USANA Health Sciences, Inc.

Good day, everyone, and welcome to USANA Health Sciences' second quarter earnings call. Today's call is being recorded, and now at this time, I'd like to turn the call over to Andrew Masuda. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us to review our second quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ perhaps materially from the results projected in such forward-looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year 2023 as well as uncertainty related to the economic and operating environment around the world, our operations, and financial results. We caution you that these statements should be considered in conjunction with disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC. I'm joined by our President and CEO, Jim Brown, our Chief Financial Officer, Doug Hecking, our Executive Chairman, Kevin Guest, as well as other executives. Yesterday, after the market closed, we announced our second quarter results and posted our management commentary document on the company's website. We'll now hear brief remarks from Jim before opening the call for questions.

Thank you, Andrew, and good morning, everyone. We appreciate you joining us. We're pleased to report second quarter operating results that were better than our expectations. During the quarter, we saw further stabilization in our active customer counts, stronger than anticipated net sales in mainland China, and continued progress on several of our long-term strategic initiatives. As we mentioned in our first quarter call, first quarter net sales included approximately 12 million related to purchasing in mainland China for our immunity products following the lifting of COVID restrictions, and approximately 13 million related to buy-off ahead of announced price increases in several markets. Both of these first quarter events created a tough sequential quarter comparison for the second quarter. We also had a challenging year-over-year comparison due to a large global promotion in the second quarter of 2022, which did not reoccur in 2023. Given the challenging comparable periods, we were pleased with the performance of the business during the quarter. Before opening the call up for questions, I'd like to spend a few minutes reviewing some of the progress we made during the quarter. If you recall, at the beginning of the year, we made the strategic decision to move away from the large global incentives that we offered throughout different quarters in each of the previous three years. While these promotions resulted in a strong sales activity during the quarter in which the promotion was offered, we realized that it was difficult to retain these customers at desired levels in subsequent periods, and it ultimately created variability and fatigue with many of our leaders. Our 2023 strategic excuse me, strategy entails offering smaller market-specific incentives at various times throughout the year to generate sustainable sales and active customer growth. As I commented a few minutes ago, this change in approach has created difficult year-over-year comparisons in the first half of 2023. Although we remain in a fluid operating environment that is being influenced by inflationary pressures, we are generally pleased with the net sales and active customer counts and recognize that there is far more work to do to generate growth. Moving on, our team in China did an excellent job of executing the strategy in this key market during the second quarter. Local currency sales in the market grew 10% sequentially and exceeded our expectations, driven by strong demand from a small market-specific promotion offered during the quarter. We are pleased with our performance in this market, particularly given the macroeconomic environment. The country continues to reopen, allowing us to hold more in-person meetings and reengage with our customers in a single largest market. We are, however, continuing to see an impact on consumer spending from a broader inflationary pressures, which are affecting customer purchasing decisions. Nevertheless, our team remains optimistic that we'll continue to see improvements in the market as China continues to operate more freely, and we'll execute our strategies in this market that still presents enormous opportunity for growth. In May, we announced our plan to expand into India and officially launch operations in late 2023. This new market expansion is several years in the making and wouldn't be possible without the diligent work and effort that our team has spent preparing for the launch. India is an exciting and compelling market opportunity and we believe that our world-class health and wellness products and our business model are ideally suited for this market. That said, I have the utmost confidence in our local leadership team and would like to stress that our approach to expanding and growing this market will be intentional and will focus on long-term sustainable growth. We anticipate sales contribution to be modest on the onset and look forward to providing future updates on this market once we officially launch operations. In closing, our year-to-date performance and our current visibility into the remainder of the year is allowing us to raise the low end of our fiscal 2023 guidance range. We remain confident in our abilities to execute our strategies, which we believe will position USANA to deliver sustainable long-term growth. With that, I'll now ask April, our operator, to please open the lines for questions.