USANA's Third Quarter Earnings for 2011 Decline Over Previous Quarter - ARIIX to Blame?

FOR IMMEDIATE RELEASE:

USANA's Third Quarter Earnings for 2011 Decline Over Previous Quarter - ARIIX to Blame? 

Salt Lake City, Utah - October 26, 2011 - Net sales declined by $5,424,000 or 3.6% from the prior quarter. Earnings before income taxes declined $2,245,000 or 10.6% from the prior quarter. Several days ago I released a report showing many distributors leaving USANA to join ARIIX. Several of them were USANA's top distributors. I gave my prediction that associate levels will decline and as a result drop in overall earnings. Seems I was correct.

I'm not sure how USANA can keep a straight face while sending out a press release trying to make their third quarter earnings appear good. I predict this decline to continue due to ARIIX. Many of the USANA distributors that joined ARIIX did so during the third quarter and are still counted in USANA's active associate figures. As a result, active associates in the fourth quarter will likely continue to decline.

It's amazing that even after USANA's "Crazy Cash Contest" where associates receive huge points for recruiting additional distributors and miniscule points for signing up preferred customers, USANA still managed to lose more associates than they can recruit. I've always said USANA's business opportunity is all about selling the dream to make money instead of retailing product to customers, and this contest simply backs up my claims.

I still believe USANA has been violating China's laws by actively recruiting Chinese Nationals into their MLM business opportunity by encouraging them to open the account in Hong Kong. Mainland China has banned MLMs from operating within their country. Remember, Dave Wentz made the following statement last quarter "We definitely have a number of people [Chinese Nationals] who are building in Hong Kong. We do not have a percentage or have a number that we could point to with any accuracy." And then Jim Bramble follows that up with "Well if an individual does not have residency in Hong Kong and the ability to build in Hong Kong, then they can only build in China." So there is clearly something very sneaky going on and I believe analysts need to keep pressing USANA on this issue. I'm not sure how the SEC can continue to turn a blind eye by allowing USANA to continue breaking foreign laws.

The following are charts showing the Active Associate & Preferred Customer trends quarter by quarter. I believe they speak for themselves. The captions describe the result from Q2-2011 to Q3-2011

US Active Associates declined by 2000 or 4%

US Preferred Customers declined by 2000 or 5%

Canada Active Associates declined by 1000 or 4%

Canada Preferred Customers remained flat

Mexico Active Associates remained flat

Mexico Preferred Customers remained flat

SE Asia/Pacific Active Associates increased 4000 or 9%

SE Asia/Pacific Preferred Customers increased 1000 or 17%

Greater China Active Associates declined 9000 or 10%

Greater China Preferred Customers declined 1000 or 12%

N Asia Active Associates remain flat

N Asia Preferred Customers remain flat

USANA Recruits Chinese Nationals To Participate and Build Their Business in Hong Kong in Violation of Chinese Direct Selling Laws.

I've been stating this for years now. USANA has been recruiting citizens from mainland China as distributors in a multilevel marketing company for their Hong Kong territory. I've pointed out in the past how USANA's Hong Kong distributor numbers are way out of proportion (now 1 in every 112 Hong Kong citizens are USANA distributors = RED FLAG) and that mainland China only allows their citizens to participate in SINGLE-level marketing companies.

Well, today USANA was asked during their dismal second quarter earnings results the following question by John San Marco at Janney Montgomery Scott LLC:

"Do you know what the percentage of your Hong Kong associates that are actually Chinese nationals?" - Transcripts

Finally, someone asks USANA a real question instead of the soft balls USANA usually receives. Dave Wentz's first answer was a very calculated "No, we do not". If Dave is being honest, then USANA's management team doesn't know their ass from a hole in the ground. But I'm sure USANA knows the answer but refuses to publicly disclose that number.

Better yet, Dave Wentz could have just simply quoted their own internal document that surfaced over a year ago!

"IV. What is the biggest market that buys our products that we are not eligible to operate in?

i. Once again I couldn’t give you an exact answer on this. Since I work with our Asian markets, I know that a large sum of product ends up in China, but I’m sure product somehow gets shipped to other unauthorized markets as well… "

Dave could have simply stated that he isn't sure of the exact percentage, but that a "LARGE SUM OF PRODUCT ENDS UP IN CHINA". But Dave is only the CEO, so why would he know any of this...

After John San Marco asked for USANA to at least give a ball park estimate on the percentage, Dave Wentz replies back with:

"We definitely have a number of people who are building in Hong Kong. We do not have a percentage or have a number that we could point to with any accuracy."

 Really!? Chinese Nationals "building in Hong Kong"? Uh oh! Dave Wentz was not suppose to admit that. During the first quarter's conference call 3 months ago, USANA's Fred Cooper said "we have a large group of Asian Associates who are involved with USANA only because of the products and are buying in Hong Kong for consumption only."

So now USANA is in a pickle. Dave Wentz lets the truth come out and admits that the Chinese Nationals are actually building a USANA downline in Hong Kong. So USANA has been "Cheating in China". And of course they are having trouble "transitioning" these distributors over to BabyCare because they all know that without a downline they have no chance of making a dime. The product is over priced and over rated. There is little to no demand for USANA's product except as a required purchase to participate in a pyramid scheme. To transition these Chinese Nationals over to BabyCare would mean breaking apart their already formed downlines. And best of all, these downlines are attached beneath many of USANA's top distributors. That is why USANA's distributor leaders were upset about some changes USANA was trying to implement which forced USANA to quickly retract their plan. To split up the Chinese Nationals out from USANA would mean top distributors of USANA losing tens of thousands of dollars in commissions. Commissions which come from the mandatory product purchases by these Chinese Nationals in order to participate in the scheme.


Lastly, John San Marco asks USANA if there are any Chinese Laws that prevent Chinese Nationals from doing any sort of multilevel marketing outside their borders. Dave defers the question to Jim Bramble, USANA's legal officer. Jim dances around the question and John had to then be more specific. Finally, Jim makes the following statement:

"Well if an individual does not have residency in Hong Kong and the ability to build in Hong Kong, then they can only build in China." - Jim Bramble

Jim follows that up with a lot of rambling and back peddling. So in otherwords, Chinese Nationals are not legally allowed to participate in USANA's multilevel marketing business opportunity whatsoever. I have been making this claim for a while now USANA finally admits it. But wait a minute, in regards to Chinese Nationals, Dave Wentz had just stated that "We definitely have a number of people who are building in Hong Kong." I think we have a winner folks. USANA caught in a lie regarding Chinese Nationals as USANA distributors.


I want to thank John San Marco at Janney Montgomery Scott LLC for asking USANA his questions. Good job.