USANA Announces Third Quarter Financial Results
Net sales in the third quarter of 2011 increased by 6.3% to $143.5 million, compared with $135.0 million in the prior year period. This net sales growth was driven by higher product sales in the Company's Asia Pacific region. In addition, favorable currency exchange rates added $5.1 million to the quarter's net sales growth. Net earnings in the third quarter decreased as compared with the prior year period by 3.6% to $12.4 million due to a 172 basis point increase in operating expenses, which was partially offset by improved gross profit margins. The increased operating expenses were predominantly due to an increase in Associate Incentives. Earnings per share for the quarter increased 2.5% to $0.81, compared with $0.79 in the third quarter of the prior year. This increase resulted from a decreased number of diluted shares outstanding from share repurchases over the last 12 months and was partially offset by lower net earnings.
Chief Executive Officer Dave Wentz said, "During the third quarter, our executive team continued to work closely with the Company's Associates to meet challenges and drive performance. At our 19th annual International Convention in August, we hosted thousands of Associates in Salt Lake City, Utah and made several exciting announcements, including the opening of France and Belgium in the first quarter of 2012. Our entry into these two markets will follow our expansion into Thailand in the fourth quarter of 2011, and is consistent with our plan to be more aggressive in our international expansion efforts. The announcement of these new markets has been well received by our Associates and will help drive momentum as we finish off 2011 and begin 2012."
Net sales in the Asia Pacific region increased by 12.6% to $84.5 million, compared with $75.0 million for the third quarter of the prior year. This improvement was due to strong sales growth in the Philippines, South Korea and BabyCare, the Company's operating entity in China. BabyCare's sales increased $2.7 million during the quarter, in comparison with partial third quarter 2010 operating results. The Company acquired BabyCare on August 16, 2010. In the third quarter, the number of active Associates in this region decreased by 6.3%, which was primarily the result of an anticipated decline in the number of Hong Kong Associates. This decline, however, was partially offset by impressive growth in the number of active Associates in the Philippines, South Korea and BabyCare. In particular, Associate counts increased 87.5% in the Philippines and 50% in each of South Korea and BabyCare.
During the third quarter of 2011, net sales in the North America region decreased by 1.6% to $59.0 million, compared with the third quarter of the prior year. The number of Active Associates in North America during this period also declined by 12.1%, compared with the third quarter of the prior year.
Mr. Wentz added, "We continue to develop our strategy for North America, which focuses on personalization and innovation, coupled with market-specific incentive offerings. This strategy resulted from information gathered from recent market research and will be implemented initially in North America and is intended to drive long-term growth in this region. While we recognize that North America is a mature direct selling region and a difficult region to grow for direct selling companies, we believe that this region will grow with time, effort and the successful execution of our strategy."
The Company continued its successful track record of generating cash from operations during the third quarter and fiscal year to date. Cash generated from operations totaled $22.1 million for the third quarter and $53.5 million for the first nine months of 2011. As of October 1, 2011, the Company had approximately $36.3 million in cash and cash equivalents. During the quarter, the Company repurchased a total of 268,000 shares under its authorized stock repurchase program for a total investment of $7.4 million and ended the quarter with $29.0 million remaining under the current authorization.
Chief Financial Officer Doug Hekking commented, "Based on our performance during the first three quarters of the year, we are raising our outlook for 2011. We now project consolidated net sales to be between $577 million and $581 million for the year, versus our previous outlook of $565 million to $575 million. In addition, we now expect to generate earnings per share between $3.20 and $3.25 versus our previous outlook of $3.05 to $3.10. We will remain focused on operational efficiency as we continue to integrate BabyCare into our business and work to successfully launch three new markets in the coming quarters. Overall, we are pleased with how the company has responded to the challenges presented in 2011 and expect to finish the year strong."
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