Usana Health Sciences looks to speed up R&D to boost sales

Direct selling company Usana Health Sciences Inc. has cut its earnings outlook amid severe headwinds in its major markets in Asia, the company reported this week. The company plans to increase the pace of new product development to halt the slide in sales. 

Usana, based in Salt Lake City, announced its second quarter earnings on July 23. Because of headwinds in Mainland China and some other markets in Asia, the company revised its earnings estimate downwards to $850 to $880 million for its full fiscal 2024. That’s down from a range of $850 to $920 million.  

Usana’s sales have been on a downward trend for several years. Its annual sales topped $1 billion for the first time in fiscal 2016 and peaked at $1.35 billion in 2020. Since then, the company’s big bet on sales in China has hurt its bottom line. 

Weakness in Asian markets 

During the global pandemic, China pursued the most stringent lockdowns of any major market, hitting multi-level marketing companies like Usana particularly hard. 

For years now, the company has derived the lion’s share of its overall revenue from its markets in Asia and particularly in China. 

In the second quarter, more than 50% of Usana’s overall sales were in China, and more 80% of sales came from its Asia markets. 

The company notched $212.9 million in quarterly sales, down more than 10% from $238.2 million in the same period a year previously.  

“Sales performance in the second quarter was below our expectations as ongoing macroeconomic pressures in several of our key markets continued to impact consumer spending. To maintain the appropriate annual cadence of promotions and incentives for our business, we also offered fewer promotions during the second quarter and experienced lower levels of spend per customer in certain markets,” the company said in management commentary posted on its website. 

However, even with the disappointing quarter, the company said it was still profitable and has no debt. 

Getting new products out the door faster 

In an earnings call with stock analysts, Usana CEO Jim Brown said the company plans to increase its pace of new product development as way to turn around the sales slide. Brown did not go into detail on exactly what kind of products the company plans to roll out, just that it needs to do it a lot faster than has been the norm. 

“It takes about 1.5 years to two years from the initial decision to go down a path on a product: the science, the test and everything else. And we’re just not happy with that,” Brown said in a call posted in transcript form on the site seekingalpha.com. “We think we should be able to do it within a year’s time.” 

Brown said the company’s resent restructuring includes splitting up the R&D department into three separate teams: one for skin care, one for nutritional products, and another for foods. Having a tighter focus on the R&D teams should help raise the tempo. 

“Those teams will be the catalyst to get that done,” Brown said. “They have ownership. They’re looking at the entire product life cycle.” 

Looking for acquisitions 

With more than $300 million in cash on hand, Usana said it is also looking for acquisition targets to help the company return to revenue growth. 

According to the management commentary, the company said it is specifically “looking for opportunities that provide: 1) products and/or services centered on health and wellness; 2) vertical integration; 3) product and category expansion; 4) channel expansion; and 5) expansion of USANA's core competencies.” 

Usana’s stock price fell from $45.86 per share before the earnings announcement to $41 per share afterward before rebounding slightly. It finished trading on Friday valued at $42.61 a share. But that’s a long way off the company’s all-time high of almost $130 a share in August 2018.