Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Riley Timmer - Vice President of Finance

Fred Cooper - President & Chief Operating Officer

Jeff Yates - Chief Financial Officer

Mark Wilson - Executive Vice President, North America

Analysts

Deadore Iqbash - Canaccord Adams

Tim Ramey - D.A. Davidson

Rommel Dionisio - Wedbush Morgan

Per Osland - Jefferies & Co.

Mimi Noel - Sidoti & Co.

USANA Health Sciences Inc (USNA) Q3 2009 Earnings Call October 28, 2009 ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the USANA Health Sciences third quarter earnings conference call on 28 October, 2009. Throughout today’s recorded presentation all participants will be in a listen-only mode. After the presentation, there will be an opportunity to and questions. (Operator Instructions)

I will now hand the conference over to Mr. Riley Timmer, Vice President of Finance. Please go ahead.

Riley Timmer

Thanks operator, good morning everyone. We appreciate you joining us this morning to review your third quarter result. Today’s conference call is being broadcast live via webcast and can be access directly from our website at www.usanahealthsciences.com.

Surely following the call, a replay will be available on our website. As a reminder, during the course of this conference call, the management will make forward-looking statements regarding future events for the future financial performance of the company.

Those statements involve risks and uncertainties that could cause actual results to differ perhaps materially in your results projected in such forward-looking statements. We caution you that these statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC.

Now, I’m please just wanted to be joined by Dr. Fred Cooper, our President and Chief Operating Officer; Jeff Yates, our Chief Financial Officer; and Mark Wilson, our Executive Vice President of North America.

Before I turn the call over to Jeff to go through the details I’d like to touch briefly on the highlights for the quarter. For the third quarter, solid reported year-over-year growth, net sales increased 3.3% to $110.8 million. Earnings per share increased 2% to $0.51 and the number of active associates grew by 8.2% to 189,000. We were particularly pleased with the growth of our Asia Pacific region where despite the negative impact of currency exchange rates we’re reporting record sales and a record number of active associates.

This region continues to perform impressively and now accounts for more than 45% of our total sales. Also, among our successes from the quarter was the completion of our 17 annual international convention, which we held in Salt Lake City. With near record level attendance at this event we announced new products and training tools and heard from several renowned speakers.

In addition to providing a great platform for launching new products these events provide good opportunities to educate sell grade and motivated associates who always return home with renewed focuses and energy.

With that I’ll turn the call over to Jeff to provide you with the financial details of the quarter.

Jeff Yates

Thank you, Riley and good morning everyone. As Randy indicated the third was another good quarter for USANA. We are pleased with our financial results and the performance of the business is particularly in light of the lingering economic challenges. Net sales for the third quarter reached $110.8 million dollars compared with $107.2 million reported for the third quarter of 2008.

Once again, year-over-year sales were negatively affected by currency fluctuations. Consequently our net sales for the third quarter of ‘09 were reduced by $4.1 million. Changes in currency exchange rates have had a significant negative impact on our business over the last year. With nearly 66% of you are sales coming from markets outside US, which is a percentage that is continually growing, fluctuations and exchange rates will continue to have a more significant impact on our business both negatively and positively.

Year-to-date the unfavorable currency effect has reduced our net sales by nearly $24 million. We are now expecting however that year-over-year currency comparisons for most of our markets will be slightly favorable in the fourth quarter. Looking now at our regional results, net sales for the third quarter in North America decreased by 6.7% or $4.3 million to $60.3 million compared with the prior year.

Again, negative changes in exchange rates were the primary cause of this decrease, reducing sales by $2.5 million in this region. Notwithstanding the currency challenge, we were disappointed with our results in North America as sales were softer than we’d anticipated in both the U.S. and Canada. Fred will discuss this in greater detail in a moment. Notably, local currency sales increased 15% in Mexico. Now we are very pleased with the exceptional performance of our Asia Pacific region.

During the third quarter, net sales increased $7.9 million or 18.5%. This increase resulted in a record $50.5 million in sales. Excluding the impact of foreign currency, sales in Asia Pacific would have increased by 22.3%. The double digit growth in Hong Kong, Malaysia, South Korea and the addition of $9 million in sales in Philippines were the drivers for strong performance in Asia Pacific.

We’re also pleased to report the number of activity associates in Asia Pacific increased 19.8% to 97,000 setting another record associate count for that region. That’s up from 81,000 during the same period in 2008. Again, Hong Kong, Malaysia and South Korea were the main contributors to this growth in addition to the 6,000 new associates in the Philippines.

Net earnings for the third quarter were $7.9 million or $0.51 per diluted share compared with $8.1 million or $0.50 per share in the third quarter of the prior year. The slightly lower net earnings resulted from higher associate incentive expense, partially offset by lower selling, general and administrative selling expenses and improved gross margin profit. Increase in earnings per share in the third quarter of 2009 was due to a lower number of average shares outstanding.

Now, reviewing the other components of the income statement, you’ll see that despite the negative impact of currency changes, gross profit margin for the third quarter increased as a percentage of net sales to 79.6%, compared with 79.3% for the third quarter of 2008, which is attributable to lower freight costs.

Associate incentives this quarter were 45.9% of sales compared with 46.6% for the third quarter of last year and this increase was due to the two compensation plan enhancements introduced at last year’s international convention and we’ll talk more about associate incentives in a moment.

Selling general and administrative expenses relative to net sales decreased to 22.9% for the third quarter, compared with 25.8% for the third quarter of the prior year. On an absolute dollar basis, this represents a decrease of about $2.2 million and the year-over-year decrease in SG&A was due mainly to a decrease in legal expenses and lower promotional expenses.

I’m delighted with the leverage we have gained from improvements in this line and going forward, we will continue to closely manage our SG&A costs. The effective tax rate for the quarter remained essentially flat at 34.2% and we expect our tax rate to remain at this level in the fourth quarter and for the full year of 2009.

Now, regarding the balance sheet, cash at the end of the third quarter was $13.3 million dollars having used our excess cash to pay down the balance on our line by $11 million to $17 million. We also used a small portion of our excess cash to repurchase 33,000 shares for just over $1 million. Capital expenditures for the third quarter totaled about $1 million and just under $3 million for the first nine months of 2009. We believe that CapEx will be less than $5 million for the entire year.

Finally, I’m pleased to update and upgrade our guidance for the full year of 2009. Following this solid third quarter, we are raising our financial guidance for the year projecting consolidated net sales to be between $431 million and $434 million and we now estimate earnings per share for 2009 to be between $2.07 and $2.10.

Now we are pleased with the performance of the company and are excited about the momentum that we are seeing in most of our markets, particularly in Asia Pacific, and we remain focused on increasing the number of customers and will continue to leverage our operating efficiencies. By doing this, we are confident that 2009 will be yet another record sales year at USANA.

With that, I’ll turn the call over to Fred.

Fred Cooper

Thanks, Jeff. Good morning, everyone. It’s always a pleasure discussing successful quarters with everyone and today I’d like to provide some of the details of our key market activities during the third quarter.

First let’s talk about Asia Pacific. Asia continues to be our strongest performing region quarter-after-quarter. Our growth has been so rapid and consistent in Asia Pacific that it now accounts for more than 45% of our total sales, of our nine markets in this region, six reported local currency growth compared with last year. The three that didn’t have growth this quarter, they’re the smaller countries which constitute less tan 10% of sales in the region.

Hong Kong continues to outpace all other markets and was up amazing 54% over last year. A big reason for this growth is that the associates in this market love the new matching bonus introduced last year. In local currency, Malaysia is up nearly 24% compared with last year and up over 12% sequentially. Commensurate with the strong growth in sales we’re also experiencing strong associate growth in Asia Pacific, nearly 49% of our associates are now located in this region.

In May, we’ll host our Asia Pacific convention in Hong Kong. We’re excited about this event because early registration numbers suggest attendance there could surpass the number of associates who attended our international convention this year in Salt Lake City. At this event, we plan to introduce some exciting new products. Now just like our Salt Lake asset based convention we work hard to keep these announcements a surprise, so I’m sorry I can’t share the details with you now.

Now to North America, as Jeff already discussed, sales in the U.S. declined both sequentially and on a year-over-year basis. Let me discuss some of the reasons for these decreases. First, our sales growth is lagging associate growth in this region, which indicates that new associates are spending a bit less when making their initial purchase, which results in lower sales per enrollment. We believe this is due to the difficult economic conditions here.

Second, we saw sequential quarter decline in the number of active associates in North America. We know that each ear year in the third quarter, particularly in North America, we see a slight slowdown in associate and preferred customer enrollment activity. The summer vacation months provide an opportunity for associates to spend time with family and step away from their business to take vacation.

Third, our base of Chinese associates is growing, not only in Asia, but also in communities here in the U.S. and in Canada. This is possible because our compensation plan allows associates to operate and earn commission and any of our 14 markets. As a result of this, many of our Asian leaders who are based in the U.S. and Canada actually helped to drive sales in associate growth in our Asia Pacific region. Hence, the upside is the growth we’re now experience in Asia. The downside is now less activity in these local communities.

Now let me update you on the success of our international convention. This event was held in Salt Lake City where we introduced new products, reformulated three of our key products and introduced new business enhancing sales tools. Our product reformulation included important ingredient upgrades to our flagship products, essentials and HealthPak. These two products constitute nearly one third of you are global product sales.

In conjunction with these product upgrades, we increased the price of essential 6% and HealthPak 3%. Additionally, we introduced what we term super pills. These more potent and concentrated vitamins are exclusive to our fully customizable supplement system MyHealthPak. As part of this event we also introduced a new online training system for new associates called E apPrentices.

The new training system was developed to help new associates have access to immediate network marking training that is was simple to use and easy to understand. Associates who take advantage of this advanced training tool will enter the business with more knowledge about the industry and ultimately grow their business faster. Last week, we just launched Probiotic Plus.

A new Probiotic Plus food supplement. Probiotic help replenish beneficial bacteria in the intestinal track, which can a good digestion and enhance immune function. This new product is available in the United States and all of our 14 international markets. Probiotic has been one our key research goal for years, this is a product that many of our associates were already consuming and we see it as a good opportunity to get an incremental increase to the amount of purchased by our associates. Very early sales of this product have significantly exceeded our forecast estimate.

Finally, I’d like to address our associate incentive expense. We recognize this expense is higher than our historical payout. Again, this is due to the compensation plan enhancements that we introduced a year ago. We believe that these enhancements were an important investment in our associates.

USANA, like company competes for the best talent in its industry, to attract talent we must pay the most competitive compensation plan enhancements. Our compensation plan in my opinion is the most rewarding in the industry and having the most rewarding plan entails expense. As I said before, I assure you that this expense is manageable. We watch it very carefully and we’ll manage it accordingly.

We expect that associate incentives expense will decrease within the next several quarters, but for the next quarter or two as we continue to leverage the compensation plan enhancement to drive top line growth. We believe that it will remain in the 45% to 46% range. After that, however, we expect this expense to trend downward somewhat as we manage this incentive to balance the compensation we paid to our sales force with the value we return to shareholders.

I’m committed to continue to look for ways to gain operating efficiencies through improved gross margins and to the tight management of SG&A expenses. Regarding our focus for the remainder of 2009, our key long term business drivers remain continuing to promote USANA’s outstanding home based business opportunity, including the benefits of the elite bonus and matching bonus.

To helping associates build their USANA business by enhancing their experience with us utilizing great business building tools, and introducing a broader spectrum of our current products into markets where only a limited number of products are currently offered. An of course, we will always continue to evaluate new market opportunities.

With that, I will now ask the operator to facilitate the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Deadore Iqbash] - Canaccord Adams.

Deadore Iqbash - Canaccord Adams

Few questions, first on the U.S. market, trends accelerated quite a bit this quarter. Distributor growth was flat year-over-year down sequentially. I understand there’s some seasonality, but I would have expected stronger results given the positive momentum you had in Q2 and heading into the convention. So I was wondering if you can explain the spread between quarter 14% distributor growth and Q3 deceleration, why isn’t the revenue tracking more closely to the distributor growth.

Fred Cooper

I’ll take my first attempt at that and then I’d also like Mark Wilson, who’s over North America in that particular to answer it for you as well. One of the things we are seeing in our particular market is the fact that when the economy gets difficult, many of our customers and our associates who are registered as associates, but are acting more as our preferred customer purchases are not purchasing in the same quantity or are leaving us as we measure the number of active associates to us.

So we have active campaign going on to try to bring them back and entice them to make additional purchases with us. So to that end, while we are getting good customer enrollment they were pleased with our incentives. We’re trying to make sure. We also focus on keeping them for a longer period of time and in that quarter that was part of the reason why you see a decline even though enrollments looked fairly well.

Mark Wilson

The only thing I would add is, we were disappointed in the third quarter with the activity. It wasn’t what we would expect it or hope to have. We’re continuing to look for ways to excite them. We’ve been going back and working with some of our more successful leaders to see how we can ramp things up and get them more engaged. We have several of them that I think back in the game and looking to be a little more excited.

We also had a little trend downward on the third quarter waiting in anticipation of convention, what’s going to be launched and it takes a little time for them to kind of get reengaged and moving forward. We are an international too, so we’re having leaders that are look to go to other country as we’re growing in another market, which is always a catch 22 for us.

We want them at home in the U.S. or in Canada, but at the same time, sometimes they’re effective in helping us grow new markets or some of our emerging markets that we have several plants, plan for this year the one we’re really putting a lot of emphasis in training. Our brand new associates need more training it something that every ones been asking for we’re putting a lot of time an effort into this new training initiative to make sure that they have a system they can go through it’s a very comprehensive and great for a basis training.

We’re going to be adding some other things to really drive and focus on the enrollment with simplifying our health and freedom this next year and making sure the presentations become easier for the new associate to get out there because we know that’s what’s going to drive enrollments and growth.

Deadore Iqbash - Canaccord Adams

You mentioned convention was a success. I’m wondering, how do you he measure the return on investment plan for a convention? Are you looking at distributor growth, you mentioned new sales associates are spending less. I’m wondering how fast is the return investment and how do you measure that?

Fred Cooper

Ultimately the bottom line on that one, to answer the question is sales and enrollments, because that’s the ultimate goal, but in the short run, you’re asking a question that we believe is related to motivation, enthusiasm, belief in the business, who the company is and who they’re representing, that enthusiasm that they leave and their stronger belief in USANA is what we’re hoping to use to entice them to want a build a long term business with USANA. So a lot of it is that personal belief in the company while we do it.

Certainly we get sales at convention which we hope help dramatically, which we hope dramatically improves and offsets some of the costs associated with our convention, but it also is a good indicator for us on the number of individuals who are associates that want to build the business and the best indicator of that, to me was the fact that when many companies in our industry have actually canceled conventions or tried to do small little regional, not only did USANA hold a convention.

We held a convention and had the record sales attendance to it and we’re having a second convention in AP, which would have as many if not more, associates to that. So I think those are good indicators people who come to conventions are usually those that are very serious about building a USANA business, not just simply consuming the products.

Deadore Iqbash - Canaccord Adams

You’re experiencing very good momentum out of the Asia, I understand there’s a big initial investment to enter China, but you mentioned your Chinese associates are getting bigger and you’ve had, a few years to evaluate the market and watch some of your competitors enter China. When do you reconsider China and, are you worried about as some of your competitors start to grow that business, does make it more difficult to enter?

Fred Cooper

Actually China continues to be one our top markets that we’re exploring as part of our feature international expansion plants. We also continue to invest in this opportunity even now. As China is a market we believe has significant potential for us at USANA. The potential not only lies in the fact that it’s sheer size, but also in the fact that it’s our fastest growing demographic in the Chinese population as we told you.

Hong Kong is going crazy. So, if this is not only true just in Hong Kong but many of our markets also where there is little communities of Chinese as well. So we’re going to continue to monitor what our competitors are doing and develop our own planned and strategy for eventual enter into the market.

Operator

Your next question comes from Tim Ramey - D.A. Davidson

Tim Ramey - D.A. Davidson

Let’s see, first for Fred, I guess I don’t really fully understand the rate of change in Hong Kong and Asia Pacific in general. You mentioned in the release that it appears that there’s just less economic, sort of pressure there, but can you give us any better color commentary on why there’s such a fancy growth rate in Hong Kong?

Fred Cooper

I spent a fair amount of time over the last year out there and actually they love matching bonus. It is a couple binary seamless, which is unusual in that region and for the world that matter and make it seamless and then couple with a matching bonus in which it’s a win-win mentality for their team, they are taking huge advantage of it.

The proportion of individuals who become platinum pace setters, which is what is required to receive a matching bonus on someone that is sponsored in USANA is up dramatically in those regions as opposed to our partition regions.

The other is we just find for the Chinese community, they have a much stronger, more enthusiastic view of the business opportunity with USANA. In Canada, for example it’s a very strong product focus. We have excellent consumers our products to a large extent, but in Hong Kong, that is switched and in most of our Asian communities it is.

They’re coming in as a result of the business opportunity and the money they can make. In all of our awards and incentives, we see an increasing proportion of Chinese in that demographic mix.

Tim Ramey - D.A. Davidson

Jeff, you mentioned in your comments currency would start to be a slight positive in the fourth quarter a slight positive in the fourth quarter. Why wouldn’t it be a stronger positive in what are we missing there? That may be why your stock is so weak today, people thought revenue growth rates would accelerate a little more.

Jeff Yates

We’ve seen a slight turnaround, obviously as we had a small benefit sequentially in second quarter and then again in the third quarter, we would be anticipate the same. Hopeful, will be a greater or more significant trend, but once again, difficult did predict and looking for improvements, our guess is that there will be moderate.

Tim Ramey - D.A. Davidson

If rates stay the same as they right for the rest of the quarter it will only be moderate?

Jeff Yates

Essentially, yes.

Tim Ramey - D.A. Davidson

Finally, your balance sheet is getting awfully liquid, small commitment to share purchase for the quarter, still just a conservative approach or are you telling us anything else with that lack of purchase activity?

Jeff Yates

We obviously going into the next couple of quarters, particularly as we look down the long term view to the renewal of our line of credit, we would like to have our line of credit paid down. We’ll be using our excess cash for that. Obviously, keep poised to take advantage of whatever opportunities that may present themselves to us coming forward, but at this point, we’ll be in a pretty good conservative stance was might expect.

Operator

Your next question comes from Rommel Dionisio - Wedbush Morgan.

Rommel Dionisio - Wedbush Morgan

Fred, I wonder if you could chat about the level of infrastructure you have in Asia. Obviously, it’s almost half your sales, do feel that the current infrastructure we have there is almost half your sales, doubtful the current infrastructure you have there is enough or do you have to expand that further?

The reason I sort of partly ask the question, the last few quarters I think you attributed some weakness, but some impact in the United States are the domestic business from Philippines or Chinese Americans opening the markets there. Does that similar to you that maybe you need to boost the infrasture somewhere in Asia?

Fred Cooper

The answer to that, generally speaking, is no. The reason being there, USANA at the corporate office in Salt Lake City does many of the support functions for those regions that they don’t need to duplicate for themselves. That isn’t to say there aren’t some specific areas of expertise that are better served in that particular market or region that are culturally diverse. So from that aspect there may be a few, but a specific increase in redundancy isn’t required, no.

Rommel Dionisio - Wedbush Morgan

A follow-up question, Fred you talked about how associates incentives are 45% to 46% for next couple of quarters and we declared later, but just given some of the success you’ve had with this program, and I see the incentives are down, and promotions were.

Do you feel like maybe you have a somewhat new formula or you’ve tweaked the formula somewhat for the longer term to be more weighted with your expenses and incentives as opposed to promotions? Or is this just sort of a near term thing?

Fred Cooper

No, I think that’s a great observation and it actually is one of you are tactics. We do want to focus some of the distributor incentive line to more growth related activities of our associates as opposed to the more residual nature of our business, but having said that, yes, the promotions, the contexts, some of the promotional activities associated on the SG&A line etc. will diminish as we have focused it more on just paying associates in a more lucrative plan.

Rommel Dionisio - Wedbush Morgan

As a result of that, do you think you would probably have a little less sort of quarter-to-quarter fluctuation, because you’re not running these promotional campaigns every once in a while sort of the longer term?

Fred Cooper

Yes, I would say that’s true, to a smaller degree.

Operator

Your next question comes from [Per Osland] - Jefferies & Co.

Per Osland - Jefferies & Co.

Following up to one of Tim’s questions before, Jeff, this one would be for you. Coming out of the second quarter, I believe when you’d given your revenue outlook for the year that included $24 million of adverse foreign currency.

So just to try to look at this from the perspective of sort of you’re organic or local currency growth outlook, can you kind of put a number around where you see the FX impact for the year? I mean obviously, it sounds like it will be a little less than $24 million?

Jeff Yates

The question is difficult to predict, what the currency is going to do. Looking at comping over last year, we anticipate improvement. That said, well probably comedown obviously from the $24 million that we’ve experienced so far and would be pleased that currency would help us improve our top line. We’ll get some leverage, a little bit out of our SG&A and anticipate a benefit in the fourth quarter. Hard to know how much it’s going to be. I apologize, but that’s a hard one to predict.

Per Osland - Jefferies & Co.

I mean it’s obviously been a rollout situation. So question on the associate incentives line, obviously it picked up as a percentage this quarter and I think we all know what’s going on there.

In terms of how it goes about coming down as a percentage of sales, do you see that as a situation where the matching an elite bonuses become incrementally less impact full or is this a where these two bonuses are doing really well and maybe there are incentives elsewhere in the system that comparatively speaking are less effective and those can be pruned?

Fred Cooper

To answer the question, I think you’re trying to ascertain why we believe the incentive line will go down or is it more of why it fluctuates?

Per Osland - Jefferies & Co.

It would be more along the lines of why it would go down.

Fred Cooper

There are many factors at our disposal that we can use to alter that distributor payout percentage line. Some of those at our disposal include price changes. For example, we’ve gone through this price changes on our initial orders and our kits for first time purchases.

Those have just been implemented and are continuing to be done throughout our different regions. So that will have an increase on that percentage line in its decrease. Some of our main products, our HealthPak and our MyHealthPak have had alterations to prices, which will have an impact on that line.

Second, we can adjust the points that are given in commissions to each of that. We call that our PV or price ratio relative to our points by adjusting that it will manage that distributor incentive life. We can also adjust in this example, between the quarter before and this quarter that we’re now reporting on FX has an impact on the percentage line that we have.

Since we pay in commissions a slight premium in some of our markets over what the current exchange rate is. We also can manage that through the number of promotions, contests and incentives that we give.

Finally, if you remember when this was launched last convention a year ago, we let all of our associates to be qualify. They had a number of months to do so and then once they’re done, they have another month or two to get their people to platinum status, for which they will receive a matching bonus on that. That matching bonus lasts for eights months.

So you have this initial wave of new platinum pacesetters getting in a new wave of platinum pacesetters and so there’s a little bubble that’s riding through the system on a normal distribution in which those people have those that platinum pacesetters are no longer receiving a match for it, so all of those continue to add downward pressure on that incentive line.

Per Osland - Jefferies & Co.

Then just maybe a mandated question to finish for me, on the Hong Kong convention coming up the new products introduced there, are those going to be products that are available to world wide distributors or they going to be a little bit more market specific?

Fred Cooper

It’s more market specific, but it’s also kind of see how well they do.

Operator

Your next question comes from Mimi Noel - Sidoti & Co.

Mimi Noel - Sidoti & Co.

I don’t know if this first question would be for Fred or Jeff, but can you comment on what sort of business trends you’ve noted in the U.S. quarter to-date, if you’ve seen any pressure macro economically alleviated?

Jeff Yates

In the fourth quarter?

Mimi Noel - Sidoti & Co.

Yes, and of course not qualitatively, but maybe quantitatively?

Jeff Yates

Nothing that would be of significance or that we would maybe comment on at this point.

Mimi Noel - Sidoti & Co.

Any are reason to be encouraged now versus a couple months ago.

Jeff Yates

We are encouraged by the momentum that comes out our convention and we see positive signals in that. Clearly with the announcement of the products that we have and the momentum that we’re getting with the matching bonus, one important component of that is that, the more people who understand that, the better off that momentum builds and with enrollments as Fred described, we’re encouraged by the strengths of that.

Mimi Noel - Sidoti & Co.

Then this question definitely for you, Jeff, you mentioned in your press release you look forward to some gross margin improvement. Somewhat near on the horizon. Is that all FX or anything else that worked there?

Jeff Yates

We get some effects from FX, but for us it’s an implementation of our production efficiencies as well as our pricing strategy, probably the single biggest impact from our strategies on pricing.

Mimi Noel - Sidoti & Co.

The last question I had would definitely be for Fred. Why do you pay a slight premium over the current spot rates?

Fred Cooper

The simple answer to that is because when we go into the market and we set our prices for products, we factor in what that premium will be and then it’s kind of a crapshoot where the price goes against the US dollar.

So we believe the better side to error is on the side of paying the premium, because you’re really paying a little bit of a premium to your business builders, which is already factored into the cost of goods of the product, and the consumer can seem to tolerate a little bit of an increase in the price of the product and just a quarter, $0.50 increase on a per unit cost in a foreign market means a lot to the business builder who’s receiving a commission on it.

Operator

Your final question comes from Tim Ramey - D.A. Davidson.

Tim Ramey - D.A. Davidson

Fred, would you reminds where the associate incentive expense or where the convention expense is booked, is that associate incentive or SG&A should we be looking out for incremental expense for the Hong Kong convention?

Jeff Yates

Tim, this is Jeff. You would not see incremental expense for the Hong Kong convention, as we will accrue those into the year, which they occur that side of the convention expenses are booked in our SG&A.

Operator

Thank you. There appear to be no further questions. Please continue with any other points you wish to raise.

Fred Cooper

All right, if there’s no further questions, thanks everyone for attending the call. If you have any remaining questions, please feel free to contact Patrick Richards in Investors Relations and his number is 801-954-7961.

Operator

Ladies and gentlemen, this concludes the USANA Health Sciences third quarter earnings conference call. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: USANA Health Sciences Inc. Q3 2009 Earnings Call Transcript
This Transcript
All Transcripts