portfolio, passionate distributors and loyal customer base.
Terrence Moorhead: Position as well for significant future growth and continued profitability despite potential short-term headwinds.
Now I will turn the time back to the operator
Speaker Change: Thank you. At this time, if you would like to ask the question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key.
Speaker Change: Our first question will come from Brian Holland, from Davidson. Please proceed.
Brian Holland: Thanks. Good afternoon and congratulations on the strong start to the year. I wanted to ask you about Thanks, Brian . Yes. Yes. Let me just start with, excuse me. Thank you.
It's to clarify this, how's it going to come in vis-a-vis internal expectations with
Brian Holland: We were slightly ahead of our internal expectations, Spoon Quarter. Perfect. Just maybe a little bit more specificity around thinking about guidance over the balance of the year.
Trying to discern how much
Brian Holland: versus trying to signal forthcoming lectures or headwind weather, Terrence or whatever. So I get what I'm getting at is you're at the midpoint of guidance.
Brian Holland: that the macro backdrop worsens from what we saw in one queue over the last three months.
Brian Holland: What's your take that scene? Yeah, thanks for the question, Brian . Yeah, so
Brian Holland: We're very encouraged by the way that the year has started. We had a good Q1. Our business continues to run very well. We just know it's an uncertain environment and so therefore we're taking conservative stance.
Brian Holland: As you think about the guidance that we've given, really the midpoint of the guidance
Brian Holland: would say that we continue to have some macroeconomic instability that we continue to see some issues with tariffs.
Brian Holland: and we continue to see that impact not only the United States but other parts of the country. The lower end of the lot guidance would say we're really in a recession-type environment.
Brian Holland: Get very bad, and then the upper end would say that we continue to see the things that we've seen in Q1, we continue to see good results, and we get to that number.
very helpful. Thank you question.
Yeah, no, this is perfect. Thank you Yeah.
Brian Holland: It can change all the time. So I can't say that nothing has changed, but at the same time when we issued this guidance
Brian Holland: You know, last quarter, we were very conservative, very thoughtful about making sure that it would encompass all situations that could occur. I would say, I would reiterate that again to say we are trying to encompass things that we may not even know at this point.
as far as impacts to the economy from Terrence.
Brian Holland: And I think what we would say is we've tried to do our homework on our end.
Brian Holland: to make sure that we've done everything that we can do to prepare to offset, as Jane has mentioned earlier, the potential impact of Terrence. So, we've tried to be prepared. We've tried to buy ourselves sometimes so that we can react to things across our supply chain.
Brian Holland: but it's a highly uncertain volatile market, but we've done everything we think we can to protect ourselves in 2025.
Speaker Change: I'm tired of answering the question. I thought it'd be fun to see someone else try to take a swing at it, but I appreciate it. That was a very helpful. I hear you.
Switching may mean strategically.
Speaker Change: Terrence, about the new digital toolkit. Just checking to see if I still want to crack for launching with the American in the second half of 25. And then maybe to what extent have your practitioner's been able to test?
Speaker Change: Get comfortable with the toolkit. And maybe just, you know, this should be a fairly significant rollout. So anything else you're doing to minimize order disruption during the introductory phase.
Speaker Change: We do not anticipate any order disruption. This would be an incremental opportunity for them. So this won't interrupt any of the processes that practitioners or retailers who want to use the tools. It won't disrupt them in any way. We are still on track for a kind of...
Back half of the year launch.
Speaker Change: and in preparation for that, you know, we will be getting it in people's hands. So right now it's still kind of in our hands internally. We have some processes to go through before we can kind of start showing it and getting it out to people, but on a larger scale.
Speaker Change: So, but wait, we're very optimistic and very pleased about the potential of really getting some powerful tools in our people's hands that will allow them to manage their customer bases better and hopefully attract new customers to their businesses as well.
Terrence Moorhead: Appreciate the color, Terrence. I'll hop back in the tube. Thank you.
Thank you.
Speaker Change: All right, next question comes from the line of Susan Anderson from Canada Community and Line is open.
Susan Anderson: Hi, good to see you again for some questions, how's it going? Great, how you don't lay.
Good, not too bad.
Speaker Change: If you can talk a little bit about Europe and Asia, obviously seeing some very strong performance there, and you think Europe's been growing for several quarters now in Asia, you know, kind of just right behind them. So I guess, you know, how are you thinking about kind of the tailwinds there, or the drivers there to kind of continue that growth as we look
Speaker Change: Do you still see a lot of market share or customers that you can grab in those markets to continue to drive that growth?
Speaker Change: I think the market opportunities continue to be there for us.
Speaker Change: You know, the businesses in both of those two regions are driven by very strong fundamentals.
Speaker Change: across sales and marketing, so we feel very good about that.
Speaker Change: We feel confident that when we go to market with either new products or we want to...
Speaker Change: Engaged with kind of even to penetrate further with existing products, you know, we have a powerful kind of approach to the market. So I think we feel good about both of those businesses and the opportunities are still there. Having said that, you know, in APAC.
B-b-b-b-
Speaker Change: They'll be going up in the back half of the year against some of their their largest sales and so right now they've got [inaudible]
Speaker Change: a great, great runway ahead of them. The challenge is going to be for them to keep that momentum up in the back half of the year. But again, it's a very strong team, very strong opportunity for us. Shane, do you have any additional thoughts on that one?
Shane Jones: Yeah, as we look at places like Japan, we're really encouraged. As I mentioned, you know, we see a new customer grow to over 20%
Each quarter for three consecutive quarters.
Terrence Moorhead: That's our best leading indicator for the future. So have a lot of confidence, especially in Japan we should see that continue But to Terrence's point, if you look at the comps and Q3 and Q4 for both of those we had an amazing
Speaker Change: Results last year that they'll have to lap, so it's difficult to say that we're going to continue at a 20% clip
Speaker Change: but the good news again is the growth we're seeing it's based on orders it's based on customers that's sustainable so we're not just trying to sell more products into the same people so again we feel good about the business
Okay, great, yeah, but some really good results.
Speaker Change: And then maybe if you could just talk about North America and, I guess
Speaker Change: You know, what do you think needs the digital sales are great, obviously it's nice to see that 19% growth in terms of, you know, the just the practitioners and the retailers like, how are you thinking about, you know, kind of getting that channel back on track in North America thing?
Speaker Change: Yeah, it's a way of a couple of things. I think, you know, kind of first and foremost it is about focus
Speaker Change: and building out the fundamentals there as I had mentioned when I was when I was talking so we put some new a new team in place there's new leadership.
Speaker Change: Not just at the top but kind of all the way down throughout the organization so I think we've got a great team on the ground there here.
Speaker Change: Buildout, you know, kind of stronger support as well. I think a big piece of them turning the corner is going to be, you know, kind of getting them the right tools in place.
Speaker Change: Also, again, in the back half of the year, they're going to have a completely new toolkit that will allow them to
Speaker Change: Access Consumers Better, Talk to their Consumers Better, Access Social Media, much more effectively, so...
Speaker Change: It's a combination of building out the field fundamentals with getting the right tools in their hand and then, of course, getting our marketing proposition which is really strengthening, getting that right as well. So it's kind of a combination of those three things, I think will really help them.
Speaker Change: kind of catch up to the type of growth we're seeing on the digital side of the business and really start to be complimentary.
Speaker Change: Okay, great. And I'm just asking a couple of model questions here. I guess how should we think about the balance between gross margin and an op expenses to kind of get to your ebit off for the rest of the year? And is there any cadences we should be thinking about as well?
Speaker Change: So, for Grossmargin, we should see modest improvement as we progress through the year.
Speaker Change: Not substantial, but modest improvement, so we should see a slight build each quarter, but modest. And then on our SGNA side, we expect between $40 and $42 million of SGNA each quarter.
Speaker Change: And it's also just key timing on the new Sherry Purchase Program or cadence of repurchases or anything like that. We should take into consideration.
Speaker Change: We're going to take advantage of market opportunities, and we believe we're very undervalued at this point in time, so we're going to buy aggressively when the opportunity presents itself.
Speaker Change: Okay, perfect. That sounds good. Thanks so much. Have a good luck, Terrence, dear.
Thank you. Thank you Susan.
Speaker Change: At this time, this concludes our question and answer session. I would now like to extend a call back to Mr. Moorehead for closing remarks.
Speaker Change: Okay, thank you, Chloe. 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, 2025 results. And again, thanks for joining us and take care.
Speaker Change: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.