USANA HEALTH SCIENCES INC Quarterly Report Released - Here’s What You Should Know

USANA HEALTH SCIENCES, INC. – INVESTOR SUMMARY FOR THE QUARTER ENDED JUNE 28, 2025

Key Financial Metrics

• Net sales for Q2 2025 increased by 10.8% to $235.8 million from $212.9 million in Q2 2024, primarily due to the acquisition of Hiya Health Products, LLC (“Hiya”).
• For the six months ended June 28, 2025, net sales rose 10.1% to $485.4 million (2024: $440.7 million).
• Net earnings attributable to USANA in Q2 2025 were $9.7 million, down 7.4% from $10.4 million year-over-year; for the six-month period, earnings were $19.1 million, down from $27.0 million.
• Diluted EPS was $0.52 for Q2 2025 (Q2 2024: $0.54) and $1.01 for the six months (2024: $1.40), a 27.9% decrease.
• Gross profit margin declined to 78.7% (Q2 2024: 81.1%) and 78.9% for six months (2024: 81.1%) due to higher costs in the Hiya segment and mix shift.
• Cash and cash equivalents at period end totaled $151.3 million, down from $181.8 million as of December 28, 2024.
• Net cash provided by operating activities for the first six months was $27.7 million (2024: $25.7 million).
• No outstanding borrowings on the $75 million revolving credit facility at quarter end ($23.0 million in December 2024).
• Share repurchases totaled $27.5 million for the six months, with 528,000 shares repurchased during Q2 2025 at an average price of $28.71 per share.

Segment and Product Performance

• Direct selling (Asia Pacific, Americas, Europe) accounted for 84% of Q2 sales; Hiya (U.S. DTC kids supplements) contributed 14.4%.
• Direct selling segment Q2 net sales: $199.1 million (down 5.7% year-over-year); Americas and Europe sales fell 11.5%, while Asia Pacific declined 4.3%. June 2025 active customers totaled 418,000, down from 468,000 in June 2024, with declines across all regions (Asia Pacific: -8.9%, Americas/Europe: -17.2%).
• Hiya segment net sales were $33.9 million for Q2 2025 and $71.0 million for the six months.
• Greatest markets: China ($102.1 million in Q2 sales), United States ($54.1 million with Hiya included).
• Key product mix (YTD): USANA® Nutritionals 72%, Essentials/CellSentials 16%, USANA Foods 6%, Personal care 5%, Hiya Kids Daily Multivitamin 53% of Hiya segment revenue.

Balance Sheet Highlights

• Total assets at quarter end: $734.5 million.
• Stockholders’ equity: $531.1 million.
• Goodwill and intangibles from the Hiya acquisition: $144.2 million (goodwill), $142.7 million (intangibles).
• Redeemable noncontrolling interest (Hiya minority stake): $54.5 million.

Risks

• Regulatory and Legal: The business depends heavily on the direct selling model, which faces extensive regulatory scrutiny and is subject to evolving legal exposure. For example, changes in regulations in China (a major market) or adverse government actions can significantly disrupt operations (“operation of our direct selling business in China through our subsidiary, BabyCare Holdings, Ltd.” is specifically cited as a risk).
• Market Concentration and Economic Headwinds: Asia Pacific—particularly China—remains the dominant revenue source, and declines in both active customers and sales here (-4.6% YTD) signal concentration risk exacerbated by regional slowdowns.
• Post-Acquisition Integration: The Hiya acquisition introduces financial and operational risks, including integration challenges (evidenced by higher operating costs in the Hiya segment: SG&A was 58.3% of segment sales for Hiya vs. 31.8% for direct selling YTD).
• Currency Fluctuations: The company cites “volatile fluctuation in the value of foreign currencies against the U.S. dollar” as a material risk, with documented unfavorable currency impacts on net sales in key non-U.S. markets.
• Customer Base Decline: A 10.7% year-over-year decline in active customers reflects possible structural or competitive challenges in core markets.
• Legal Claims: The company is routinely involved in litigation and regulatory proceedings, which could incur increased costs and uncertainty (see Note H).
• Supply Chain and Cost Pressures: Inventory increased to $83.3 million from $69.7 million in December, and cost of sales rose in both absolute and percentage terms. Management acknowledged “shortages of raw materials, disruptions in the business of our contract manufacturers, [and] significant price increases” as risks in the file.
• High Effective Tax Rate: The effective tax rate was 44.5% for Q2 2025 compared to 48.4% in Q2 2024, which remains high and impacts net earnings.

Management Discussion

• Strategic Shifts: The Hiya acquisition has been critical to driving sales growth but at the expense of margins and EPS, with significant SG&A and amortization associated with Hiya (“Hiya direct-to-consumer: Hiya operates and sells products to customers in the United States. Hiya's customers are not included in our direct selling segment.”).
• Margin Pressure: Management recognizes that gross and operating margins compressed primarily due to increased costs and the consolidation of Hiya’s lower-margin DTC business (Hiya’s cost of sales as a % of sales was 37.2% vs. 18.4% in direct selling for the six months).
• Cash Flow: Net operating cash flow remains positive and grew year-over-year. Management believes it has sufficient liquidity for foreseeable needs, supported by “current cash balances, future cash provided by operations, and amounts available under our Credit Facility.”
• Customer and Market Development: Despite net customer declines, management is investing in R&D, new product development, and international expansion to support future growth but acknowledges risks of continued customer attrition and further regional headwinds.
• Shareholder Returns: The company continued aggressive share buybacks, signaling confidence in long-term prospects but potentially limiting flexibility for other investments.
• Integration Focus: Management cautions that efforts remain underway to fully integrate Hiya’s controls and processes into USANA’s environment, presenting temporary internal control risks.

Overall, while USANA posted strong sales growth on the back of the Hiya acquisition, underlying challenges in its legacy business, customer declines, margin compression, and significant competitive, regulatory, and operational risks remain. Investors should monitor the company’s ability to integrate Hiya, arrest the decline in core customers, and manage costs to sustain profitability and cash generation.

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