Thursday, January 28, 2016

USANA Should Disclose What The Actual United States of America Net Sales, Active Associates, and Active Preferred Customers Are For The Last 5 Years.

Many may not know, but when USANA Health Sciences (USNA) reports their United States figures in their quarterly and annual financial statements they also include the United Kingdom and the Netherlands. These foreign markets are about 4200 miles apart from the United States, but that hasn't stopped USANA from considering them all part of their domestic market. So when USANA reports net sales for the United States after the closing bell on Tuesday, February 9, 2016 would it mean anything different to investors if the United States of America figures were actually only half of what they are reporting for the United States? I believe I have evidence to suggest this may be the case.

USANA reports in their North American Average Total Earnings for 2011 that the total number of US associates that purchased at least one product (active associate) was 135,590. The next available figure, which was finally disclosed just last November after Fox13 news in Salt Lake City asked USANA if they can provide updated information since 2011 was a bit outdated, shows in their North American Average Total Earnings for 2014 that only 61,400 US associates purchased at least one product. That is a 54.7% decline in the United States of America according to those reports. However, USANA has not made any such disclosure in SEC filings regarding this massive decline of US active associates. In fact, SEC filings only show a slight decline for the United States from 2011 to 2014.

Regarding their SEC filings (10-Q and 10-K), USANA reports only 3 months worth of associate activity for each quarter. In 2011, USANA had on average 47,500 active associates each quarter for their US market. In 2014, USANA had about 40,000 active associates on average each quarter. So according to SEC filings, USANA only declined 15.8%. So why is there a massive discrepancy between a 54.7% decline (undisclosed to investors) versus a 15.8% decline (disclosed to investors)? I believe the answer is the United Kingdom and the Netherlands, which may account for half of the active associates USANA reports for the United States in their SEC Filings.

This begs the question - what are the actual net sales, active associate numbers and active preferred customer numbers for the United States of America? I thought USANA was required by law to disclose their domestic sales figures separately and not sure how they can still be including sales to associates and preferred customers from the United Kingdom or Netherlands as domestic sales. If I am right and a substantial part of USANA's United States sales figures are non-domestic, does this spell trouble for USANA? Are they trying to conceal their massive decline in the US from investors? Does this warrant a SEC investigation? Will class action lawsuits be filed as a result? If I am wrong, then someone please explain what happened to all the active associates they reported in the average total earnings reports.

Below is a table showing each year's total number of US associates and the number of distributors reported in SEC filings for the 4th quarters (except 2014, which was not disclosed in SEC filings, but deduced from statements made regarding % increases or decreases).


YEAR 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
# of US Associates in 4th Quarter Per SEC Filings 51,000 59,000 61,000 63,000 57,000 51,000 45,000 Not Disclosed Not Disclosed 40,000 (Deduced)
Total # US Associates in Year per Average Total Earnings Disclosures 101,361 142,841 126,146 158,934 165,710 146,714 135,590 Not Disclosed Not Disclosed 61,400
Total US sales (in millions) per 10K SEC Filing $134.2 $159.4 $169.6 $161.2 $151.7 $150.9 $148.1 $152.5 $157.5 $143.7
10K SEC Filing 10K-2005 10K-2006 10K-2007 10K-2008 10K-2009 10K-2010 10K-2011 10K-2012 10K-2013 10K-2014
North American Average Total Earnings Disclosure Disclosure 2005 Disclosure 2006 Disclosure 2007 Disclosure 2008 Disclosure 2009 Disclosure 2010 Disclosure 2011 Not Disclosed Not Disclosed Disclosure 2014

To find out when USANA began including the UK and the Netherlands with US domestic data, we must rewind over a decade in time.

USANA states the following in their second quarter 10-Q for 2000:
"Since the beginning of the second quarter of 2000, the Company's United Kingdom market has been serviced from the United States and is now considered a part of the domestic operating segment of the Company." - Q2-2000

In the third quarter 10-Q for 1999, USANA states the following:
"The Company began selling products into the Netherlands in the third quarter of 1999. The Netherlands will be serviced by the Company's United Kingdom administrative facility." - Q3-1999

Thursday, December 3, 2015

USANA Distributors Overcharged For Product In Order To Fund Pyramid Scheme

UNITED STATES 

USANA ASSOCIATE PRICE LIST
VS
NBTY EQUIVALENT PRICE LIST



See what USANA products could cost if manufactured by a non-MultiLevel Marketing company.

http://www.mlmpyramid.com/USANA%20Distributors%20Overcharged%20To%20Fund%20Pyramid%20Scheme.pdf
View the PDF version of this article: 



By using USANA’s cost to manufacture each product and applying that same figure to NBTY’s costs, you can see how much more USANA charges it’s distributors for their products, which is primarily due to USANA’s very high distributor incentive expense (distributor commissions and bonuses). This also eliminates quality, potency, and pharmaceutical GMP differences the two companies might have by using the same manufacturing cost. See full detailed explanation at the bottom of this article.


USANA DISTRIBUTOR PRICE represents the discounted price USANA gives their distributors. (10% below preferred pricing)

NBTY DISTRIBUTOR PRICE represents the equivalent price if NBTY manufactured the same product instead.

USANA 2014 10K SEC Filing – Average Cost of Sales: 17.81%
NBTY 2014 10K SEC Filing – Average Cost of Sales: 54.29%
 
Approximated NBTY DISTRIBUTOR PRICE = (USANA DISTRIBUTOR PRICE * 17.81%) / 54.29%



ITEM # PRODUCT USANA DISTRIBUTOR PRICE NBTY DISTRIBUTOR PRICE
Approximated
ESSENTIALS 107 MyHealthPak Custom Custom * 0.328%
100 HealthPak $108.00 $35.43
101 Essentials $44.06 $14.45
101 Essentials Kosher $44.06 $14.45
101 Essentials Green $44.06 $14.45
102 Chelated Mineral $14.81 $4.86
103 Mega Antioxidant $34.16 $11.21
106 Mega Antioxidant without Vitamin K $34.16 $11.21
OPTIMIZERS 109 Vitamin D $17.96 $5.89
110 Proflavanol C100 $35.96 $11.80
120 Active Calcium $17.06 $5.60
121 Active Calcium Chewable $22.46 $7.37
122 BiOmega $20.21 $6.63
123 CoQuinone 30 $35.06 $11.50
126 Ginkgo-PS $29.65 $9.73
128 Palmetto Plus $22.01 $7.22
129 PhytoEstrin $18.86 $6.19
131 Procosa $27.90 $9.15
134 Visionex $28.31 $9.29
141 Pure Rest $14.36 $4.71
143 Booster C 600 $28.31 $9.29
DIGESTION/DETOX 108 Probiotic $23.36 $7.66
111 Digestive Enzyme $26.96 $8.84
135 Hepasil DTX $30.56 $10.02
226 Fibergy Plus $26.96 $8.84
MOTHER/CHILD 104 Body Rox $20.25 $6.64
105 Usanimals $12.56 $4.12
144 BiOmega Jr. $15.26 $5.00
151 BabyCare Prenatal Essentials $44.06 $14.45
165 Children’s Complete Duo $22.46 $7.37
NUTRIMEAL 209 Nutrimeal Free, Protein Drink Mix $26.96 $8.84
202 Nutrimeal Chocolate Whey, Protein Drink Mix $26.96 $8.84
210 Nutrimeal Dutch Chocolate, Protein Drink Mix $26.96 $8.84
211 Nutrimeal French Vanilla, Protein Drink Mix $26.96 $8.84
212 Nutrimeal Wild Strawberry, Protein Drink Mix $26.96 $8.84
SNACKS & BARS 236 Peanutty Bliss, Protein Snack $27.86 $9.14
235 Choco Chip, Protein Snack $27.86 $9.14
237 Fudge Delite, Protein Snack $27.86 $9.14
238 Berry Nutty™ Nutrition Bar $35.96 $11.80
RESET 251 5-Day RESET Kit $99.86 $32.76
251 RESET Kit 4-Pack $346.50 $113.68
ACCESSORIES 752 BlenderBottle $5.36 $1.76
754 Pedometer $13.46 $4.41
291 Pedometer / BlenderBottle Duo $16.16 $5.30
REV3 138 Rev3 Energy $28.76 $9.43
139 Rev3 Energy Surge Pack $28.76 $9.43
139 Rev3 Energy Surge Pack $47.70 $15.65
SKIN CARE 300 Gentle Daily Cleanser $15.26 $5.00
301 Hydrating Toner $12.56 $4.12
302 Daytime Protective Emulsion w/ SPF 15 $31.73 $10.41
303 Night Renewal Crème $30.15 $9.89
304 Serum Intensive $35.33 $11.59
305 Perfecting Essence $41.63 $13.66
306 Eye Nourisher $20.66 $6.78
307 Rice Bran Polisher $13.46 $4.41
308 Nutritious Crème Masque $15.26 $5.00
BODY & HAIR CARE 311 Energizing Shower Gel $14.36 $4.71
753 Shower Gel Pump $0.23 $0.07
312 Revitalizing Shampoo $14.36 $4.71
313 Nourishing Conditioner $15.08 $4.95
314 Firming Body Nourisher $19.94 $6.54
315 Intensive Hand Therapy $12.15 $3.99
391 Natural Loofah Glove $4.05 $1.33
391 Body Polishing Glove $3.56 $1.17
399 Natural Whitening Toothpaste $7.47 $2.45
760 Mirror $4.95 $1.62
COMBINATION PACKS 350 Deluxe Pack w/ Perfecting Essence $145.67 $47.79
350 Deluxe Pack w/ Serum Intensive $145.67 $47.79
350 Deluxe Pack 4-Pack w/ Perfecting Essence $382.50 $125.49
350 Deluxe Pack 4-Pack w/ Serum Intensive $382.50 $125.49
351 Sensé Basic Pack $72.90 $23.92
351 Sensé Basic 4-Pack $190.80 $62.60
354 Sensé Hair & Body Pack $67.95 $22.29
360 Sensé Shower Pack $37.80 $12.40

 
By calculating USANA's estimated cost to manufacture each of their products, we can have NBTY manufacture the same exact product at USANA's estimated cost and determine what a distributor could pay if purchased from NBTY rather than USANA. This reveals how USANA distributors are paying way too much for USANA product so USANA can fund their pyramid scheme (see associate incentive expense below).


Example:
USANA HealthPak sold to their distributors for $108
It costs USANA approximately $19.24 to manufacture the HealthPak ($108 * 17.81%)
Now have NBTY manufacture the same exact product and have it cost them $19.24 to manufacture
NBTY could sell the HealthPak to their distributors for only an estimated $35.43 ($19.24 / 54.29%)



Why should USANA distributors be overcharged and left holding the bag?


USANA
10-K 2014 SEC Filings
Dollar value in thousands
Value
% of Net Sales
Net Sales
$790,471
100.00%
Cost of Sales
$140,794
17.81%
Associate Incentives (Commissions & Bonuses)
$349,044
44.16%
Selling, General and Administrative (SG&A)
$184,531
23.34%
Advertising (part of SG&A)
$4,942
0.63%
Research and Development (part of SG&A)
$5,128
0.65%
Earnings from Operation
$116,102
14.69%



NBTY
10-K 2014 SEC Filings
Dollar value in thousands
Value
% of Net Sales
Net Sales
$3,205,778
100.00%
Cost of Sales
$1,740,417
54.29%
Advertising, Promotion and Catalog
$202,754
6.32%
Selling, General and Administrative (SG&A)
$952,533
29.71%
Goodwill & Intangible Asset Impairment Charges
$207,334
6.47%
Earnings from Operation
$102,740
3.20%

Detailed Explanation:
As a distributor, your job is to retail product to customers and the reward is a decent profit margin on the sale. However, USANA has chosen to make commissions and bonuses (distributor incentives) the primary reward. USANA pays commission to distributors who have generated "Group Sales Volume" points from product purchases made by either preferred customers or downline distributors. As a result of USANA's compensation plan, USANA pays out 43.5% of their sales as distributor incentives, which is reported in USANA 2014 10-K SEC filings. To put in perspective, the HealthPak sells to USANA distributors for $108. From that, $46.98 is used to pay commissions, which does not go toward the distributor who retails product, but rather primarily to those with the largest downlines.



This enormous expense forces USANA to drastically raise the price their products are sold to their distributors to the point distributors cannot realistically retail the product, not to mention preferred customers get the product at the same price distributors get it. This causes distributors to focus on selling a business opportunity and recruit new distributors rather than selling product. In order for distributors to participate in USANA’s compensation plan or contests, you must personally purchase over $100 worth of product every four weeks. Unfortunately, even though USANA pays out almost half of their net sales as distributor incentives, the vast majority of distributors never earn a profit and only a few at the top of the distributor network hierarchy make enough to recognize a profit. The result is a pyramid scheme. The more distributors in one's downline, the more commission one is likely to receive. Because distributors are required to personally purchase product, commissions are almost guaranteed to those who joined earlier and are higher up the chain.

Now that you have a basic understanding of the distributor incentives as a percentage of USANA's net sales, we must now look at USANA's average cost to manufacture the product. This is known as the "cost of sales" and is reported in USANA's 2014 10-K SEC filings as 17.81%, which consists of expenses related to raw materials, labor, quality assurance, and overhead costs directly associated with the production and distribution of the product. So a $108 HealthPak is estimated to cost USANA $19.24 to produce. In other words, USANA sells the HealthPak to their distributors at 5.6 times their cost to manufacture and produce that HealthPak.

In contrast, dietary supplement manufacturer NBTY is not a multilevel marketing company. According to their 2014 10-K SEC filings, NBTY’s cost of sales represents 54.29% of the net sales. As a result, NBTY sells product to their distributors at only 1.8 times their cost to manufacture. One glaring difference is that they do not have a very large distributor incentive like USANA does. If the same HealthPak product was manufactured at NBTY at the same cost of $19.24 as it did with USANA, then NBTY would be able to sell it to their distributors for an estimated $35.43 instead of USANA's $108 price tag.

By removing the focus of recruiting an endless chain of distributors (in what I believe is a massive pyramid scheme) by greatly reducing or eliminating altogether the distributor incentives, product sold to USANA distributors could be much more affordable and allow distributors to retail the product for a substantial profit margin. In fact, if USANA distributors purchased the HealthPak for $35.43, they could resell it for a 100% profit margin and it would still be much cheaper than the $108 USANA distributors currently pay.

This document shows all USANA products sold in the United States, the price USANA distributors pay for each product from USANA (MultiLevel Marketing company), and the estimated price distributors could pay if the same product was instead manufactured and distributed by NBTY (non-MultiLevel Marketing company).