USANA Health Sciences, Inc. (USNA)

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USANA Health Sciences (USNA)

Q4 2011 Earnings Call

February 08, 2012 10:30 am ET

Executives

Patrique Richards -

David A. Wentz - Chief Executive Officer

Kevin G. Guest - President of North America

G. Douglas Hekking - Chief Financial Officer

Analysts

Scott Van Winkle - Canaccord Genuity, Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

John P. San Marco - Janney Montgomery Scott LLC, Research Division

Frank A. Camma - Sidoti & Company, LLC

Rommel T. Dionisio - Wedbush Securities Inc., Research Division

Presentation

Operator

Ladies and gentlemen, welcome to the USANA Health Sciences Fourth Quarter Earnings Conference Call on the 8th of February, 2012. [Operator Instructions] I will now hand the conference over to Mr. Patrique Richards. Please go ahead, sir.

Patrique Richards

Good morning, everyone. We appreciate you joining us this morning to review our fourth 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. Samples of these statements include our 2012 strategy for our North America region, China and other markets, as well as our initial opportunities in 2012. 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; Kevin Guest, our President in North America; and Doug Hekking, our Chief Financial Officer. We'll hear first from Dave, who will discuss our business activities during the quarter, as well as our strategies moving forward. We will then hear from Kevin, who will provide more information on our strategy in North America. And finally, Doug will discuss our financial results and 2012 financial outlook.

I'll now turn the call over to Dave.

David A. Wentz

Thanks, Pat. Good morning, everyone. Well, USANA finished 2011 strong, generating our ninth consecutive year of record sales and reporting the highest annual net earnings in EPS in the 20-year history of the company. Our record performance is the direct result of the significant effort put forth by our management team, employees and associates around the world. I'm continually impressed by the dedication and innovation with which our teams approach their respective roles to drive our business and overcome challenges.

I'll begin this morning with our regional results and then discuss our strategies and expectations for 2012. Our top line results during the quarter were again driven by our Asia Pacific region, where sales increased by an impressive 14%, while the number of active associates increased 1.4%.

We continue to develop strong growth in emerging markets such as the Philippines, South Korea and China. Sales in the fourth quarter grew 211% in the Philippines, 67% in South Korea and approximately 46% in China compared to the fourth quarter of 2010. Our sales results in these markets were driven by strong customer growth. In particular, the number of active associates grew 157% in the Philippines, 50% in South Korea and 17% in China. Our strong results in China are the results of our continued effort to introduce USANA products in mainland China and educate our associates on our China compensation plan and how to build a successful direct selling business in China.

During 2011, one of our key objectives was to introduce a variety of USANA products in China. We targeted 3 waves of product introductions over a 12-month period and set tight deadlines for each wave. I'm pleased to report that our team met the deadline for each wave and the result was 3 rounds of successful product introduction. This accomplishment is even more significant when you consider the regulatory environment in China.

Our final launch of USANA products for 2011 occurred in November at our China Associate Convention. This launch included 4 core USANA supplements, which were all eagerly anticipated by our associates. This launch not only met our associates' requests, it expanded USANA's presence in China's adult supplement market and consequently, expanded our associates' sales opportunities to existing and prospective Chinese customers.

Going forward, we are confident that these product introductions will help drive both customer and sales growth in China long term. In total, we now offer 8 USANA-branded products and 5 Sense-branded products in addition to the BabyCare products in China. In 2011, we also continued our efforts to educate and train our associates on a compensation plan in China and in general, how to build a successful direct selling business in China. These efforts contribute to our sales growth in 2011 and will continue to be part of our key initiatives in 2012.

While we have made progress in China and we expect to generate double-digit growth in this market again in 2012, we have not lost sight of the fact that China is a long-term growth opportunity for USANA. The direct selling companies that had been successful in China took many years to achieve success and made significant investments in this market. Although we do not anticipate significant capital investments in China in 2012, we must continue to invest the necessary time and effort to help our associates understand how to appropriately drive growth in China. By patiently and consistently executing our strategy, we're positioning USANA for long-term sustainable growth in this important market.

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