USANA Earnings Release for Q1 2014 - Analysts Must Demand USANA Disclose Number of Active Babycare Distributors in China.

USANA Health Sciences releases their first quarter 2014 earnings after the markets close today. I beleive it will be as usual, revenues up and active associate numbers up in select areas (I predict they will recruit 400,000 new associates this year alone). What USANA has refused to do for several years now is disclose the number of Babycare distributors. Babycare is a company USANA purchased that already had a direct selling license in mainland China. Multilevel Marketing (MLM) is banned in China so Babycare uses a single-level structure and no recruiting into downlines.

For several years USANA had allowed Chinese Nationals to be recruited into USANA distributor downlines in markets outside mainland China, such as Hong Kong. These illegally recruited distributors were given a phoney address and even phoney phone number. In fact, they were using the same address and USANA distributor genealogy reports show it by the thousands. This caused the Hong Kong active associate numbers to grow to levels that were suspicious: 1 in 100 in Hong Kong were USANA distributors?! Over the past several quarters now, Hong Kong active associates and revenues have declined greatly. USANA claims people from mainland China are no longer joining in Hong Kong. Yeah right...

I suspect USANA is simply fudging their numbers and the auditors have no way to check it. Since USANA allowed phoney addresses to be used thousands of times by Chinese Nationals, I would not put it passed them to simply report the number of Hong Kong USANA distributors minus those that had resided in mainland China. In other words, those from mainland China are still signed up as USANA distributors and in a downline structure, but are simply not being counted in Hong Kong anymore. Nobody can audit the genealogy structure, except the feds.I believe the revenues from Hong Kong are also simply being reported as Babycare revenue.

The main reason for my suspicion has been the fact USANA stopped reporting the number of Babycare associates. Analysts have repeatedly asked USANA to disclose the numbers of Babycare associates during several quarterly conference calls and every time USANA refused to disclose the figures.

My list of USANA disclosures are quite simple this time: DISCLOSE THE NUMBER OF BABYCARE ACTIVE ASSOCIATES.

While you're at it, disclose the number of United States associates, the number of Professional Startup Packages sold, the percent of net revenues that came from USANA associate's initial product purchase used to "activate" their first business center(s), the number of newly recruited associates, and the number of active associates that have been with USANA for more than 2 years.

(I have no stock position with USANA, never have and never will. I have no financial position whatsoever. I gain nothing from my blog. I have never been a USANA associate or an associate from any MLM company.)

USANA's 2011 First Quarter Earnings - A look Into The Active Associate and Preferred Customer Trends

USANA's first quarter earnings release reveals major drop in active associate numbers from prior quarter. I do not recall any mention of any quarter to quarter information in any press release. I have put together a 2 year trend of Active Associates and Active Preferred Customers by region. What I notice is a downward spiral. USANA lost a total of 22,000 of their Active Total Customers (Associates and Preferred Customers), yet their stock price actually went up from $35.70 to a high of $38.50 and closing at $36.30... I will break down each of USANA's regions and discuss the various situations in each.

USANA's United States Active Associate and Preferred Customer Results

figure 1 - USANA US Active Associates

 

figure 2 - USANA US Active Preferred Customers

USANA's United States territory lost 2000 active associates and gained 2000 active preferred customers.

Seems clear to me where the US is trending. USANA constantly blames the bad economy in the US, yet there are several leading distributors who claim that a down economy is good for MLM business opportunities because more people are out looking for work and are more likely to join MLMs. USANA has also blamed this downward trend on the rampant recruiting in their Greater China territory. USANA claims that US distributors are focusing their attention on business in China, which is hogwash. USANA distributors cannot recruit Chinese Nationals into their downline. Chinese Nationals can only be recruited into BabyCare in a single level marketing compensation plan, which I believe will fail USANA miserably because the incentive to recruit an endless chain doesn't exist. Perhaps USANA is referring to the underground recruiting of Chinese Nationals into USANA's Hong Kong territory, which violates China's Direct Selling laws. I believe with the help of Utah's Attorney General Mark Shurtleff, USANA is above the law.

USANA's Canada Active Associate and Preferred Customer Results

figure 3 - USANA Canada Active Associates

figure 4 - USANA Canada Active Preferred Customers

USANA's Canada active associates and preferred customers remained unchanged.

Canada too has been suffering a decline in active associates and preferred customers. I guess this must be because of the bad economy in the United States. At least that is what USANA might claim. I believe USANA's reputation of being a recruiting scheme with over priced products that are almost impossible to resell have more to do with this decline than USANA would ever admit. Saturation has also kicked in.

USANA's Mexico Active Associate and Preferred Customer Results

figure 5 - USANA Mexico Active Associates

figure 6 - USANA Mexico Active Preferred Customers

USANA's Mexico territory lost 1000 active associates and 1000 active preferred customers.

I never thought Mexico was a serious territory for USANA. I think this territory has more to do with having Sanoviv there than having USANA associates running around recruiting each other. It was interesting though during the Swine Flu hysteria because USANA's "Poly C" was being marketed by many distributors as a preventative measure against the Swine Flu. I guess if people simply "believe" something will work, then it probably will - Placebo Effect. Perhaps USANA should simply produce a sugar pill, call it Usanebo™ and give their poor distributors a break and only charge them $0.99 for a 28 day supply.

USANA's S.E. Asia/Pacific Active Associate and Preferred Customer Results

figure 7 - USANA South East Asia / Pacific Active Associates

figure 8 - USANA South East Asia / Pacific Active Preferred Customers

USANA's South East Asia / Pacific territory lost 1000 active associates while active preferred customers remained unchanged.

This territory includes: Australia, New Zealand, Singapore, Malaysia, and the Philippines. Unfortunately, USANA no longer breaks down these territories individually. This is a shame because it gave a much more detailed view of how bad these territories are actually doing. USANA prefers to through around unspecified percentage growths and declines making it difficult to effectively analyze those territories. Either way, the declining trend of active associates is yet another sign of a saturated market, bad reputation and (cough) the bad economy in the United States. Seriously, the US economy has nothing to do with Australia and New Zealand's declining trends. I can only wonder why analysts don't question USANA on their answers. Instead, analysts simply accept whatever answer USANA gives, as if it satisfied the question. However, most of the time it paints an even more ambiguous picture. So far, USANA's latest quarterly report shows a continued decline of members.

USANA's Greater China Active Associate and Preferred Customer Results

figure 9 - USANA Greater China Active Associates

figure 10 - USANA Greater China Active Preferred Customers

USANA's Greater China territory lost 11,000 active associates and 8000 active preferred customers.

This territory includes: Hong Kong, Taiwan and Mainland China. Are the lemmings jumping overboard?  As I have written many times now, USANA has been recruiting people from Mainland China into their USANA Hong Kong territory. This is in violation of China's direct selling laws, but don't let that stop anyone. Chinese Nationals are not allowed to join MLM companies. USANA has finally come around and started to mention the recruitment of Chinese Nationals into USANA's Hong Kong territory. However, USANA has a very interesting way to define these distributors. USANA claims that they are simply people who joined solely so they can personally purchase and consume the product. Really! Why then did they not simply join as preferred customers? I believe USANA is full of crap.

These Chinese National USANA distributors joined so they can participate in the endless recruiting scheme in hopes to make money by recruiting other Chinese Nationals under them. Since everyone is forced to purchase USANA product to participate in USANA's compensation plan, distributors are essentially paid to recruit. Mainland China is a fresh market and that is why USANA witnessed an explosive growth in their Hong Kong territory over the past couple years.

Now we have a huge decline over the previous quarter. USANA claims it is because of the Chinese New Year, which lasts a couple weeks. If this is true, then it reveals how desperately associates must continue to recruit more associates into the endless chain just to maintain the same number of active associates! However, I believe it has more to do with the fact that most associates realizing they are never going to make a dime and how difficult it is to endlessly recruit people. With the product prices so high and having to import the product from the US, why waste their time and money in actually retailing any product. China has more vitamins brands than Carter has pills. Not to mention the skin care market in China.

And Babycare associates will learn quickly than making money retailing USANA product is not worth their time and energy. Since Babycare associates cannot recruit new associates into a downline (Single Level Marketing is China), there is no way for them to make money off the backs of hundreds below them. The USANA fad in China will wear off unless USANA brings down the distributors cost for the product by a substantial amount.

USANA's North Asia Active Associate and Preferred Customer Results

figure 11 - USANA North Asia Active Associates

figure 12 - USANA North Asia Active Preferred Customers

USANA's North Asia active associates and preferred customers remained unchanged.


This territory includes: Japan and South Korea. This is another joke of territories as was Mexico. Why USANA even bothers to publish these numbers is beyond me. We may see that the next quarterly release, Japan might go up 1000 associates. I believe this could be from USANA associates pushing the sale of potassium iodide as a preventative measure against the nuclear radiation caused by the earth quake and tsunami. But again the amount would be insignificant. This territory is saturated and not going to help USANA in the long run.
 
These are my opinions based on my research and analysis of USANA Health Sciences. As always, I welcome the harsh criticism. If there are errors, let me know as I finished writing this at 1:30 AM.