Tuesday, July 29, 2014

USANA Second Quarter 2014 Earnings - Questions USANA Should Answer To Investors and Their Associates

USANA Health Sciences released their 2014 second quarter financial results. I would like to point out a few observations.

- USANA claims to now restrict associates purchases to within the country they reside. I believe this is in light of the fact they have had thousands possibly hundreds of thousands of USANA associates counted in their Hong Kong market that actually live in mainland China. This circumvents China's ban on multilevel marketing. USANA allowed all of these members to sign up in USANA's MLM using the SAME Hong Kong address (even though they actually lived in the mainland). Since USANA instructed these members to use a phoney address from Hong Kong, USANA knew this was wrong and violated foreign laws. Only a rat would construct such a circumvention.

I would love for a stock analyst to ask during the conference call "How many USANA associates switched to become Babycare associates?"

- USANA's Greater China sales declined year over year by $3.3 million. However, their active associates increased by 22,000 (102,000 to 125,000). This does not jive with historical patterns since there is a very direct correlation between the sales figure and the number of associates. So how is it that there is a 21% increase in the number of active associates yet a 4% decline in sales in the Greater China region? I have two theories!

Theory 1) 
Hong Kong USANA associates have decreased while mainland China Babycare associates have increased and I believe a USANA associate spends a lot more money upfront to activate their business center(s). USANA associates participating in the MLM pyramid scheme have incentives to purchase excess product (Professional Starter Kit costs $1250) in order to partake in many gimmicks that they are led to believe will help their chances of succeeding (Platinum Pace Setter, Matching Bonus, Contests, etc...). This is all based on the fact that upline associates will get commissions from their downline's spending spree.

Babycare associates do not have downlines and do not collect any commission from the personal product purchases made by fellow Babycare associates. So there is no incentive to spend a lot of product that they aren't going to sell anyway.

Theory 2)
Assuming USANA is making all Hong Kong associates who actually live in mainland China switch over to Babycare, USANA may have actually counted the same individual twice! Once for Hong Kong and once for Babycare.

I would love for a stock analyst to ask during the conference call "Did you switch Hong Kong associates over to Babycare associates and did you 'accidentally' count the same person twice? I ask this because it doesn't make sense that you have a 21% increase in active associates yet experience a 4% decline in sales."

And for the sake of the world, disclose the number of Babycare associates! The sales from that market represents more than 10% of overall sales. Therefore you should be required to disclose the number of associates you have in that market.

Lastly, I would like USANA to disclose a couple very simple numbers:
1. Number of active Babycare associates
2. Amount of commission paid to Babycare associates
3. Percentage of product purchased by Babycare associates that was retailed to the general public