USANA Health Sciences, Inc. (USNA)

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USANA Health Sciences (USNA)

Q2 2011 Earnings Call

July 27, 2011 11:00 am ET

Executives

James Bramble - Corporate Secretary and General Counsel

David Wentz - Chief Executive Officer

G. Hekking - Chief Financial Officer

Patrique Richards -

Analysts

Timothy Ramey - D.A. Davidson & Co.

John San Marco - Janney Montgomery Scott LLC

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the USANA Health Sciences Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, July 27, 2011. And I'd now like to turn the conference over to Mr. Patrique Richards, Manager of Investor Relations. Please go ahead, sir.

Patrique Richards

Good morning, everyone. We appreciate you joining us this morning to review our second quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com. Shortly following the call, a replay will be available on our website.

As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. We caution you that these statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC.

I'm joined this morning by Dave Wentz, our Chief Executive Officer; and Doug Hekking, our Chief Financial Officer. We'll hear first from Dave, who will discuss our business activities during the quarter, as well our plans for the remainder of the year. We will then hear from Doug, who will discuss our financial results and updated guidance. I will now turn the call over to Dave.

David Wentz

Thanks, Pat, and good morning, everyone. It's always nice to discuss yet another great quarter for USANA. This quarter's record top and bottom line results reflect the strength of our diversified business and the dedication of our employees and associates. I'll begin by updating you on management activities during the quarter and then update you on the integration of the USANA brand in China, as well as our plans for North America.

During the quarter, our management team has devoted most of their time to speaking with our sales force leaders to open communication lines and build out relationships. Kevin Guest, President of North America; Roy Truett, Chief Operating Officer; Jim Bramble, Chief Legal Officer; Dan Macuga, VP of Marketing; Alan Bergstrom, VP of Customer Relations; and our Field Development Managers, Michelle, Belinda and Carlo and Laurie, have all led these efforts and discussions in North America.

Similarly, our President of Asia Pacific, Deborah Woo, and her Regional Vice Presidents, Sherman Kinghen[ph] and David have done the same in our Asia Pacific markets. These discussions were a priority for us in light of the changes in both management and strategy that occurred during the quarter.

I have spent 19 years in the direct selling industry, building USANA and working with our independent associates. I understand very well that change can be confusing and distracting for a direct selling organization and that maintaining trust and belief between the independent sales force and management is critical. What we have learned through the years is the strength of this relationship and this partnership is directly correlated to the strength of the business.

The recent management changes were the catalyst we needed to remind us how important communications effort with the field offer the entire management and not just a few individuals. The idea sharing and communication levels are now stronger than ever. Our management team has been with USANA for a very long time and has the trust and loyalty of our associate leaders and our sales organizations, despite new competitive pressures. These discussions serve to assure our associates that the company remains fully committed to supporting them, and I believe that they recognize that USANA is a tested and proven organization, the first in class products, to highest compensation plan and a world-class track record. We are working diligently with our sales force leaders on strategies for the business. In August, we will hold our Annual International Convention here in Salt Lake City. Business [ph] event to meet with management, receive training and motivation and tour our state-of-the-art facility to get a first-hand look at the manufacturing of our premium quality products.

At this event, we will make exciting announcements that we expect to help create momentum across all our markets.

Now turning to our China integration strategy, as we communicated in our June pre-release, we have implemented a revised approach to the integration of our operations in China. The most important takeaway from this is that the original underlying focus remains the same, that is to grow in mainland China, by combining BabyCare's infrastructure and resources with USANA's sales force and direct selling expertise. What has changed is our approach.

Our original approach was focused on compelling our Hong Kong associates to immediately switch over and develop and grow our China business by changing the fundamentals of how they do business in Hong Kong. In recent months, our management team has invested a significant amount of time meeting with our associate leaders on this approach. We've learned a great deal during these meetings. First, we learned that our leaders were concerned that our approach was too aggressive and shortsighted. Our leaders are concerned about shifting their focus before we have an adequate number of USANA products for them to sell in China. And second, we learned that they believe that disrupting the business in Hong Kong was not the best way to drive growth in China. Finally, we learned that many of them do not fully understand how to be successful in the China business.

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