USANA Health Sciences, Inc. — Form 10-Q Summary
Reporting-period note: The request identifies 2020 Q2, but the filing itself is for the quarter ended July 3, 2021, with comparisons to the quarter ended June 27, 2020. This summary follows the filing’s stated period.
Business context and reporting period
USANA develops and manufactures nutrition, food, personal-care and skincare products sold internationally through independent distributors and other customers. It reported approximately 652,000 active customers at July 3, 2021, up 8.8% year over year. Asia Pacific generated 82.8% of second-quarter sales. The statements are unaudited; the six-month period ended July 3, 2021.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $336.8 million | $259.0 million | $644.8 million | $525.6 million |
| Gross profit | $279.8 million | $211.3 million | $530.1 million | $431.9 million |
| Operating earnings | $53.7 million | $39.6 million | $97.9 million | $78.6 million |
| Net earnings | $38.2 million | $28.0 million | $68.9 million | $54.5 million |
| Diluted EPS | $1.87 | $1.32 | $3.31 | $2.56 |
| Operating cash flow | Not provided for quarter alone | $58.8 million | $63.4 million |
Q2 gross margin was 83.1%, up from 81.6%; associate incentives were 45.7% of sales, versus 42.8%. For the first six months, gross margin was 82.2% in both periods, while associate incentives rose to 44.7% from 43.2%. Q2 net earnings increased 36.7% and diluted EPS increased 41.7% year over year.
Cash and cash equivalents were $265.4 million at July 3, 2021, compared with $311.9 million at January 2, 2021. Current assets were $381.5 million and current liabilities $153.0 million. The company had no outstanding borrowings on its $75 million revolving credit facility. Share repurchases used $99.2 million of cash in the first six months.
Material changes versus comparable periods
- Q2 sales rose 30.1%; management attributed the increase partly to a global, short-term incentive program and 8.8% customer growth. Favorable currency movements contributed $25.2 million; sales growth excluding currency effects was 20.3%.
- Asia Pacific Q2 sales rose 33.3% reported and 23.0% excluding currency effects. Americas and Europe sales increased 16.5% reported and 9.2% excluding currency effects.
- Q2 gross margin improved with favorable currency, fixed-cost leverage and lower conversion costs, partly offset by higher freight costs. Higher incentive spending and sales mix raised associate incentives as a share of sales.
- Six-month operating cash flow fell to $58.8 million from $63.4 million, while net earnings increased. Management cited annual employee bonus payments and reduced trade payables as cash uses.
- USANA repurchased and retired 1.025 million shares for $99.2 million in the first six months, versus 785,000 shares for $57.0 million in the prior-year period. Shares outstanding were 20.134 million at July 3, 2021, compared with 21.038 million at January 2, 2021.
Outlook, commentary, risks and contingencies
The filing provides no specific earnings or sales guidance. Management said it expects to fund operations with cash flow from operations and believes cash, future operating cash flow and available credit are sufficient for foreseeable ordinary-course needs. It plans to align spending with sales and defer non-priority capital investment.
- Management said COVID-19 had not materially affected results for the reported periods, but continued to disrupt selling practices, events, supply logistics and customer access. Future effects, including from new variants, remain uncertain.
- Principal risks include dependence on the direct-selling model and Associates; regulation of direct selling, particularly in China; currency movements; geopolitical and trade tensions; supply-chain disruption; data privacy and security; and compliance with credit-facility covenants.
- The credit agreement requires rolling four-quarter consolidated EBITDA of at least $100 million and funded debt-to-EBITDA of no more than 2.0 to 1.0. No debt was outstanding at quarter-end.
- The company disclosed ordinary-course lawsuits and other claims that management did not believe would materially affect financial condition, liquidity or results. Potential outcomes could not be estimated clearly.
- China-related profit and dividend remittances to the United States are delayed under applicable rules, and future regulatory changes could further restrict transfers.
- After quarter-end through August 6, 2021, USANA repurchased 127,000 shares for $12.4 million. The filing reported $50.8 million remaining under the repurchase authorization at quarter-end.
Important facts for investors to verify
- Confirm the intended filing period: the supplied filing is Q2 2021, not Q2 2020.
- Assess how much sales growth came from the temporary incentive program and favorable currency, and whether customer growth and sales persist without those effects.
- Monitor associate-incentive costs, freight expenses, gross margins and operating cash conversion.
- Review the scale and sustainability of repurchases relative to cash balances, operating cash flow and future investment needs.
- Track China regulatory, remittance and market risks, COVID-19 effects, foreign-exchange exposure, and compliance with credit covenants.