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

If a USANA Distributor Asks You To Join Their MLM, Ask Them This Simple Question

If a USANA distributor asks you to join their Multi-Level Marketing business opportunity, simply ask them the following question.

How much commission do you make each month on average from (1) Downline Distributor's purchases and (2) Preferred Customer's purchases?

If the promoting distributor has actually made anything (66% of them haven't made a penny), then the answer you get will likely break down as the following: 90% of their commission came from Downline Distributors and 10% came from Preferred Customers. What does this mean? It means the distributor's primary job is to sell the business opportunity and recruit more distributors. Only 10% of the business opportunity is committed toward selling the product and signing up preferred customers.

How do I know this? Because 90% of USANA's products are purchased by USANA distributors according to their latest SEC filings. Does this mean distributors want the product because they use it or because they have a customer to resell it to? Absolutely not. In fact, USANA distributors are forced to purchase over $100 worth of product every 28 days in order to participate in the business venture. It is a business obligation. If the distributor fails to make this required purchase, then that distributor loses all volume points accumulated, is not eligible to collect commission and is no longer considered as “Active”.

So in order to be successful in USANA, distributors must recruit enormous downlines. Not only that, but these distributors must pressure downline members to also recruit more distributors. This is an endless chain of recruiting. More than half of new distributors stop participating within the first year. So in order for MLMs to survive, distributors must recruit new distributors at a higher rate than those who are dropping out. This is a pyramid scheme. If the recruitment of new distributors were to stop, then the MLM company like USANA would go out of business in just a couple months. The product itself cannot retain enough customers. Only the dream of becoming rich in their deceptive business opportunity keeps the company alive. Only 1% of those who join make a profit.

Now if that USANA promoter answers your question by telling you they make most of their commission from preferred customers, then ask them what the dollar amount is per month. If it is not more than $100, then they are not even recovering the expense of their $100 required product purchase, not to mention all the other expenses incurred.

Another answer you may hear is that they immediately received a $100 commission check their first week. This is a very deceptive answer because of the following. If you joined USANA and signed up purchasing their $1250 "Professional Pack" starter package, you will automatically receive a $100 commission check without having to sell anything! Now ask yourself, if you purchase something for $1250 and receive $100 back, would you seriously consider that an earning let alone a commission? This is one of USANA's dirty little secrets ad violates even their own policies and procedures by paying a commission to someone without any selling whatsoever. It's also used to manipulate their numbers.

If you are asked to join, consult with your accountant regarding the business opportunity. Take them the compensation plan and ask them to evaluate it.

Does USANA having a product mean they are not a MLM pyramid scheme? No.

Remove the USANA product from the equation and what do we have? The same thing.

Most MLM promoters claim that Multilevel Marketing is not a pyramid scheme because they offer products and claim pyramid schemes don't have products. This is far from the truth. Modern pyramid schemes offer products to make their scam appear legitimate. Lets look more closely at this and use USANA as the example.

Scenario 1) Lets pretend that USANA had no product. All the distributors who want to participate in the compensation plan would be required to pay $68 every four weeks (13 times a year) in order to collect commission from their downline. Those who make their payments would be considered as “Active Associates”. If a distributor neglects to make their payment for any given four week cycle, then that distributor loses all rights to collect commission from their downline and are no longer considered as “Active”.

So what does this $68 fee consist of? Well, $23 of it goes toward paying the operators of the pyramid scheme (USANA executives and employees). The remaining $45 is used to pay commissions and bonuses to Active Distributors who joined earlier. The amount of commission paid to a distributor depends on the number of active members they have in their downline. The more you recruit and get others to recruit for you, the more you make.

Distributors with 10 active members in their downline would receive $100 every four weeks.

Distributors with 100 active members in their downline would receive $1000 every four weeks.

Distributors with 1000 active members in their downline would receive $10,000 every four weeks.

Unfortunately, the majority of participants (over 90%) do not make enough to even cover the required $68 fee they must pay every four weeks to participate. Most participants don't even receive a single commission check! This is a pyramid scheme. While distributors aren't paid when new recruits pay the $19.95 startup kit (required to become a member), the distributors are paid commission when downline members pay their $68 mandatory participation fee. Thus, distributors are paid to recruit!

Scenario 2) Now lets go ahead and include USANA's products into the mix. USANA's cost to produce their product is $18. Adding that to the $68 fee and we end up with $86, but that is not what distributors will actually pay. In fact, USANA distributors will pay an additional $14, which brings the total to $100. These are actual figures based on USANA's SEC filings. For ever $100 of net revenue, 45% goes toward commissions and bonuses paid to distributors, 23% goes toward “selling, general & administrative” expenses, and 18% goes toward USANA's “cost of sales”.

The only differences between the two scenarios is that one you get a product and the other you don't. Both are still pyramid schemes. Both have over 90% of participants losing money. These percentages are fixed no matter how hard members try to “work the business”. Success in MLM takes a lot of hard work at deceiving people into throwing their hard earned money away by joining a pyramid scheme.

If you are considering joining USANA or any other MLM company, take the compensation plan to your accountant and ask them if you should join. Ask your accountant if the majority of their clients who are in MLM lose money. This broad of a question would not break any client confidentiality rules. Do not let the USANA promoter pressure you into making a decision without doing your own homework. 99% of MLM participants lose money.