Usana posts another sales increase as China’s direct selling clampdown looms

07-Feb-2019 - Last updated on 08-Feb-2019 at 00:09 GMT

Getty Images

Network marketing company Usana reported $1.19 billion in annual revenue in its fourth quarter earnings statement. The company now derives more than 80% of its revenue from the Asia-Pacific region.

Usana, which is based in Salt Lake City, UT, sells dietary supplements, functional foods and personal care product. It ranked No. 23 on the global list of the biggest MLMs, according to industry publication Direct Selling News.

Usana’s shift toward being an Asian focused company began a number of years ago. The company’s fourth quarter/year end earnings report, released yesterday, underscores that trend. Of the $299 million in sales the company recorded in the quarter, $243 million, or about 81%, came from the Asia Pacific region.

Asia continues to be growth driver

Usana’s strongest markets in the region are South Korea and Mainland China. For the fourth quarter, the company reported that net sales in the Asia Pacific region increased by 12.2% to $243.3 million. The total number of active customers in the Asia Pacific region increased by 14.1% year-over-year.

Within Asia Pacific, net sales increased:

14.1% in Greater China;
25.3% in North Asia; and
3.3% in Southeast Asia Pacific.

While those numbers are impressive, they represent a significant slowdown from mid 2018, when the company recorded more than 20% growth in mainland China and more than 30% in North Asia.

Sales in North America and Europe, meanwhile, continued their multi-year slide. Net sales in those regions decreased by 1.1% to $55.8 million for the fourth quarter of 2018, primarily due to a 6.5% decrease in active customers.

CEO Kevin Guest said that IT improvements in the China market helped drive growth. The company has been transitioning its back office setup to support the WeChat platform, which is the ubiquitous ecommerce and social media platform in China.

“The functionality isn't exactly where it's going to be when we have WeChat fully developed. But yes, our vision is that they will be able to run their entire business through the WeChat platform,” Guest told analysts in a conference call that is posted in transcript form on the site seekingalpha.com.

China’s crackdown on MLMs

The recent regulatory crack down on MLMs (multi-level marketing companies) in China was not mentioned in the analysts call. Earlier this week it was announced that Chinese authorities had summoned all 91 direct selling companies doing business in the country to a meeting. The clampdown appears to be focused primarily on product quality and health claims.

In the past, Usana has revealed the existence of an internal investigation into its China operation, which does business under the name BabyCare Ltd. The investigation has been underway for about two years, and appears to be focused on potential financial irregularities.

In its press release announcing the fourth quarter earnings, Usana had this to say about the investigation:

“The investigation focuses on compliance with the Foreign Corrupt Practices Act and certain conduct and policies at BabyCare, including BabyCare’s expense reimbursement policies. The Audit Committee of the Company’s Board of Directors has assumed direct responsibility for reviewing these matters and has hired experienced counsel to conduct the investigation. While the Company does not believe that the subject amounts are quantitatively material, or will materially affect its financial statements, it cannot currently predict the outcome of the investigation on its business, results of operations, or financial condition.”