USANA Health Sciences, Inc. (USNA) Earnings

Management highlights

### Strategic Transformation - The company is executing a strategic evolution from a direct-selling nutrition business to a diversified, omnichannel health and wellness company anchored by scientific innovation and deep consumer loyalty, with products available across consumer-preferred shopping channels. - Transformation is well underway, with near-term progress across the portfolio reinforcing management's confidence in the company's strategic direction. ### Core Business Progress - Mainland China, the company's largest market, is showing renewed sales momentum driven by residual tailwinds from Q1 2026 incentive programs and new product launches, strengthened local leadership, and resilient demand despite a soft broader macroeconomic environment. New product launches and incentive programs are planned for H2 2026 to sustain momentum. - North Asia (specifically Korea) experienced 20% year-over-year revenue decline tied to earlier 2026 leadership transition, but new unified leadership is in place, with personalized product packs launching in Q3 2026 to drive a rebound. - The company recently launched Glow, its first skin health supplement, which extends the company's scientific leadership beyond topical skincare to cellular-level formulations. The launch successfully attracted new consumers to the USANA brand and delivered incremental revenue. - The 2026 Americas Convention is scheduled for August 12-15 in San Diego, to drive brand partner engagement, training, new product launches, and recognition for top performers. ### Venture Brand Operations - Hyatt continues to expand its retail footprint and is gaining traction on Amazon, with early international expansion in Canada and the UK moving in line with expectations. - Hiya is transitioning from a pure subscription direct-to-consumer model to a diversified model including retail expansion and international growth, building on its established brand equity as the category leader in children's health. - Rise resolved its Q2 2026 cosmetic packaging issue, and plans to launch an additional Protein Pop product in Q3 2026 to drive growth. ### Corporate Financial Position - The company ended Q2 2026 with $169 million in cash and zero debt, generating $20 million in free cash flow during the quarter, driven by improved working capital management. - The strong, debt-free balance sheet provides full financial flexibility to continue investing in the company's transformation while navigating near-term portfolio headwinds. ### Operational and Strategic Investments - Management is investing to evolve the brand partner compensation plan, accelerate product innovation across all segments, and modernize core technology to improve customer and brand partner experiences.

Guidance

- Management lowered the full-year 2026 net sales outlook, with the downward revision driven entirely by near-term headwinds at Hiya (slower subscription growth from elevated digital marketing costs) and Rise Wellness (Q2 packaging disruption). The core nutritional business guidance is unchanged and remains in line with prior expectations. - Full-year net sales for Rise Wellness are projected to be 30 million to 40 million lower than original guidance, with margin pressure of approximately 4 million to 5 million for the full year from lower top-line volume and fixed operational infrastructure costs. - The full-year 2026 effective tax rate is expected to be elevated relative to prior projections, due to geographic misalignment between where revenue is generated and costs are incurred, which was amplified by near-term underperformance at the venture brands. The tax rate will be lower than the unusually high Q2 2026 rate, but remains higher than historical levels, and management expects it to decline as venture brands scale. - Management emphasized that the guidance revision only impacts near-term timing, and reflects no change in long-term confidence in Hiya, Rise Wellness, or the company's overall strategic transformation.

Segment performance

1. Core Nutritional Business: Performed in line with management expectations, with Mainland China (USANA's largest market) delivering a sales uptick and showing renewed strength. The segment provides stable foundational performance for the company, with no absolute revenue figures provided in the transcript. No specific revenue contribution percentage was disclosed, but it is explicitly noted as the company's largest and most established business segment. 2. Hyatt: The brand holds strong retail presence at Target, with early expansion in Canada and the UK trending positively, and growing traction on Amazon. Management recorded a non-cash preliminary goodwill impairment charge of $29 million in Q2 2026 due to lower-than-expected near-term performance. The core U.S. direct-to-consumer subscription business has faced headwinds from rising customer acquisition costs (CAC) and algorithm changes on Meta, leading to slower-than-projected subscriber growth for 2026 full year. 3. Hiya: The children's health direct-to-consumer brand has been impacted by a tougher, more expensive digital marketing environment that suppressed 2026 full-year subscriber growth projections. It has built strong category-leading brand equity, with ongoing expansion into new retail channels, geographies, and customer demographics. 4. Rise Wellness: The venture experienced a cosmetic packaging issue in Q2 2026 that disrupted commercial execution and pushed full-year net sales below prior guidance; the issue is now resolved, and it was not a product safety concern. As a young brand less than one year old, Protein Pop (Rise's flagship product) has already built national distribution across major retail channels, and is projected to reach over 4,000 retail doors by the end of 2026, with year-to-date sales already exceeding full-year 2025 results.

Risks & headwinds

- Hiya faces ongoing headwinds from a more expensive and challenging digital marketing environment, including rising customer acquisition costs and algorithm changes on Meta that have suppressed direct-to-consumer subscription growth. - Rise Wellness experienced a packaging disruption in Q2 2026 that negatively impacted near-term sales and full-year guidance, even though the issue was not safety-related and has been resolved. - Macro-economic softness across global markets, including in Mainland China and North Asia, could pressure consumer demand for the company's premium wellness products. - Leadership transitions in regional markets (such as the 2026 transition in Korea) can create near-term operational disruption and revenue weakness. - Geographic misalignment between revenue generation and cost incursion creates disproportionate tax impacts that can elevate the company's effective tax rate, negatively impacting net earnings.

Analyst Q&A

• Q: What factors are driving the recent sales uptick in Mainland China, and are these gains sustainable? /

  A: Q2 sales growth is driven largely by residual tailwinds from strong Q1 2026 incentive programs and new product launches. Despite a soft broader Chinese economy, the brand has built momentum over multiple quarters of strategic initiatives, and the market now has stronger leadership than ever before that is executing effectively on strategy. New product launches, incentives, and events planned for H2 2026 are expected to sustain the current momentum.

• Q: What is the performance of Hiya's core U.S. subscription business, and how are you addressing Meta advertising challenges? /

  A: Hiya has faced sustained headwinds from rising customer acquisition costs and Meta algorithm changes, but recent months have seen improving trends in these metrics. The team is actively diversifying advertising spend, with TikTok marked as a key growth channel for the rest of 2026 and early 2027, alongside ongoing retail expansion and international growth. The existing subscription business is roughly flat, with new customer additions expected to grow alongside new retail channels.

• Q: What was the impact of Rise Wellness's Q2 packaging issue? /

  A: The issue was purely cosmetic, not safety-related, and has been resolved; unsold product was voluntarily pulled, but most inventory can be reworked and resold through existing retail channels. It stopped sales push through the channel in Q2, reducing full-year 2026 guidance by 30-40 million in top-line revenue, and creating 4-5 million in margin pressure. Even with the disruption, year-to-date 2026 sales already exceed full-year 2025, and the brand will reach over 4,000 retail doors by year-end, which is strong performance for a brand less than a year old.

• Q: How does the company's long-term omnichannel strategy leverage its integrated R&D and manufacturing platform? /

  A: The company's strategic shift to omnichannel is aligned with growing consumer demand for health and wellness products across shopping channels, and leverages its vertically integrated platform across all brands (core and acquired). Insights and capabilities from the core business inform growth at Hiya and other ventures, while new category extensions like the Glow skin health supplement (which uses a clinically validated, inside-out formulation approach) demonstrate how the platform enables expansion into new high-growth categories. All new products follow the company's standard of strong clinical data and proven consumer benefit, which reinforces brand loyalty across segments.