Nature's Sunshine(US:NATR)2022-11-06 16:38Financial Data and Key Metrics Changes - Third quarter sales were $105 million on a reported basis or $112 million when excluding foreign exchange impact, reflecting a 2% decline year-over-year on a constant dollar basis [8][9] - Year-to-date sales increased by 3% in local currency, indicating underlying business strength despite external challenges [9] - Gross margins contracted due to inflation and foreign exchange, negatively impacting cost of goods by approximately $3 million or roughly 300 basis points compared to Q3 of the prior year [10] - Adjusted EBITDA for the third quarter was $6.8 million, down from $12.9 million in Q3 of the prior year [11][40] Business Line Data and Key Metrics Changes - Sales in North America decreased by 16% in the third quarter, primarily due to average order declines from existing customers [16] - Asia-Pacific led the company’s results with a 12% sales growth in local currency, driven by strong performance in Taiwan, Japan, and South Korea [14] - Sales in Europe were down 6% year-over-year in constant dollars, but showed a 13% sequential growth compared to the second quarter [18] - Latin America experienced a 14% decline in sales in local currency, despite attracting more new customers [19] Market Data and Key Metrics Changes - Sales in China decreased by 31% due to macroeconomic conditions and the effects of the zero COVID policy [14] - Digital sales in North America increased by 22% in the third quarter, contributing to customer growth [15] - Overall, the company expects European sales to decline approximately 15% to 25% for 2022 compared to 2021 [44] Company Strategy and Development Direction - The company is focused on optimizing gross margins and reducing SG&A expenses, with a target of delivering $10 million to $12 million in gross savings [32] - Key strategic investments include field activation, digital activation, and customer growth initiatives [13][15][17] - The company is committed to navigating market volatility and uncertainty while continuing to invest in growth strategies [31][33] Management's Comments on Operating Environment and Future Outlook - Management highlighted that inflation, foreign exchange, and COVID-related disruptions were primary factors negatively impacting performance [30] - Despite challenges, the company maintains a strong balance sheet and believes in the long-term potential of its business [31][48] - The impact of cost-saving initiatives is expected to be reflected in results starting late 2023 to 2024 [46] Other Important Information - The company’s cash and cash equivalents stood at $57 million with only $1.5 million of debt [41] - Share repurchase program remains active, with $24.6 million remaining of the $30 million authorization [42] Q&A Session Summary Question: Why is the company not looking to save costs and reduce expenses until the end of 2023? - Management explained that the comprehensive plan involves complexities that require time to implement, but some savings will begin to materialize before the end of 2023 [55][56] Question: Why is there so much inventory on hand despite declining sales? - Management acknowledged the high inventory levels due to previous growth expectations and is actively working to reduce inventory through targeted buys and cancellations [59] Question: Why was only a small number of shares bought back given the stock price? - Management indicated volume constraints and prioritized investments necessary for driving down costs from gross margins [61][62]