Tuesday, April 23, 2013

USANA First Quarter Earnings for 2013 - What About Those Undisclosed Statistics? What Should USANA Disclose?

USANA Health Sciences, Inc. (NYSE:USNA) releases their first quarter 2013 financial earnings after the market closes today. Through my research over the years I have found the following statistics about USANA which I believe are pretty accurate and should be considered while reviewing USANA's quarterly result:

Over the last 21 years of USANA's existance, they have recruited about 1.5 million associates.

Over 99% of USANA's associates never made a profit, and instead lost money.

At the beginning of the quarter, USANA had about 247,000 associates who have purchased product during the previous three months. This means 83% of USANA's associates have stopped doing business with USANA when considering the total ever recruited.

Roughly one third of USANA associates, or 82,000 are “active associates” as defined by their policies and procedures (having personally purchased over $100 worth of product during a four week period in order to qualify for commissions). This contradicts their 247,000 active associates as defined and reported in their SEC filings (having simply purchased a USANA product).

USANA recruited about 60,000 new associates during the first quarter of 2013. In order for new associates to begin, they must activate atleast one business center which requires over $200 worth of products to be personally purchased by the associate on top of a $29.95 startup fee. This amounts to about $13.8 million just for these 60,000 new associates to get started.

The majority of USANA associates are not permitted to resell product to retail customers because they are classified as "non-distributing" associate. These same associates are still required to personally purchase product over $100 worth of product every four weeks as part of their obligation toward USANA if they want to be eligible to collect a commission as well as grow and keep their downline and/or preferred customer purchase volume points. This is a blatant case of inventory loading as these associates are stuck with product they are not allowed to sell.

USANA classifies a “full-time” associate as one who has reached the leadership rank of “Gold Director” and up. After 21 years in business, USANA has about 2900 full-time associates which is only 0.8% of their active associates as defined by their SEC filings.

The majority of distributor incentives paid to their distributors goes to this top 0.8% which are Gold Directors and up. Two thirds of USANA associates never received a single penny in commissions.

There aren't enough preferred customers to cover the 5 customer rule (anti-pyramiding rule) to justify paying commissions to the majority of those associates who collected a commission. Most associates who collected a commission are still losing money.

I believe there are more Chinese Nationals who are USANA associates (illegally participating in Multi-Level Marketing) than there are Chinese Nationals who are Babycare Associates (legally participating in Single-Level Marketing). I believe Chinese Nationals joining USANA account for the majority of USANA's growth in both sales and distributorships as the recruiting in mainland China into USANA's MLM has been in overdrive. I believe these Chinese Nationals are counted toward growth in many of USANA's MLM territories.

USANA should disclose during their first quarter earnings conference call:
  1. the number of associates that received a commission during the quarter and of those how many are non-distributing associates. Dividing the number of reported Preferred Customers by 5 will give you the maximum number of non-distributing associates USANA can pay a commission to.
  2. Number of newly recruited associates during the quarter.
  3. Number of full-time associates currently active with USANA.
  4. The percentage of distributor incentives paid to these full-time associates.
  5. The number of active associates as defined by their policies and procedures.
  6. The actual associate turnover rate (instead of simply stating that it is high).
  7. The percentage of net sales that was the direct result of associates activating or keeping active their business centers.
  8. The amount of sales USANA received as a result of new associates purchasing a $1250 professional enrollment package.
  9. Number of associates that cancelled their distributorship.
  10. Number of USANA distributors (not Babycare) living in mainland China.
  11. Number of associates who share the same home address as two or more other associates (possible Chinese Nationals using an address from Hong Kong or other USANA territories).

Friday, April 12, 2013

USANA May Be Operating an Illegal Pyramid Scheme By Primarily Paying Associates To Recruit Rather Than Selling Product To Customers.

USANA Health Sciences, Inc. (NYSE: USNA) is a multi-level marketing company that pays out commission to their associates who are suppose to have at least 5 customers. USANA admits that paying associates who do not have customers would technically be paying associates to recruit and acknowledge that doing so is illegal.

I have written a report that shows how USANA is paying associates to recruit and have asked USANA to disclose the number of active associates that received a commission check and of those how many are non-distributing associates.