USANA Health Sciences(USNA) - 2021 Q4 - Annual Report

Financial Performance - In 2020, USANA Health Sciences generated $1.135 billion in net sales and had approximately 599,000 active Customers worldwide[17]. - In 2020, USANA's net sales outside the United States represented approximately 90.5% of consolidated net sales[33]. - The Auto Order subscription program accounted for 60% of product sales volume for the year ended January 2, 2021, offering a 10% discount to customers[77]. - Product returns have been minimal, totaling approximately 0.7% of net sales over the past three years, indicating high customer satisfaction[77]. - The COVID-19 pandemic has negatively impacted sales and operations, with ongoing uncertainty affecting financial results[144]. Market Presence - Mainland China accounted for approximately 41% of net sales and 38% of active Customers, making it the largest market for USANA[17]. - The Greater China region, including China, Hong Kong, and Taiwan, has been the largest market, but sales and active customer counts declined in 2019 due to a challenging operating environment[157]. - The company aims to expand into a new international market in 2022, laying groundwork in 2021[25]. - The Americas and Europe region saw year-over-year constant currency sales growth in every market in 2020[30]. Product Development and Innovation - The USANA® Nutritionals product line represented 66% of total product sales in 2020, an increase from 64% in 2019[24]. - The company plans to introduce a new Active Nutrition line focusing on weight loss and healthy meal replacement products starting in Q2 2021[20]. - USANA's product innovation efforts include the development of proprietary ingredients and formulations, supported by U.S. Patent 10,632,101 for the InCelligence complex formula[36]. - Approximately 65% of the company's products are manufactured in-house at the Salt Lake City facility, which started producing saleable food products in Q4 2020[40]. Supply Chain and Manufacturing - The company contracts third-party suppliers for about 35% of its product sales, including gelatin-capsulated supplements and certain personal care products[46]. - The Salt Lake City facility is registered with multiple regulatory agencies, including the FDA and Health Canada, and is compliant with Good Manufacturing Practices (GMPs)[43]. - The company has in-house microbiology and analytical chemistry labs for quality control, testing for biological and chemical contamination[47]. - The company has not experienced significant disruptions in its supply chain, although potential risks remain due to the ongoing COVID-19 pandemic[48]. Regulatory Compliance - Regulatory compliance is critical, with the company adhering to extensive governmental regulations regarding product formulation, manufacturing, and marketing[87]. - The company has been found in compliance with Good Manufacturing Practices (GMPs) for dietary supplements during annual FDA audits[89]. - BabyCare's direct selling business model is specifically tailored to comply with Chinese regulations, which include prohibitions on pyramid selling and multi-level compensation[100]. - The company must obtain various licenses and approvals to expand its direct selling business in China, which has been hindered since the government suspended the review process in 2019[164]. Employee and Corporate Social Responsibility - As of February 26, 2021, the company employed approximately 1,943 employees across 22 countries, with 46% in the United States and 27% in China[117]. - Approximately 58% of the global employee population is female, with initiatives in place to promote women into management roles[117]. - In 2020, the USANA Foundation provided over 3.5 million meals to underprivileged children and families worldwide[119]. - The company donated over $1.3 million in aid and grants to partner charities globally in 2020[127]. Challenges and Risks - BabyCare's operations in China involve significant risks and uncertainties, which the company attempts to mitigate through compliance and training efforts[62]. - The company has faced legal challenges regarding the classification of Associates as independent contractors, which could impose additional obligations and costs[154]. - Regulatory changes in China could materially harm the business, as the government exercises significant control over the economy and direct selling regulations[160]. - The company faces challenges in attracting and retaining active customers, with a high turnover rate among Associates and Preferred Customers affecting sales growth[198]. Competition and Market Dynamics - The company experiences intense competition from larger, established competitors in the nutritional supplement market, which may affect its market position[206]. - Adverse publicity and negative public perception regarding the direct selling industry could harm the company's ability to attract and retain customers[203]. - Trade policies and tensions between the U.S. and China could adversely affect BabyCare's business operations and financial results[170]. Corporate Governance - The founder, Dr. Myron Wentz, holds approximately 40.34% of the company's common stock, giving him significant control over business affairs and potential influence on shareholder interests[210]. - A large number of shares held by principal shareholders could lead to market price declines if sold in substantial amounts[211]. - The company's stock price may fluctuate significantly due to various factors, including operating results and market conditions, which could adversely affect shareholder value[212].