Wednesday, February 8, 2012

USANA Announces Fourth Quarter and Full Year 2011 Financial Results.

USANA releases their Fourth Quarter 2011 Earnings today. In a nutshell, it is business as usual. Declining United States active associates, declining preferred customers world wide, and increasing Asian active associates. USANA made an error on the number of customers in China and took them an entire year to correct it. USANA continues to claim they are working hard with North American distributor leaders to stop the declining numbers, but they make these claims almost every single quarter. USANA has contests every quarter to encourage associate recruiting. It's all about the active associate data.

I don't think the fourth quarter was much to brag about. Here are some interesting facts:
Year over year, USANA lost 12000 customers (active associates & preferred customers combined) for a 4% decline. However, USANA managed to make $8.4 million more in revenue for a 6.1% gain. I believe this is due to USANA's increase in associate fees to activate a business center. USANA calls it a product purchase, but distributors are required to personally purchase over $200 worth of product before they can participate in the compensation plan and receive commissions. Many associates purchase the Professional Package for $1200 in hopes their business can make them rich.

Quarter over quarter, USANA gained 6000 customers for a 2.1% increase. USANA also made $2.4 million more in revenue for a 1.7% increase. Doesn't seem like much, but at least from quarter to quarter the revenue seems proportional to the number of active customers. Certainly nothing to brag about

My favorite line out of USANA's press release announcing their fourth quarter 2011 earnings report is this little footnote at the end that states the following:
3. The Preferred Customer count as of January 1, 2011 has been updated to correct an inaccuracy reported for BabyCare under Greater China. The Preferred Customer count previously reported for BabyCare was 14,000, which brought the Preferred Customer count for Greater China to 16,000. These numbers have been corrected to 7,000 for BabyCare, and 9,000 for Greater China. This correction represents a change of 7,000 to total Preferred Customers reported as of January 1, 2011.
USANA overstated their Babycare preferred customers by 100%. That is a huge error. They claimed they had twice as many preferred customers for their newest territory than they actually had. Their preferred customers for that territory has been declining ever since. Interesting that USANA used the excuse last year when their Babycare numbers had declined and blamed it on Chinese New Years. Where were USANA's auditors, sleeping??? It took USANA an entire year to correct this error. Can we trust USANA when they claimed they had 12,000 BabyCare associates during that same time?

Here's some information stockholders may not hear about but could have unseen consequences. USANA's latest contest "USANA in China: Rewards for Referrals" is one that pays associates for referring a Chinese National who joins BabyCare. I thought it was illegal to pay MLM distributors for recruiting. Has the Direct Sellers Association lobbied for that change as well? Here is a quote from this contest:
You have to be a Chinese National Citizen to build a business with USANA in China, but you can still benefit from the lucrative bonus possibilities available to other USANA Associates. With the USANA Partnership Program, you will receive a residual bonus for every qualified person you refer to USANA in China who begins building a business.

The USANA Partnership Program is better than anything you’ve seen in the past—instead of a one-time bonus, you will receive an ongoing percentage of everything your referrals generate. Although you can’t add Chinese National Citizens to your own downline, you can still make residual income from the points they generate as they build their own businesses in China!
It is against China's law for MLMs to recruit Chinese Nationals into the downline of these pyramid schemes. So USANA has devised a way to circumvent China's laws. Instead of these Chinese Nationals being placed into a downline, they are simply left out of their sponsor's downline while still generating “residual income” for that sponsor. So a USANA distributor in the US can recruit a Chinese National into BabyCare in China and still collect commission from that Chinese National. However, China has outlawed MLMs from participating in their country. I believe this is breaking China's law. Plus, I believe it breaks US laws by paying a commission to the distributor for simply recruiting the Chinese National. Paid to recruit...

I still hold true to the belief that USANA is operating an illegal pyramid scheme where associates are forced to purchase overpriced product (that cannot be retailed for any kind of profit) in order to collect commissions. The majority of revenue made by USANA and the majority of commissions paid (mainly to the top 1% of associates) comes from the hundreds of thousands of distributors who are all purchasing product in order to be "commission Eligible" and participate in the business venture. If USANA did either (1) removed the requirement to personally purchase any product in order to collect commission, or (2) did not pay out commissions to upline members for the product personally purchased by distributors (because they are forced to purchase the product in the first place), then USANA would no longer be a pyramid scheme. However, if USANA actually did either of those two things, the company would go out of business in just a couple months because only those who actually want to purchase product would, which I believe most would not.

Most associates would stop purchasing product because almost every associate that has quit the business has also stopped purchasing the product. In fact, most people who have either tried USANA's business opportunity or joined as a preferred customer have stopped purchasing USANA's product and left the company. That says a lot about the company and the product.