Nature's Sunshine Products, Inc. (NASDAQ: NATR) has reported a modest revenue increase in its third-quarter earnings call held on November 7, 2024. CEO Terrence Moorehead and CFO Shane Jones announced net sales of $114.6 million, marking a 3% year-over-year growth, with notable regional performance in Taiwan and Japan.
Despite a decline in China and North America, the company's digital sales and product innovations have contributed positively to the quarterly results. Adjusted EBITDA saw a 5% increase, and the company raised its full-year 2024 guidance for net sales and adjusted EBITDA, reflecting management's confidence in their strategic initiatives.
Key Takeaways
- Q3 net sales increased by 3% year-over-year to $114.6 million.
- Strong regional sales growth in Taiwan (20%) and Japan (34%).
- Digital sales in North America grew by 17%.
- Adjusted EBITDA for Q3 rose to $10.7 million, a 5% increase.
- Full-year 2024 net sales guidance raised to $443-$448 million.
- Adjusted EBITDA guidance for 2024 increased to $40-$42 million.
- The company is on track to achieve $10 million in cost-saving initiatives.
Company Outlook
- Nature's Sunshine raised its 2024 net sales guidance to a range of $443 million to $448 million.
- Adjusted EBITDA guidance for 2024 has also been increased to between $40 million and $42 million.
- Management remains optimistic about growth strategies and long-term potential.
Bearish Highlights
- Sales in China decreased by 23% due to economic challenges.
- Overall sales in North America declined by 3%.
- Net cash provided by operating activities dropped to $13.1 million from $31.6 million.
Bullish Highlights
- The company's balance sheet is strong with $78.7 million in cash and no debt.
- Inventory levels were reduced by $4.6 million, improving the company's liquidity.
- Stock repurchase program is ongoing, with $9.2 million still available for buybacks.
Misses
- The timing of payments and receivables impacted the net cash provided by operating activities, which fell to $13.1 million.
Q&A Highlights
- Management is confident in ongoing efficiency improvements and cost reductions.
- Regional sales for Q4 are expected to be flat, with a slight decline in China.
- New consumer product packs in Asia are designed to increase appeal and purchase frequency.
- Power Line products are performing well, particularly in Europe, with aggressive marketing planned for 2025.
- Supply chain issues are currently manageable, with no significant shortages.
Nature's Sunshine's Q3 earnings call demonstrated resilience amidst varied global market conditions. The company's strategic focus on digital expansion and product innovation has enabled it to navigate regional downturns, particularly in China and North America. With a strong balance sheet, no debt, and a proactive approach to cost savings and efficiency, Nature's Sunshine is poised for continued growth. The management's raised guidance for 2024 reflects their confidence in the company's direction and the potential for enhanced profitability and shareholder value in the years to come. The next earnings report will cover Q4 and full-year results for 2025.
InvestingPro Insights
Nature's Sunshine Products, Inc. (NASDAQ: NATR) has demonstrated resilience in its Q3 2024 earnings, and InvestingPro data provides additional context to the company's financial health and market performance.
According to InvestingPro, Nature's Sunshine boasts impressive gross profit margins, with the latest data showing a gross profit margin of 71.43% for the last twelve months as of Q3 2024. This aligns with the company's reported strong product performance and innovation strategies discussed in the earnings call.
The company's P/E ratio (adjusted) stands at 12.74, which is relatively low compared to its PEG ratio of 0.15. This suggests that Nature's Sunshine may be undervalued relative to its earnings growth potential, potentially offering an attractive entry point for investors.
InvestingPro Tips highlight that Nature's Sunshine holds more cash than debt on its balance sheet, corroborating the earnings report's mention of a strong balance sheet with $78.7 million in cash and no debt. This financial stability positions the company well for future growth initiatives and to weather potential market uncertainties.
Additionally, an InvestingPro Tip notes that management has been aggressively buying back shares, which aligns with the ongoing stock repurchase program mentioned in the earnings call. This demonstrates management's confidence in the company's value and commitment to returning value to shareholders.
It's worth noting that Nature's Sunshine has shown a significant return over the last week and a strong return over the last three months, with price total returns of 13.65% and 17.97% respectively. This recent market performance may reflect investor optimism following the raised guidance for 2024.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 12 additional InvestingPro Tips available for Nature's Sunshine, providing a deeper understanding of the company's financial position and market outlook.
Full transcript - Natures Sunshine Products Inc (NASDAQ:NATR) Q3 2024:
Operator: Good afternoon, everyone and thank you for participating in today's Conference Call to discuss Nature's Sunshine's Financial Results for the Third Quarter Ended September 30, 2024. Joining us today are Nature's Sunshine's CEO, Terrence Moorehead; CFO, Shane Jones; and General Counsel, Nate Brower. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nate, please go ahead.
Nate Brower: Thank you. Good afternoon and thanks for joining our conference call to discuss our third quarter 2024 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through November 21 and via a live webcast that will be posted in the Investor Relations portion of our website at ir.naturessunshine.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will and other similar expressions. Forward-looking statements are not guarantees of future performance and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied therein include but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date. And the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Nature's Sunshine, Terrence Moorehead. Terrence?
Terrence Moorehead: Thank you, Nate and good afternoon, everyone. I want to thank you for joining today's call to discuss our third quarter results. During the third quarter, we continued to make good progress executing our global growth strategies and the investments that we've made to expand our additional capabilities, improve our consumer proposition, strengthen our brand presence and drive out costs all combined to help drive performance in the third quarter. While each of the initiatives is at a different stage of execution, we're excited about the actions we've taken to advance our strategic agenda and remain confident that our omnichannel approach will allow us to attract and retain more customers, drive profitable growth and build shareholder value. Our plans are clearly benefiting the business as the third quarter delivered the highest sales volume this year with $114.6 million of sales up 4% versus prior year on a local currency basis. The strong third quarter results were driven by a positive consumer response to our global growth strategies and the actions we've taken to amplify those strategies in the second quarter. As you may remember, in the second quarter, we upgraded our digital platform in North America, made the strategic move to rebalance our portfolio in key markets in Asia Pacific and implemented incremental cost savings initiatives to improve productivity. With respect to our first strategic action, we were excited to upgrade North America's digital platform with new technology and improved mobile-first capabilities. The changes helped improve site load speeds, conversion rates and stability while creating a pathway for continued improvements in the future. We believe these improvements will continue to support meaningful growth. And in the third quarter digital sales grew 17% in North America as we continued to see a positive consumer response to the brand. Moving forward, we'll continue to invest in our digital capabilities by improving and expanding the tools that are available to our nutritional health practitioners and specialty retailers. Overtime, we believe the changes will help improve the performance of distributors looking for a stronger more modern platform which is an exciting opportunity. Overall, North America sales were down about 3% which is the slight improvement on a consecutive basis versus the second quarter. Longer term, we expect to see positive momentum from the North American business as our omnichannel approach continues to build momentum and as we invest in more powerful tools for our nutritional health practitioners and specialty retailers. Regarding our second strategic action, we placed greater emphasis on introducing more consumer-friendly products packs in markets like South Korea, Taiwan and Japan. We also invested in field activation to support these programs and generate incremental field activity. This strategy paid strong dividends in the third quarter as customer and order growth surged leading to significant sales increases in Korea, Taiwan and Japan of 3%, 20% and 34%, respectively. China is a different story. Our research suggests that consumers continue to have favorable attitudes towards supplements, but the sharp downturn in the macroeconomic environment has negatively affected their willingness to spend, leading to more cautious purchase behavior. As a result, China's third quarter sales decreased 23% versus prior year in local currency. We continue to believe that digital live streaming is a powerful tool with significant upside potential and our long-term goal is to expand our digital live streaming platform to allow us to attract and retain more new customers by, first, strengthening our product line to offer more consumer-friendly solutions. Second, upgrading our branding and packaging to align with consumer preferences. And third, introducing a localized version of our successful Subscribe & Thrive auto-ship program to encourage and reward repeat purchases. Overall, we are pleased with the consumers' response to our growth strategies, as third quarter sales in Asia Pacific increased 9% versus prior year on a local currency basis. Our plans to improve performance by building a more attractive, consumer-friendly proposition appear to be working. And we believe our results are illustrative of the long-term potential these markets represent. Our third strategic action focused on delivering $5 million of annualized cost savings that allowed us to continue to fund strategic investments. while contributing to improved profitability. For the quarter, adjusted EBITDA was strong coming in at $10.7 million, which was a 5% increase versus prior year. In closing, we're very pleased with the quarter and with the direction we're taking, and we continue to be excited about the long-term potential of our omni-channel business. Once again, we believe the recent changes we've made will lead to a better shopping experience while giving our distributors a more powerful set of tools to build their businesses. Ultimately, that will allow us to attract and retain more customers, drive order growth and build sustainable, profitable growth to create shareholder value. And with that, I want to turn the call over to our Chief Financial Officer, Shane Jones. Shane?
Shane Jones: Thank you, Terrence. Moving to our third quarter results. Net sales in the third quarter were $114.6 million, compared to $111.2 million in the year ago quarter, a 3% increase versus the prior year, or a 4% increase, excluding the impact from foreign exchange rates. As Terrence discussed, this was driven by strong performance in Taiwan and Japan and outperformance in Central Europe, partially offset by continued weakness in China. Now diving into more detail on our regional performance. I'll start with APAC. In Asia Pacific, we reported growth of 6% to $55.3 million, or up 9% when excluding the impact of foreign exchange. This was largely driven by a resurgence of growth in Japan and Taiwan, which were up on a constant currency basis by 34% and 20%, respectively. This was led by a powerful customer response to our field activation initiatives and a surge in new customers. We're very pleased with the momentum driven by our growth strategies and the resulting acceleration in these important markets. While we expect meaningful growth in these markets in Q4 and into 2025, we do not expect growth at the levels achieved this quarter. In South Korea, we are gaining confidence in this market's turnaround. Both new customers and average order value improved year-over-year, resulting in 3% constant currency growth in the quarter. We're encouraged by the progress made in Korea this year and expect continued measured improvement. Offsetting an otherwise strong quarter in APAC was the continued macroeconomic weakness in China where Q3 revenue declined 23% in constant currency. While we are working hard to refine our value proposition and reenergize customer demand in this market, the sharp downturn in the macroeconomic environment for the Chinese consumer continues to negatively impact consumer spending. The resulting sales declines in China are likely to moderate going forward, but it will take some time to get back on a growth trajectory. Our European business continues to operate well in a challenging environment. Q3 sales increased 5% or 3% in local currency. Central Europe continued to perform exceptionally well, growing sales by 23% or 17% in local currency, largely driven by a positive response to our recently launched Power Line products as well as continued new market expansion in the Baltic region. Our teams also continue to do a remarkable job, keeping our Eastern European market stable given the protracted war in Ukraine. Looking at our North America business. Our third quarter net sales were down 3%. As discussed on our last earnings call, we upgraded our digital platform in North America to strengthen our digital capabilities and improve mobile-first performance. This is an exciting transformation that will enhance the customer experience, improve site performance and benefit both distributors and consumers. While the transition has resulted in a short-term dip in customer acquisition and efficiency of media spend, we are very encouraged by improvement across our key customer metrics and the resulting robust growth in our digital business. In Q3, our North America digital business grew 17%, bolstered by improvement in both conversion and retention. Gross margin in the third quarter decreased 172 basis points to 71.3% compared to 73.1% a year ago. The decrease was primarily driven by higher inflation and unfavorable foreign currency exchange, which in Q3 continued to mask the favorable results of our savings initiatives. We expect sequential improvement in gross margin for Q4, with the full results of our savings initiatives becoming more apparent in our consolidated financial results in 2025. Volume incentives as a percentage of net sales were 31.0% compared to 30.7% in the year ago quarter. The increase was primarily driven due to changes in market mix. Selling, general and administrative expenses during the third quarter were $41 million compared to $41.3 million in the year ago quarter. As a percentage of net sales, SG&A expenses were 35.7% in the third quarter compared to 37.1% last year. We are seeing the benefit of the $5 million of cost-out actions taken in Q2 and continue to look for additional opportunities to increase efficiency and reduce waste. We also note that Q3 had roughly $1 million of onetime expenses that distort our true run rate. Operating income decreased to $5.3 million or 4.6% of net sales compared to $5.8 million or 5.2% of net sales in the year ago quarter. GAAP net income attributable to common shareholders for the third quarter was $4.3 million or $0.23 per diluted common share, compared to $2.8 million or $0.14 per diluted share in the year ago quarter. Adjusted EBITDA, as defined in our earnings release, increased 5% to $10.7 million compared to $10.3 million in the year ago quarter. Our balance sheet remains clean with cash and cash equivalents of $78.7 million and 0 debt. Inventory was $62.3 million at the end of the third quarter, which is $4.6 million less than we ended 2023. Net cash provided by operating activities was $13.1 million compared to $31.6 million in the prior year period. The decline in operating cash flows versus prior year was driven by the timing of payments for accrued liabilities and receivables, offset by reductions in inventory. We repurchased approximately $8.4 million worth of stock year-to-date with $9.2 million remaining on our $30 million share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us very well to continue our digital transformation and other strategic initiatives. Now, turning to our 2024 outlook. Given our third quarter sales performance and expectations for the remainder of the year, we are raising our prior range and now expect full year 2024 net sales to range between $443 million and $448 million from the $436 million to $445 million communicated last quarter. For adjusted EBITDA, we are also increasing the low end of our range to be $40 million to $42 million versus the previous range of $39 million to $42 million. In summary, we are pleased with our third quarter results and remain encouraged by the opportunity in front of us. We are seeing meaningful progress on our initiatives and acceleration in several key areas of the business. In addition, we have taken steps to improve efficiency, reduce cost and position ourselves to accelerate profitability, as the business continues to grow. We are confident that these measures will lead to significant shareholder value in 2025 and beyond. Now, I will turn the time back to the operator.
Operator: [Operator Instructions] One moment please for your first question. And our first question will come from the line of Susan Anderson from Canaccord Genuity. Your line is now open. Please go ahead.
Susan Anderson: Hi, good evening. Nice job on the quarter.
Terrence Moorehead: Hi, Susan.
Susan Anderson: Hi. How is it going?
Terrence Moorehead: Good.
Susan Anderson: I guess just on the guide, the updated guide, good to see the raise there. I guess it implies maybe fourth quarter will be flattish. You said something about the sales growth you saw in Asia not continuing. Maybe if you could just give some more color on kind of by region, how you expect that to pan out and to get to the guide for the year? Thanks.
Terrence Moorehead: Sounds good. Shane, why don't you take that one?
Shane Jones: Absolutely. Yes. As you noted, that implies a Q4 of down 2% to up 2%. So a flattish Q4 on the top line. As we look at where that comes from in the APAC region, as you know we had very strong results in Taiwan and Japan. Some of that strength a portion of that is some timing such that it will be a little bit less -- we pulled a little bit of Q4 into Q3. So although we expect to continue to see strong results in those regions, it won't be at the rate that we've seen. It will be lesser in Q4. And then obviously, we'll have strong growth next year as well. As we look at China, China will continue to be -- the trend will get a little bit better than what it's been as far as down. It won't be down as much, but it will still be down significantly. As we look at Central Europe, we expect to see similar results to Q3 there. And then in North America, our digital business will continue to perform well, but in a similar high teens to 20%-ish growth there. And we do expect to see some continued headwinds in the North America core business that will offset that. So that's the detail by region.
Susan Anderson: Okay. Great. That's really helpful. And then maybe if you could just talk about the new consumer product packs that you introduced in the markets in Asia. I guess what do those entail? And then also, if you could talk about the performance of the Power Line both in the US and internationally? And I guess should we expect more product to be introduced down the road in the Power Line? Thanks.
Terrence Moorehead: Yeah, sure. Absolutely. So as it relates to the kind of the rebalancing of the portfolio in APAC and some of the packs we put in place, really what we've done is trying to make a migration. And obviously, the old products are still there, but they were selling a lot of detox products. So it was a heavy focus on detox. And as you might imagine you can only detox so many times a year and there are only so many people that would do detox. So really it was a shift in focus of adding kind of on top of that kind of more vitality-driven packs that we were selling that would a, appeal to a broader range of people, but also would encourage people to purchase more frequently and kind of more often. So it's a nice shift. And we also kind of rebalanced the price of those packs slightly. So initially, what we knew we were going to see was more people coming in, driving new customer growth, driving order growth with some kind of slightly lower average order in the near term, but that has since been offset by kind of the volume of new customers and new orders that we're getting in and the repeat orders that we're getting from that as we're migrating people into our subscription programs. So really pleased about that. The second piece of your question on the Power Line, great progress in Europe with the Power Line. It is kind of one of our top products. It represents an increasing percentage of sales in Europe. North America sales kind of achieving kind of near double-digit growth year-to-date as we continue to sell those products into the marketplace. We'll continue to I think very kind of cautiously and appropriately expand the line. We don't want to kind of balloon the line up too much. It really is all about improving people's metabolic performance. And so the greens, the beats and the meal products are truly foundational breakthrough products in each one of their respective areas. But now we're going to shift into and you'll see it kind of actually in the back half of 2025 really much more aggressively marketing all three of those products as a system. So we're excited about what lies ahead for the Power Line. They're great products. They are like I said breakthrough kind of results and breakthrough products in each one of their respective categories. But when you combine them they really do start to have some pretty incredible results that they are capable of delivering from the standpoint of improving people's metabolic performance. So I hope that answers your question.
Susan Anderson: Yeah. That was great. Thanks so much for all the details. I'll go ahead and pass it along. Good luck for the rest of the year.
Terrence Moorehead: Thank you.
Operator: [Operator Instructions] Now for our next question. This will come from the line of Ms. Linda Bolton-Weiser from D.A. Davidson. Your line is open. Please go ahead.
Linda Bolton-Weiser: Yes. Hi.
Terrence Moorehead: Hi, Linda.
Linda Bolton-Weiser: Hi. So I missed the very part of your narrative in the beginning, but somebody referred to headwinds in your North American core business. Can you just give a little more color what are you referring to? Is that just the kind of strapped consumer situation? Or is there something else you're talking about?
Terrence Moorehead: Yes, there's a piece of it where consumers are just a little strapped and kind of holding back on some purchases to a minor extent. Another piece of it is when we made the switch to our digital platform, we did the consumer kind of facing piece first. And then there's a follow-on piece for the kind of the back end for distributors and helping them process their customer orders. So that's just coming online and we'll see the full alignment as we get further into the systems as we get into the fourth quarter. So it's just kind of a natural progression of moving our platform around and having some friction points that are a result of that. But kind of – I think by the time we get through the fourth quarter, all of those friction points will be taken care of, will be addressed. And then it will simply be a matter of just helping people kind of build momentum and get back on track. So that's really what we were speaking to Linda.
Linda Bolton-Weiser: Okay. Thank you. And then I'm just wondering again, I'm sorry, if I missed this but I know you have the initiative to reduce costs and improve efficiencies to help gross margin. You had some targets for that. Can you just talk about how that's going and whether you're on target? And will there be any more savings in 2025? And then second part on the cost is I think you had mentioned at one point some shortages are hard to get certain herbs and things like that. Are there any shortages or any other issues with any of your inputs at this point?
Terrence Moorehead: Yes. Okay. Absolutely. I'll start and then I'll let Shane elaborate. So as it relates to our gross margin savings initiatives, we are on track. The team has done an incredible job of identifying the savings and then kind of driving them through the system. We're starting to see some of those savings come through. And I'll let Shane speak to some of the challenges that we're facing that would kind of mask some of those results. But as far as the savings that we said we were going to chase after, the team has really done everything that they've said they're going to do. And we do believe there's more upside opportunity going forward as we get into 2025. Second part of your question was?
Linda Bolton-Weiser: It was about any shortages of herbs or any other kind of inputs.
Terrence Moorehead: Yes, thank you. Intermittently, there might be something. Kind of right now I think supplies are actually kind of very good. The supply chain team has been identifying. There are things that are like I said intermittently challenging. And then there are other things that are just – they're just hard to get. Frequently we're dealing with some rare – kind of hard-to-find ingredients. And so we're going through a process in many cases of kind of reformulating products so that we can just overcome that and improve our service levels. But right now, Linda there's really nothing that is a real barrier from a supply chain product availability standpoint. Shane, do you want to add some commentary around – and color around savings?
Shane Jones: Sure. First of all, Linda to give you a little more detail. Last year we realized about $3 million in the previous year in 2023 of those savings as they were just starting to roll on. This year we expect to see about – year-to-date, we've gotten most of this already another additional $7 million. So by the end of the year we will have achieved that $10 million target. We do expect going forward into next year as Terrence noted, additional savings to come in as well. So we will exceed that target. But it has been masked so far in that we have seen a significant amount of headwind in FX rates as well as inflation that has made it so that those improvements have not been – it's been difficult to see in our P&L. We do expect that we are at an inflection point at this point in which we'll see improvement in Q4. We expect an inflection and improvement in Q4, gross margin rates and then a meaningful increase as we go into next year as well.
Linda Bolton-Weiser: Okay. Thank you very much. I appreciate it.
Terrence Moorehead: Absolutely.
Operator: At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Moorehead for closing remarks.
Terrence Moorehead: Okay. Thank you. And finally, we'd like to thank everybody for listening to today's call and we look forward to speaking with you when we report our fourth quarter and full year results in 2025. Thanks again for joining us and take care.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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