Natural Products Insider

JUL-AUG 2018

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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naturalproductsinsider . com 5 In the News First quarter (1Q18) financial earnings for supplement marketers and retailers, including GNC, Vitamin Shoppe, Herbalife, Nu Skin and USANA, refl ect dynamic trends impacting the natural products market— namely innovation as a driver for growth and the impact of the changing retail landscape. Multilevel marketers Herbalife Nutrition Ltd., USANA Health Sciences Inc. and Nu Skin Enterprises Inc. exceeded expectations for Q1, according to quarterly Securities and Exchange Commission (SEC) fi lings. Herbalife returned to growth in the United States, where it agreed in 2016 to restructure its business model after being investigated by FTC. The Los Angeles-based company posted earnings per share (EPS) of $1.08 on net sales of US$1.18 billion. In 1Q17, Herbalife Nutrition posted EPS of 98 cents on $1.10 billion in sales. USANA reported the highest quarterly sales in the company's history—$292 million, representing a 14.4 percent year-over-year increase. Similarly, Nu Skin reported strong revenue growth in its 1Q18 earnings report—total sales of $616.2 million, representing 24 percent year-over-year growth. In updated guidances, Nu Skin and USANA now anticipate higher revenues for fi scal year 2018. Both USANA and Nu Skin attributed 1Q18 success largely to new skin care products. USANA's Celavive ® skin care line, along with targeted product promotion efforts in China, contributed approximately $9 million and $11 million in incremental sales, respectively. Nu Skin specifi cally pointed to interest in its ageLOC LumiSpa skin treatment and cleansing device, launched in 4Q17, as a key driver of 1Q18 growth. Additionally, Nu Skin implemented an improved global sales compensation plan, Velocity, in the Pacifi c region in 4Q17, and announced plans to launch the compensation plan in Taiwan and North America during 2Q18. Results for both companies were strong throughout Asia, including in China. Social selling—an increasingly popular form of marketing in the natural products industry— was indicated as impactful by both companies. Use of social media—and WeChat specifi cally—is dramatically impacting Chinese commerce. WeChat is a Chinese multipurpose messaging, social media and mobile payment app widely known as China's "app for everything" because of its wide range of functionality. Supporting its plan to focus efforts on the Chinese market, USANA announced plans to roll out a WeChat platform in China in the 2Q18. Nu Skin indicated social selling and product initiatives in many markets contributed to its growth in the EMEA (Europe, Middle East and Africa) region, which saw a 32 percent year-over-year increase and represented the company's strongest growth market alongside China, which also saw a 32 percent year-over-year increase. Herbalife, too, saw growth in EMEA, with sales increases of 18.3 percent to $248.2 million. However, sales in China and South and Central America declined 1.6 percent and 0.6 percent, respectively. A stark contrast, GNC reported disappointing top and bottom line results for 1Q18, as it continues to adjust its retail format and shore up its fi nancial position to better compete in the new age of retailing, which has seen Amazon, Walmart and others steal more nutritional products market share. In 1Q18, revenues were down just over 7 percent to $607.5 million and net earnings plummeted nearly 75 percent to $6.4 million, compared to 1Q17 results. U.S. and Canadian sales were the biggest loser, down 4.5 percent, while GNC's manufacturing and wholesale segment posted a 1.4 percent decrease. A slight boost in Chinese cross-border, e-commerce sales saved the company's international segment (+0.8 percent) from a similar drop. Announcing results, the company clung on to such slivers of sunshine, noting company- owned store sales inched up 0.5 percent; its Slimvance weight loss category grabbed more diet product market share; and its loyalty membership increased. However, franchise store sales slid 1.9 percent, Slimvance sales declined and company store closures removed $7 million in revenues compared to the same quarter last year. Franchise stores also logged sales declines and store closures. GNC management further indicated the comparison of 1Q18 results to the prior year's fi gures suffered from extraordinary charges to 1Q18, including a $16.7 million loss due to debt refi nancing. The discontinuation of its U.S. Gold Card Member Pricing program last year boosted 1Q17 with a $24 million revenue bump, further clouding the year-to-year quarterly comparison. In fact, GNC reported net income for 1Q18 was $20.1 million, excluding the one-time refi nancing charge, store closure impacts and a $22.7 million revenue deduction related to the September 2017 sale of Lucky Vitamin. GNC's not alone. Retailer Vitamin Shoppe also announced decreased sales in 1Q18 compared to the year prior—total net sales in the fi rst quarter amounted to $296 million, compared to $305.8 million in 2017. The company is making a great effort to connect with consumers digitally, as seen in 1Q18 results, which indicated a 20.7 percent increase in digital sales. In its 1Q18 earnings call, Colin Watts, CEO of Vitamin Shoppe, discussed plans for "further investments in technology and ongoing site optimization to ensure that we're differentiating our products, delivering a superior customer experience and further distinguishing the Vitamin Shoppe brand." He also referenced plans to launch a subscription-style service, called "Easy- Reorder," in the second half of 2018. It encourages customers to replenish their products via one-click reordering with the option of in-store pick-up or delivery. The global landscape for dietary supplements is increasingly complex as consumers continue to change the methods in which they shop. Effective, relevant products will continue to drive growth, but marketers and retailers will need to stay ahead of the changing retail landscape to avoid getting left behind. This article includes reporting by Rachel Adams, Josh Long and Steve Myers. Q1 Reveals Mega Trends Impacting Natural Products Landscape: E-commerce, Social Selling, Product Innovation

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