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USANA Health Sciences Inc$109.35($.35)(.32%)

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 USANA Health Sciences Reports Second Quarter Financial Results
   Tuesday, July 25, 2017 4:17:00 PM ET

--Number of active Customers(1) at quarter end increased 1.8% to 567,000

--Second quarter EPS of $0.93, or $0.98 excluding incremental expense related to the Company’s internal investigation of its China operations disclosed in February 2017

--Company revises 2017 Outlook

--Share repurchase authorization increased to $100 million

USANA Health Sciences, Inc. (USNA ) today announced financial results for its fiscal second quarter ended July 1, 2017.

Financial Performance

For the second quarter of 2017, net sales were $257.1 million compared with $258.5 million in the prior-year period. On a constant currency basis, net sales increased by 2.3% for the second quarter of 2017. A stronger U.S. dollar negatively impacted net sales by $7.4 million for the quarter with $5.7 million of this amount attributable to mainland China. The total number of active Customers increased by 1.8% year-over-year.

Net earnings for the second quarter were $23.3 million compared with $25.8 million during the prior-year period, a decrease of 9.7 percent. Higher SG&A and Associate Incentives expense negatively impacted net earnings during the quarter. These were partially offset by improved gross margins, which benefitted from changes in currency and annual price adjustments, as well as a lower effective tax rate.

Earnings per diluted share for the second quarter were $0.93 compared with $1.03 in the prior year period, a decrease of 9.7 percent. The expense related to the Company’s internal investigation into its China operations, which was disclosed in February 2017, negatively impacted earnings per diluted share by approximately $0.05. Additionally, changes in currency negatively impacted earnings per diluted share by approximately $0.03. Weighted average diluted shares outstanding were 25.0 million for the second quarter of 2017, compared with 24.9 million in the prior-year period. The Company did not repurchase any shares during the quarter and finished the quarter with $229.4 million in cash and cash equivalents and no debt.

"Our second quarter revenue was essentially flat with the year-ago period, which represented the highest quarterly sales in the Company’s history," said Kevin Guest, Chief Executive Officer. "In addition to the tough comparable, sales were softer than expected this quarter in several of our regions due to slower momentum and customer growth in the business. Supplier challenges with our MySmart foods line also negatively impacted our top-line results for the quarter. To counter these issues, we offered a successful short term promotion in China during the quarter and plan to offer additional promotions in several of our markets during the second half of the year. These promotions are designed to generate additional momentum and help grow the base of consumers using USANA’s best-in-class products."

Regional Results

Net sales in the Asia Pacific region increased by 2.6% to $199.3 million (up 5.9% on a constant currency basis), despite a negative $6.4 million impact from the strengthening of the U.S. dollar. Within Asia Pacific, net sales:

-- Increased 3.7% in Greater China (up 7.6% on a constant currency basis);

-- Decreased 4.8% in the Southeast Asia Pacific region (down 1.7% on a constant currency basis) largely due to softer sales in the Philippines; and

-- Increased 23.9% in North Asia (up 20.8% on a constant currency basis).

Sales growth in Greater China was primarily driven by 9.3% active Customer growth in Mainland China, while sales growth in North Asia resulted from 20.8% active Customer growth in South Korea. The total number of active Customers in the Asia Pacific region increased by 5.8% year-over-year.

Net sales in the Americas and Europe region decreased by 10.2% to $57.7 million, largely due to an 8.2% decrease in active Customers. A stronger U.S. dollar negatively impacted top-line results in this region by approximately $1.0 million.

"The Americas and Europe region continues to present a challenge for USANA, notwithstanding our team’s continued efforts to generate growth," continued Mr. Guest. "Our strategies for this region in the short-term include market-specific promotions during the back half of the year, as well as other initiatives to generate momentum that will be announced in August at our 25th Anniversary International Convention in Salt Lake City. Additional longer-term growth strategies will become available to us in 2018 as we further enhance our worldwide IT systems. Our team remains confident that we can generate growth in the Americas and Europe."

Preferred Customer Invitation Plan

During the quarter, the Company continued to evaluate offering its Preferred Customer Invitation Plan in additional markets around the world. Under this plan, the Company invites active Associates, who meet certain criteria, to become Preferred Customers.

Outlook

The Company is updating its consolidated net sales and earnings per share outlook for 2017 as follows:

-- Consolidated net sales between $1.015 billion and $1.030 billion (previously $1.04 billion and $1.07 billion); and

-- Earnings per share between $3.50 and $3.70 (previously $3.80 and $4.10).

The Company’s outlook reflects:

-- A continued negative impact from currency fluctuations, which the Company currently estimates will reduce net sales by approximately $22 million for the full-year;

-- An operating margin of approximately 13%, which includes continued investments in the business;

-- An effective tax rate of 33.7%, which excludes any prospective impact from excess tax benefits; and

-- A diluted share count of approximately 25 million.

Chief Financial Officer Doug Hekking commented, "We are updating our annual guidance to reflect our second quarter results, the current momentum in the business and our plans for the back half of the year. We continue to be confident in the Company’s long-term growth trajectory."

Increased Share Repurchase Authorization

The Board of Directors has authorized up to $100 million in funding for share repurchases by the Company of its outstanding common stock. This authorization is inclusive of the $35.4 million that was remaining under the prior authorization as of the end of the second quarter. Repurchases may be made from time to time, in the open market, through block trades or otherwise. The number of shares to be purchased and the timing of purchases will be based on market conditions, the level of cash balances, general business opportunities, and other factors. Additional share repurchases would represent upside to the revised EPS outlook the Company issued today.

Internal Investigation of China Operations

As the Company first disclosed in February 2017, it is voluntarily conducting an internal investigation of its China operations, BabyCare Ltd. The investigation focuses on compliance with the Foreign Corrupt Practices Act ("FCPA") and certain conduct and policies at BabyCare, including BabyCare’s expense reimbursement policies. The Audit Committee of the Board of Directors has assumed direct responsibility for reviewing these matters and has hired experienced counsel to conduct the investigation. While the Company does not believe that the subject amounts are quantitatively material or will materially affect its financial statements, it cannot currently predict the outcome of the investigation on its business, results of operations or financial condition. The Company has voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway and intends to provide additional information to both agencies as the investigation progresses. The Company cannot currently predict the duration, scope, or result of the investigation.

Non-GAAP Financial Measures

Constant currency net sales, earnings, EPS and other currency-related financial information (collectively, "Financial Results") are non-GAAP financial measures that remove the impact of fluctuations in foreign-currency exchange rates and help facilitate period-to-period comparisons of the Company’s Financial Results and thus provide investors an additional perspective on trends and underlying business results. Constant currency Financial Results are calculated by translating the current period’s Financial Results at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period’s Financial Results.

Additionally, EPS results for a reporting period which exclude incremental expense related to the Company’s internal investigation in China are non-GAAP financial measures that are intended to help facilitate period-to-period comparisons of the Company’s Financial Results. Such EPS results are calculated by (i) calculating the total incremental expense related to the internal investigation after taxes; and (ii) dividing the expense by the total number of diluted shares outstanding for the applicable reporting period.

Conference Call

The Company has posted the "Management Commentary, Results and Outlook" document on the Company’s website (http://ir.usana.com )">http://ir.usana.com ) under the "Investor Relations" section of the site. USANA will hold a conference call and webcast to discuss today’s announcement with investors on Wednesday, July 26, 2017, at 11:00 a.m. Eastern Time. Investors may listen to the call by accessing USANA’s website at http://ir.usana.com . The call will consist of brief opening remarks by the Company’s management team, before moving directly into questions and answers.

About USANA

USANA develops and manufactures high-quality nutritional supplements, healthy foods and personal care products that are sold directly to Associates and Preferred Customers throughout the United States, Canada, Australia, New Zealand, Hong Kong, China, Japan, Taiwan, South Korea, Singapore, Mexico, Malaysia, the Philippines, the Netherlands, the United Kingdom, Thailand, France, Belgium, Colombia and Indonesia. More information on USANA can be found at www.usana.com.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Our actual results could differ materially from those projected in these forward-looking statements, which involve a number of risks and uncertainties, including global economic conditions generally, reliance upon our network of independent Associates, the governmental regulation of our products, manufacturing and marketing risks, adverse publicity risks, risks associated with our international expansion and operations, and risks associated with the internal investigation into BabyCare’s operations. The contents of this release should be considered in conjunction with the risk factors, warnings, and cautionary statements that are contained in our most recent filings with the Securities and Exchange Commission.

(1) The term "active Customers" refers to the combined total of active Associates and active Preferred Customers as of April 1, 2017. During the first quarter, we initiated our Preferred Customer Invitation Plan in the United States and, pursuant to this invitation, 16,000 active Associates in the United States became Preferred Customers. During the second quarter, we continued to evaluate offering the invitation to Associates in our other markets around the world. To avoid confusion in reporting changes in the number of active Associates and Preferred Customers as a result of this invitation plan, we are reporting total active Customers. The tables, which are part of this release, however, will continue to separately disclose the number of active Associates and active Preferred Customers.

                                                                                                                                                                     
                                                                                                                                                    USANA Health Sciences, Inc.
                                                                                                                                                Consolidated Statements of Earnings
                                                                                                                                               (In thousands, except per share data)
                                                                                                                                                            (Unaudited)
                                                                                                                                                                                                                                                                                         
                                                                                          Quarter Ended                                                                                                                                                Six Months Ended
                                              ----------------------------------------------------------------------------------------------------                                          --------------------------------------------------------------------------------------------------------------------------------------
                                                        2-Jul-16                                                               1-Jul-17                                                                          2-Jul-16                                                                                1-Jul-17
                                              -----------------------------                                          -----------------------------                                          --------------------------------------------------                                          ------------------------------------------
                                                                                                                                                                                                                                                                                         
Net sales                                                        $ 258,514                                                              $ 257,063                                                              $ 498,963                                                                                   $              512,386
Cost of sales                                    45,970                                              43,902                                              88,890                                                             86,556
                                              -------------------- -------                                           -------------------- -------                                           -------------------- ------- --------------------                                           -------------------- --------------------
      Gross profit                                                 212,544                                                                213,161                                                                410,073                                                                                                  425,830
                                                                                                                                                                                                                                                                                         
Operating expenses
Associate incentives                                               115,331                                                                118,404                                                                222,725                                                                                                  234,185
Selling, general and administrative              59,764                                              62,389                                             116,395                                                            126,390
                                              -------------------- -------                                           -------------------- -------                                           -------------------- ------- --------------------                                           -------------------- --------------------
                                                                                                                                                                                                                                                                                         
      Earnings from operations                                      37,449                                                                 32,368                                                                 70,953                                                                                                   65,255
                                                                                                                                                                                                                                                                                         
Other income (expense)                              219                                                 460                                                (277 )                                                                                 942
                                              -------------------- -------                                           -------------------- -------                                           -------------------- ------- --------------------                                           -------------------- --------------------
Earnings before income taxes                                        37,668                                                                 32,828                                                                 70,676                                                                                                   66,197
                                                                                                                                                                                                                                                                                         
Income taxes                                     11,906                                               9,569                                              22,615                                                             21,580
                                              -------------------- -------                                           -------------------- -------                                           -------------------- ------- --------------------                                           -------------------- --------------------
                                                                                                                                                                                                                                                                                         
NET EARNINGS                                                     $  25,762                                                              $  23,259                                                              $  48,061                                                                $               44,617
                                              ==================== =======                                           ==================== =======                                           ==================== ======= ====================                                           ==================== ====================
                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                         
Earnings per share - diluted                                     $    1.03                                                              $    0.93                                                              $    1.92                                                                                   $                 1.78
Weighted average shares outstanding - diluted                       24,917                                                                 25,018                                                                 25,050                                                                                                   24,997
                                                                                                                                                                                                                                                                                                              
                                                                                   
                                                                              USANA Health Sciences, Inc.
                                                                              Consolidated Balance Sheets
                                                                                    (In thousands)
                                                                                      (Unaudited)
                                                                                                                                              
                                                                                  As of                                                                         As of
ASSETS                                                                          31-Dec-16                                                                     1-Jul-17
                                                                      -----------------------------                                          ------------------------------------------
Current Assets
   Cash and cash equivalents                                                             $ 175,774                                                              $              229,365
   Inventories                                                                              64,810                                                                              68,688
   Prepaid expenses and other current assets                             37,277                                                           32,109
                                                                      -------------------- -------                                           -------------------- --------------------
      Total current assets                                                                 277,861                                                                             330,162
                                                                                                                                              
Property and equipment, net                                                                101,267                                                                             102,534
Goodwill                                                                                    16,715                                                                              16,966
Intangible assets, net                                                                      34,349                                                                              34,449
Deferred income taxes                                                                       18,292                                                                              18,081
Other assets                                                             22,158                                                           22,588
                                                                      -------------------- -------                                           -------------------- --------------------
      Total assets                                                                       $ 470,642                                                              $              524,780
                                                                      ==================== =======                                           ==================== ====================
                                                                                                                                              
                                                                                                                                              
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
   Accounts payable                                                                      $   9,040                                                              $                7,444
   Other current liabilities                                            129,451                                                          127,930
                                                                      -------------------- -------                                           -------------------- --------------------
      Total current liabilities                                                            138,491                                                                             135,374
                                                                                                                                              
Deferred income taxes                                                                        5,499                                                                               4,965
Other long-term liabilities                                                                  1,365                                                                               1,299
                                                                                                                                              
Stockholders’ equity                                                    325,287                                                          383,142
                                                                      -------------------- -------                                           -------------------- --------------------
      Total liabilities and stockholders’ equity                                         $ 470,642                                                              $              524,780
                                                                      ==================== =======                                           ==================== ====================
                                                                                                                                                                   
                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
                                                                                                                   USANA Health Sciences, Inc.
                                                                                                                         Sales by Region
                                                                                                                           (unaudited)
                                                                                                                         (in thousands)
                                                                                                                                             Quarter Ended                                                                                                                                                                  
                                               --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  2-Jul-16                                                                           1-Jul-17                                                                                                                        Change from prior                                                                                                       Currency                                                               % change
                                                                                                                                                                                                                                                                                                                                                 year                                                                                                              impact on                                                              excluding
                                                                                                                                                                                                                                                                                                                                                                                                                                                                     sales                                                                currency
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          impact
                                               -------------------------------------------------------------------------                                                -------------------------------------------------------------------------                                                ---------------------------------------------------------------------------------------------                                                 ----------------------------------------------                                             ------------------------------
                                                                                                                                                                  
Asia Pacific
   Greater China                                                  $ 131,840                                            51.0 %                                                              $ 136,702                                            53.2 %                                                              $  4,862                                                                  3.7 %                                                               $ (5,187 )                                                                     7.6 %
   Southeast Asia Pacific                                            51,123                                            19.8 %                                                                 48,665                                            18.9 %                                                                (2,458 )                                                               (4.8 %)                                                                (1,602 )                                                                    (1.7 %)
   North Asia                                     11,261                                             4.3 %                                              13,948                                             5.4 %                                              2,687                                              23.9 %                                                 349                                                   20.8 %
                                               -------------------- -------                                           ----- -                                           -------------------- -------                                           ----- -                                           -------------------- ------ --------------------                                                                                              -------------------- ------ --------------------
      Asia Pacific Total                                            194,224                                            75.1 %                                                                199,315                                            77.5 %                                                                 5,091                                                                  2.6 %                                                                 (6,440 )                                                                     5.9 %
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
Americas and Europe                               64,290                                            24.9 %                                              57,748                                            22.5 %                                             (6,542 )                                                              (10.2 %)                                               (981 )                                                                    (8.6 %)
                                               -------------------- -------                                           ----- -                                           -------------------- -------                                           ----- -                                           -------------------- ------ --------------------                                                                                              -------------------- ------ --------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
                                                                  $ 258,514                                           100.0 %                                                              $ 257,063                                           100.0 %                                                              $ (1,451 )                                                               (0.6 %)                                                              $ (7,421 )                                                                     2.3 %
                                               ==================== =======                                           ===== =                                           ==================== =======                                           ===== =                                           ==================== ====== ====================                                                                                              ==================== ====== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
 
                                                                                              Active Associates by Region(1)
                                                                                                        (unaudited)
                                                                
                                                                                                                                   As of
                                               ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        2-Jul-16                                                                                                   1-Jul-17
                                               -----------------------------------------------------------                                          -----------------------------------------------------------------------
                                                                                                                                                                                                       
Asia Pacific
   Greater China                               267,000                                            58.0 %                                            289,000                                                 62.3 %
   Southeast Asia Pacific                       88,000                                            19.1 %                                             83,000                                                 17.9 %
   North Asia                                   15,000                                             3.3 %                                             20,000                                                  4.3 %
                                               -------                                           ----- --                                           -------                                           ---------- ---------
      Asia Pacific Total                       370,000                                            80.4 %                                            392,000                                                 84.5 %
                                                                                                                                                                                                       
Americas and Europe                             90,000                                            19.6 %                                             72,000                                                 15.5 %
                                               -------                                           ----- --                                           -------                                           ---------- ---------
                                                                                                                                                                                                       
                                               460,000                                           100.0 %                                            464,000                                                100.0 %
                                               =======                                           ===== ==                                           =======                                           ========== =========
(1) Associates are independent distributors of our products who
also purchase our products for their personal use. We only count
as active those Associates who have purchased from us any time
during the most recent three-month period, either for personal use
or resale.
 
                                                                                         Active Preferred Customers by Region (2)
                                                                                                        (unaudited)
                                                               
                                                                                                                                  As of
                                               ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        2-Jul-16                                                                                                  1-Jul-17
                                               ----------------------------------------------------------                                          -----------------------------------------------------------------------
                                                                                                                                                                                                      
Asia Pacific
   Greater China                                5,000                                             5.2 %                                              5,000                                                  4.9 %
   Southeast Asia Pacific                      14,000                                            14.4 %                                             15,000                                                 14.5 %
   North Asia                                  10,000                                            10.3 %                                             10,000                                                  9.7 %
                                               ------                                           ----- --                                           -------                                           ---------- ---------
      Asia Pacific Total                       29,000                                            29.9 %                                             30,000                                                 29.1 %
                                                                                                                                                                                                      
Americas and Europe                            68,000                                            70.1 %                                             73,000                                                 70.9 %
                                               ------                                           ----- --                                           -------                                           ---------- ---------
                                                                                                                                                                                                      
                                               97,000                                           100.0 %                                            103,000                                                100.0 %
                                               ======                                           ===== ==                                           =======                                           ========== =========
(2) Preferred Customers purchase our products strictly for their
personal use and are not permitted to resell or to distribute the
products. We only count as active those Preferred Customers who have
purchased from us any time during the most recent three-month period.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170725006405r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20170725006405/en/

SOURCE: USANA Health Sciences, Inc.

USANA Health Sciences, Inc. 
Investors contact: 
Patrique Richards, 801-954-7961 
Investor Relations 
investor.relations@us.usana.com 
or 
Media contact: 
Dan Macuga, 801-954-7280 
Public Relations


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