Nature's Sunshine Products, Inc. (NATR) Earnings Call Transcript & Summary

Good afternoon everyone and thank you for participating in today's conference call for Nature's Sunshine financial results for the second quarter ended June 30, 2026. Joining us today are Nature's Sunshine's Chief Executive Officer; Ken Romanzi, Chief Accounting Officer, Jon Lanoy 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.

Thank you, Lindy. Good afternoon, and thanks for joining our conference call to discuss our second quarter 2026 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through August 20 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 the results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K, quarterly reports on Form 10-Q, our earnings release issued today 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, Ken Romanzi. Ken?

Thank you, Nate, and good afternoon, everyone. Thank you for joining our second quarter earnings call. I'm pleased to report that we delivered a solid second quarter, growing sales 4% in constant currency reflecting continued momentum across our key strategic initiatives. Our sales growth was driven by nearly all our geographic regions, led by 5% growth in Asia Pacific, driven by strong consultant engagement, and in North America, where digital sales increased 26%, fueled by continued momentum with new and returning customers. Growth was supported by continued customer acquisition, expansion of our digital capabilities, increased adoption of our autoship subscription programs and solid consultant growth. Strong execution, disciplined cost management and ongoing productivity initiatives also drove further gross margin expansion. The second quarter marked the beginning of our investments and our Vision for Growth. That's our name for our strategic plan to accelerate our longer-term growth rates. These investments include continued expansion of our digital business, enhanced digital tools for our consultant base, deeper penetration of existing markets and expansion into new markets. We believe these investments, combined with our strong business model and disciplined execution, will lead to sustainable accelerated long-term growth. I will update you on the progress we have made in developing our Vision for Growth a bit later in the call, after our Chief Accounting Officer, Jon Lanoy, provides the details of our Q2 performance. Jon?

Thank you, Ken. Net sales in the second quarter were $117 million, representing our strongest second quarter in company history, this represents a 2% increase versus the year ago quarter or a 4% increase, excluding the impact of foreign exchange rates. We experienced growth in all key regions across the globe. Total Asia Pacific sales grew 1% year-over-year to $53 million or 5% growth on a constant currency basis. While strong, our growth in APAC was lower than we expected. On the one hand, we saw outstanding growth in Japan of 50%. On the other hand, we experienced weakness in China, down 20%, a reversal from its recent growth trend of over 30% over the past year due to a few operational issues. We believe these issues are short term in nature that we will work through in the second half of the year, but this does not shake our confidence in China's continued long-term growth potential. Excluding China, where we market the Nature's Sunshine brand, our Synergy Eagle system sales in APAC continued strong momentum, growing 11% versus last year. In North America, Q2 sales grew 3% year-over-year to $36 million bringing sales growth to 6% through the first half of the year. During the quarter, we continued to see strong growth in our digital business, increasing 26% year-over-year. Within digital, new customers were up 26% in the quarter with autoship accounting for 36% of total orders coming through our website. In addition, our social commerce business within digital continued to show strong growth up 177% with subscription autoship in this channel making up 60% of total social commerce revenue. Continued improvement in this metric is a leading indicator for future growth and profitability since the lifetime value of customers that utilize subscription autoship is more than 3x higher than other customers. We are also pleased with the continued strength in our European business, where Q2 sales increased 4%, versus the prior year to $26.7 million. These solid results were driven by 12% growth in Eastern Europe. This strength has been fueled by improved product availability as we work to ensure appropriate in-stock levels for our key products where we see high demand despite the continued unrest in the region. Turning to gross margin. We increased nearly 200 basis points to 73.7%, the highest gross margin we've seen in over 4 years. This improvement represents the benefit of our ongoing initiatives, which includes renegotiating logistics contracts, improved manufacturing efficiency, improved sourcing and more disciplined pricing. We expect gross margins are likely to average around the mid -- low to mid 73% range through the remainder of 2026. Volume incentives as a percentage of net sales were 30.6% compared to 29.9% versus a year ago, primarily due to changes in market mix. SG&A expenses during the second quarter were $44.9 million compared to $43.7 million a year ago. As a percentage of net sales, SG&A expenses were 38.4% for the second quarter compared to 38.1% a year ago. The growth in SG&A is a result of our investment to fuel our Vision for Growth. As discussed last quarter, we expect quarterly SG&A to continue in the range of $45 million to $47 million for the remainder of the year as we continue to ramp up these initiatives. Adjusted EBITDA, as defined in our earnings release, was $11.3 million, up nearly 1% as we begin to implement our strategic -- our planned strategic initiatives. Our balance sheet remains clean with cash and cash equivalents of $82.5 million and 0 debt. Net cash used by operating activities was $1.1 million compared to cash provided of $6.9 million in the prior year period. We repurchased 113,000 shares for approximately $2.5 million or $22.55 per share during the 6 months ended June 30, 2026, leaving $14.8 million remaining in our share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Turning to our 2026 outlook. Due to recent changes in exchange rates and our slowdown in China, we are lowering our previous guidance to $490 million to $500 million in net sales from $500 million to $515 million or year-over-year growth of 2% to 4%, respectively. In addition, we are lowering our guidance for EBITDA to $48 million to $52 million from $50 million to $54 million. Overall, we believe the business is well positioned to capitalize on current opportunities in a growing market and remain very optimistic about our ability to continue to unlock substantial growth prospects that we see. The strategic initiatives we've been implementing are working, we are confident in our ability to continue to accelerate growth in sales, profitability and free cash flow. Now I'll turn the time back over to Ken for some further commentary.

Thank you, Jon. I'd like to publicly acknowledge Jon today for his terrific service in Nature's Sunshine, keeping our financial house in order as we operated this past quarter without a Chief Financial Officer. Jon's deep experience, leadership and strong relationships throughout our company allowed us to continue seamlessly after Shane Jones departure in June. As I hope you saw from our press release earlier today, we have appointed Ruth Perkins as Nature Sunshine's Chief Financial Officer. Ruth brings a wealth of financial leadership experience from blue-chip consumer product companies, such as Ford, Estée Lauder and PepsiCo. As the financial leader of Estée Lauder's entire $10 billion supply chain and head of PepsiCo's $26 billion North American beverage finance organization, Ruth will bring a tremendous amount of leadership to Nature's Sunshine as we scale our business to achieve our Vision for Growth. Ruth will be returning to our home state of Utah to join us effective September 1. We also announced earlier this week that we appointed Janine Weber as our new President of North America, effective August 10. Janine is a 25-year veteran of the direct selling industry, most recently as President of North America for LifeWave; and former Vice President of Sales North America and General Manager of Canada for Rodan + Fields. She was a key player that helped that company to $1 billion in sales, making it at the time, the #1 skin care company in the United States. Janine's leadership will be critical as we plan to reinvent our direct selling system in North America as part of our Vision for Growth. We have set long-term goals for our Vision for Growth to double the size of the company to $1 billion in sales and improve our EBITDA margin to 15% from its currently just north of 10%. There are 4 key growth drivers of our vision. They are: number one, continued digital channel expansion; two, geographic penetration and geographic expansion; three, superior marketing and product innovation; and lastly, four, mergers and acquisitions. Now we don't know when that might be, but we are on the lookout for accretive acquisition opportunities that would complement our portfolio and strategic objectives. Our first growth driver is to continue digital expansion. We could not be happier in the growth of our digital business which is on track to deliver $50 million in sales by the end of this year, just 5 years after launching it. Our Vision for Growth includes expanding the digital channels in the U.S. as well as evaluating opportunities outside the U.S. Our second growth driver is deeper geographic penetration and geographic expansion. What I mean by deeper penetration, I'll give you 2 examples. First, Japan, where we are largely a Tokyo-based business, but have recently opened up a base in the southern Japanese city of Fukuoka, which is driving tremendous growth with plans for another city -- another opening in another city in 2027. Secondly, in the United States, we are planning a complete reinvigoration of our direct selling system beginning in early 2027. While we're encouraged by our recent growth in digital channels in the U.S., our direct selling business has been under pressure for quite some time. However, we believe we can have a thriving direct-to-consumer digital business in addition to a growing and thriving direct selling business. We will share more of our plans for Nature's Sunshine in the U.S. in the near future, and we are very fortunate to have Janine Weber on board to help lead this effort. Regarding geographic expansion, our launch in Germany is underway earlier this year, and we have plans to open a new Asian country through our very strong Eagle's Synergy system that operates in Japan, Taiwan and Korea sometime in 2027 pending government approvals. And lastly, while we do sell some synergy in the United States, we're really treating it as a brand new country for expansion and the only one in the world where we will market both Nature's Sunshine and Synergy. These new countries will not be a significant portion of our business in the first year or 2 of expansion, but they are key components in our Vision for Growth to $1 billion in sales. Superior marketing and product innovation is our third key growth driver. This fall, we will be launching our new Nature's Sunshine consumer campaign called Live on the Bright Side, which beautifully expresses the brand's unique point of difference in this crowded marketplace of nutritional supplements. And our new product pipeline is full with several new product launches planned for this fall and early 2027. We will share these with you as we get closer to their launch dates. And last but not least, we plan to have M&A help us drive to our $1 billion goal. But as I mentioned earlier, we cannot predict when we will execute an acquisition, opportunities are crossing our desk daily, and we will make sure we evaluate and make the right choice. In summary, I could not be happier with the leadership team we have built at Nature's Sunshine and with all the opportunities to accelerate our growth. We believe the Sun has never shined brighter for Nature's Sunshine. We have our sights firmly set on $1 billion in sales. And with our Vision for Growth strategic plan, we believe we can achieve it. Thank you for your time and attention today and your continued support of Nature's Sunshine. I'd now like the call to turn back to the operator for questions. Operator?

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Susan Anderson with Canaccord Genuity.

Nice job in the quarter. I wanted to ask maybe just how -- it sounds like the e-commerce business in North America continued to be strong. I guess -- maybe if you could give some more color just around the core business as well and how it performed? And then I think you guys also had a new launch in Germany. Just curious how that's going?

You want to talk about core North America, just total North America.