Direct sellers operating in China expect new setback with coronavirus outbreak
By Rick Redding
Public companies in the direct selling space had a challenging year in 2019. Here’s a summary of activity taken from their quarterly earnings calls.
For international companies operating in the direct selling channel, the coronavirus outbreak in China is a crisis with extremely poor timing. It was just a year ago that the Chinese government’s actions restricting meetings adversely affected the business models of companies such as USANA, LifeVantage and Nu Skin. But now the health concerns have forced a near-total halt to in-person meetings that are essential to growing revenue and sales there.
In fact, Nu Skin’s projections of a 20-25 percent decrease in revenue from China are just a guess—as no one knows how long the virus crisis will last.
Meanwhile, these public companies are doing what they can to operate as normally as possible in the rest of the world, hoping to maintain numbers that will keep investors happy.
These earnings reports from USANA, LifeVantage and Nu Skin all express hope that the country can be turned around as a source of significant income, but problems persist in the short term.
LifeVantage Touts Strong Second Fiscal Quarter
At LifeVantage’s Jan. 28 earnings call for the second quarter, CEO Darren Jensen delivered good news to investors—an overall 5.3 percent revenue increase to $61.2 million, including gains in the Americas (4.3 percent) and Asia-Pacific and Europe (7.8 percent). That includes a 4.7 percent increase in Japan.
Jensen credited the numbers to the company’s success in the launch of its Protandim NAD Synergizer products, a company-wide point of emphasis in the last quarter.
“Our customers have responded positively to the expansion of our flagship brand, and we believe we have assembled an unparalleled lineup of Protandim product solutions,” Jensen said.
He told investors it was the first significant addition to the product line since 2016. In preparation, he added that the company’s focus on distributor training and clinical research prior to the October launch paid off. The result has been a better experience for distributors.
“We also continue to plan to further simplify business building with the goal of making it as easy to build at LifeVantage as it is to call an Uber,” he said.
USANA Reports Stronger than Expected Fourth Quarter
While CEO Kevin Guest delivered a positive overall message about USANA’s fourth quarter financial performance, he expressed concern about the effects of the ongoing coronavirus outbreak in China.
“As we begin fiscal 2020, we believe our business is positioned to deliver solid operating results,” he told investors Feb. 5. “However, we acknowledge the evolving situation in China, where our customers, employees, and China’s health officials are responding to the spread of the coronavirus. While the Chinese New Year holiday typically affects our first quarter results, we expect an additional negative impact this year as a result of the coronavirus and the related impact on our business and consumer spending in China.”
Many key financial numbers were trending slightly downward on a year-to-year basis. USANA’s net sales fell from $299.0 million to $271.3 million, and its active customer count dropped from 616,000 to 586,000.
Guest said the performance showed the company is heading in the right direction.
“Our fourth quarter results were stronger than expected and allowed us to finish the year strong,” he said. “Our performance was driven by a better-than-expected response to promotions we offered during the quarter, as well as improved general momentum in many of our markets around the world, including China.”
Even though net sales fell 21.4 percent in Greater China, USANA experienced a 42.2 percent increase in North Asia. The company reported slight decreases in the Americas and Europe.
Guest concluded that he felt confident in USANA’s long-term growth potential in China, despite the virus threat.
USANA’s stock price, which fell dramatically in January to a low of $61.70, rebounded strongly to peak at $83.62 Feb. 10.
Nu Skin’s Stock Tumbles after Earnings Call
While Nu Skin’s CEO Ritch Wood reported fourth quarter results that were in line with expectations, the effects of the coronavirus in China weighed heavily on his remarks and expectations for the future in a Feb. 12 earnings call.
Wood expressed concern for the health and safety of Nu Skin’s corporate employees. He said in-person meetings in China have been suspended, and Shanghai employees are working from home through at least Feb. 24.
“Although it’s difficult to understand the full effect of coronavirus on our business, we do anticipate a significant short-term impact as public gatherings and travel remain restricted, which we believe will reduce the number and effectiveness of our sales leaders engaged in our business,” said Wood.
He added that he expects a decline in revenue of 20 to 25 percent as a result of the outbreak, but said the “duration and global impact remain uncertain.”
That news led to an immediate tumble in Nu Skin’s stock price of 15 percent in the hours following the call.
The company’s 2019 revenue of $2.42 billion was down 10 percent from the previous year, with the major impact being 2019’s sales restrictions in China. The effective result was a 15 percent drop in China business.
Turning to more optimistic topics, Wood pointed to the results of the company’s global convention in Salt Lake City last year, in which a strong digital strategy for 2020 was met with enthusiasm among sales leaders.
The company noted that it had launched a new digital application recently, NU TOWN, which executives believe will reduce the reliance on in-person meetings overall and specifically help rebuild the brand in China.
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