USANA Health Sciences : Management Commentary Q1 2022

USANA Health Sciences, Inc.

April 26, 2022

Q1 2022 Management Commentary

Key Financial & Operating Highlights

• • First quarter net sales were $273 million as compared with $308 million during the first quarter of the prior year.

• • First quarter diluted EPS totaled $1.15 versus $1.45 during the first quarter of 2021.

• • Company revises fiscal 2022 net sales and diluted EPS outlook to $1.1 billion to $1.2 billion and $5.00 to $5.70, respectively.

Overview

Our first quarter financial performance was largely in-line with our internal expectations, although we experienced softer-than-anticipated Active Customers and net sales in several of our markets in Southeast Asia Pacific. This softness, however, was partially offset by growth in other key markets.

We typically experience slower sales during the Lunar New Year holiday in several markets and, consequently, we offer a variety of sales promotions during the holiday to help generate sales momentum. This year, the sales promotions we offered did not generate the level of sales activity to counter the holiday slowdown and fell short of sales generated from similar efforts in the prior-year quarter. This was particularly pronounced in our markets in Southeast Asia Pacific, notably in the Philippines and Malaysia. We believe the softness was largely attributable to disruption and fatigue from the COVID-19 environment. The top-line softness in the Southeast Asia Pacific sub-region, however, was somewhat offset by growth in other key markets, including the United States and South Korea.

Notwithstanding the softer sales performance, we continued to successfully execute our strategy to roll out more Active Nutrition products and enhance our onboarding programs and trainingtools. Our team continues to adapt in an ever-changing environment as we remain focused on executing our 2022 strategy designed to increase momentum in the business.

Inflationary pressures are being felt across key areas of our business and we continue to engage with our stakeholders to address and manage these costs accordingly. We remain steadfast and committed to strategic investments in the business to support long-term, sustainable growth.

We entered the second quarter recognizing we face a difficult financial comparison to the prior-year period, which included the short-term sales program that we offered across all markets in the second quarter of 2021. This year, we are offering similar short-term sales programs on a staggered basis throughout the year. As a result, we anticipate more balanced sales performance for the remainder of the year.

Notwithstanding the near-term challenges, particularly from the escalating COVID-19 situation in China, we remain confident in our global strategies and our long-term growth potential. We continue to evaluate and will adjust our strategy, as necessary, to support our team and Associates in our markets. We remain optimistic that we can deliver results for our stakeholders.

Q1 2022 Results

Consolidated Results
Net Sales	$272.9 million	• -11% vs. prior-year quarter • -10% constant currency vs. prior-year quarter • +2% constant currency sequentially • -$2.8 million YOY FX impact, or -1%
Diluted EPS	$1.15	• -21% vs. prior-year quarter • +12% sequentially • Diluted shares of 19.5 million, -8% vs. prior-year quarter
Active Customers	552,000	• -11% vs. prior-year quarter

Balance Sheet and Share Repurchase Activity

We ended the quarter with $238 million in cash and cash equivalents after repurchasing 288,000 shares during the quarter, for a total of $25 million. Diluted shares outstanding totaled 19.5 million during the first quarter of 2022. As of April 2, 2022, the Company had approximately $83 million remaining under the share repurchase authorization.

Quarterly Income Statement Discussion

Gross margin decreased 10 basis points from the prior year to 81.2% of net sales. The decrease is attributed primarily to the negative impact of FX rates, inventory valuation adjustments, and increased material and labor costs. The cost pressures were offset, in part, by geographic sales mix and lower relative promotional sales during the current year quarter.

Associate Incentives increased 10 basis points from the prior year to 43.8% of net sales. The modest increase primarily reflects higher incentive and promotional expenses during the current year quarter.

Selling, General and Administrative expenses increased to 25.2%, or 210 basis points, as a percentage of net sales compared to prior year results. The increase is largely due to loss of leverage on lower year-over-year net sales. On an absolute basis, SG&A expenses decreased $2.8 million compared to the prior year, which can be primarily attributed to lower costs on current year sales and operating performance.

The effective tax rate of 32.5% increased from the 30.9% reported in the prior-year quarter, largely due to a change in distribution of pre-tax income generated by market.

Regional Financial Results

Asia Pacific Region
Net Sales	$218.4 million	• -13% vs. prior-year quarter • -12% constant currency vs. prior-year quarter • +3% constant currency sequentially • 80% of consolidated net sales
Active Customers	422,000	• -11% vs. prior-year quarter • -1% sequentially

Asia Pacific Sub-Regions
Greater China
Net Sales	$133.7 million	• -10% vs. prior-year quarter • Constant currency net sales: -12%
Active Customers	255,000	• -8% vs. prior-year quarter • Flat sequentially
North Asia
Net Sales	$29.9 million	• -1% vs. prior-year quarter • Constant currency net sales: +7%
Active Customers	57,000	• -3% vs. prior-year quarter • -2% sequentially
Southeast Asia Pacific
Net Sales	$54.7 million	• -24% vs. prior-year quarter • Constant currency net sales: -21%
Active Customers	110,000	• -20% vs. prior-year quarter • -4% sequentially

Greater China: Net sales and local currency sales in mainland China decreased 11% and 12% year-over-year, respectively, while Active Customers in this market decreased 8%. Sequentially, net sales in mainland China increased 8% and Active Customers were flat.

The operating environment in China has become increasingly more challenging due to the recent surge in COVID-19 cases, which has resulted in strict lockdowns and restrictions in several areas within this key market. However, despite these challenges, our team remains committed to supporting our staff and Associates as they navigate the current environment.

North Asia: South Korea continued to perform well in the first quarter, as net sales and local currency sales increased 1% and 9% year-over-year, respectively. On a sequential basis, net sales and local currency sales grew 3% and 5%, respectively. Our South Korea market continues to demonstrate resilience in a difficult COVID-19 operating environment.

Southeast Asia Pacific: Local currency net sales in Malaysia declined 27%, largely due to a challenging comparable given the high cadence of promotional activity in the prior-year quarter. Active Customers in this important market declined 17% year-over-year. Sequentially, net sales and Active Customers declined 13% and 8%, respectively. The Philippines, which has historically been a very strong market, experienced a difficult operating environment and reported disappointing sales and operating performance for fiscal 2021. Accordingly, we expect a tough year-over-year comparable in the first half of fiscal 2022 and hope to build momentum as the year progresses. Although local currency net sales declined 30% year-over-year, on a sequential basis, net sales increased 4% and Active Customers were flat.

Americas and Europe Region
Net Sales	$54.4 million	• -4% vs. prior-year quarter • -3% constant currency vs. prior-year quarter • -1% constant currency sequentially • 20% of consolidated net sales
Active Customers	130,000	• -10% vs. prior-year quarter • -2 % sequentially

Americas and Europe Region: Net sales in the United States increased 5% year-over-year while Active Customers in this market decreased 3%. Sequentially, net sales and Active Customers declined 3% and 2%, respectively. Canada experienced a 5% decline in both net sales and local currency net sales, and a 9% decrease in Active Customers. On a sequential basis, net sales declined 4% and Active Customers were flat.