Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Natures Sunshine Products Inc (NATR, Financial) reported a 4% increase in net sales to $111 million in Q1 2024, demonstrating growth in a challenging market.
- Digital sales surged by 33%, with new customer growth increasing by 34%, highlighting successful consumer campaigns and strong digital engagement.
- The company is making progress on its gross margin improvement initiatives, expecting to meet or exceed the $10 million savings goal.
- Natures Sunshine Products Inc (NATR) has a strong financial position with a solid balance sheet and positive cash flow, enabling continued investment in growth strategies.
- The company's sustainability and transparency efforts are highlighted in their 2023 IMPACT report, showing commitment to environmental and social goals.
Negative Points
- Despite overall growth, the company faces increased macroeconomic headwinds that are putting pressure on the business, particularly affecting gross margins.
- Sales in China declined by 13% due to poor macroeconomic conditions and deteriorating consumer sentiment, impacting overall performance in the Asia Pacific region.
- Foreign exchange rates created a $2.5 million headwind, leading to flat year-over-year results net of FX in the Asia Pacific.
- The company anticipates a challenging second quarter with difficult year-over-year comparisons, potentially impacting growth projections.
- Inflation and unfavorable foreign currency exchange rates are expected to continue impacting gross margins, despite ongoing improvement initiatives.
Q & A Highlights
Q: On top-line growth, your 4% in constant currency actually kind of beat our estimate, but the FX aspect was a little more negative than expected. Can you shed some light on that?
A: (Nathan Brower, General Counsel) It really depends on what exchange rates continue to do through the remainder of the year. Our expectation is they don't get any worse, they get a little bit better, but you could be right if exchange rates continue where they're at to or get a little worse that it could be more than 100 basis points that we've talked about.
Q: Do you feel pretty confident you'll have core constant currency sales growth positive growth year over year? Or is it possible that sales could actually be down a little bit in constant currency in Q2?
A: (Nathan Brower, General Counsel) Our year guidance is we're sticking to what we said, but Q2 is a difficult comp and so difficult to say exactly what will happen there. But we expect to be close to flat in constant currency.
Q: On the gross margin, again, you really weren't far off from where we were at. So when you say the difficult environment, do you mean that you need to promote a little bit more to get consumers to kind of step up and buy and that's protection gross margin. What was the connection between the macro and the gross margin?
A: (Terrence Moorehead, CEO) It was actually a couple of things and we actually didn't do a tremendous amount, more promotions, but there was some mix in there. Inflation and foreign exchange change.
Q: How do you describe the return to the growth in Europe and it sounded like you were pretty confident it would continue. So just give a little more color on that, please.
A: (Terrence Moorehead, CEO) Two big things. First and foremost, some really good just field activation type programs just to kind of drive orders and keep keep the field organization kind of moving forward and growing. And then secondly, the launch of our powerline products, powerline the green product is the most successful new product launch in the history of our European business unit. So that really helped attract a significant number of new customers to the business I kind of gave kind of the sales force something to again, put a little extra bounce in their step and give me an excuse to go out and reactivate some some inactive or lapsed customers. So really was quite a strong orders, were the drivers for them for the quarter. And we expect that that strength in their business and that momentum to continue throughout the year.
Q: EBITDA was flattish in this quarter and you're saying upward to 19% range for the year? And then how confident are you I guess it kind of the growth is going to be all kind of second-half weighted because the second quarter has has a hard comp. I mean, are you feeling more comfortable at the lower end of the range? Or is the middle still something you see as doable and just kind of wanting to know how you're how you're feeling about.
A: (Nathan Brower, General Counsel) And obviously, we're very aware in Maine now there's still a lot to come. We're excited about what we're seeing with a lot of our initiatives. We're seeing some good progress, but we're also seeing some some significant headwinds in FX and other things. So at this point, we are keeping that guidance. But if you had to ask if you pin me down, we'd be at the lower end or lower half, they have that guidance at this point.
Q: I'm just going to read on South Korea, that was actually really encouraging because I think you've been declining in South Korea for quite some time, if I'm not mistaken. So again, it sounds like you're not promising. You know, it's going to continue, but it sounds encouraging. And could you give a little more color on what's going on there?
A: (Terrence Moorehead, CEO) Yes, Eric, they had a great quarter. They kind of really just went back to some good solid field fundamentals they're trying to reconstitute the business after being essentially shut down due to COVID for several years. So they still have a lot of work to do ahead of them. And for the full year. I think we're looking at some positive momentum for them, but they'll be fluctuating results from quarter to quarter, but I think they've they're putting in place all the right building blocks to get them back on track for us for a positive year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
