Tuesday, July 17, 2007

USANA Announces Record Q2 Sales and EPS, Buries News of Auditors Departure


USANA Health Sciences, Inc. (USNA-$50.10), which makes nutritional and personal care products, on Monday issued preliminary second-quarter results above previous guidance and current Wall Street predictions.

"We are pleased to give investors a preview of our strong financial results in advance of tomorrow's earnings announcement," said Gilbert A. Fuller, the Company's executive vice president and chief financial officer. "We believe these sales and earnings results demonstrate the fundamental strength of our business and are the direct result of the hard work and commitment of our Associates to our high quality products.”

USANA said it expects to post a quarterly profit of 66 cents per share on $109.4 million in revenue. The company previously predicted a profit of 63 cents to 65 cents per share on $103 million to $105 million in revenue.

Analysts polled by Thomson Financial expected a profit of 63 cents per share on $104.2 million in revenue.

Oh—the Company announced, too, the departure of Grant Thornton LLP (GT) as the Company's independent registered public accounting firm.

Even though GT resigned on July 10, 2007, management did not file a
Form 8-K with the SEC until after the close of trading on July 16. As if to minimize any material implications hereof, USANA noted that there “were no disagreements between the Company and Grant Thornton on any accounting principles or practices.”

“Fraud and falsehood only dread examination. Truth invites it.” Samuel Johnson (English writer, 1709 -1784)

The last audited report of Grant Thornton for the Company was for the fiscal year ended December 30, 2006. No certifying accountant means that investors need to “rely on management’s representations” for the financial statements of the first quarter and second quarter ended March 31 and June 30, 2007, respectively.

In its filing, management was quick to note “GT has not advised the Company that information has come to its attention that it has concluded materially impacts the fairness or reliability of either: (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal periods subsequent to the last audited financial statements.”

Given recent controversies circling the Company--including a just filed lawsuit by independent distributors accusing the Company of fraud and deception,
credibility issues about its network marketing business model, and a series of flaps involving the credentials of top executives and sales associates—maybe Grant Thornton had the prescience to quietly slip away.

“Better slip with foot than tongue.” Benjamin Franklin (American Statesman, 1706 – 1790)

The price of USANA climbed $1.22 per share, or 2.44% in after hours trading, partly driven by short interest of 106.50% relative to its public float.



USANA Health Sciences
DescriptionPurchase
Date
CostSales
Date
Proceeds
UNXTI07/16/07$5,127.99

UNXTI

07/17/07$10,171.85
20 USNA
Aug-07 PUTS

Profit: $5,043.86


Editor David J. Phillips is long put options in USANA Health Sciences, Inc. The 10Q Detective has a Full Disclosure Policy.

5 comments:

rodger brunk said...

David - found your blog when researching new CEO for Pep Boys. Read you origianl USANA article and thought your analysis was well thought out. Have followed USNA and your blog since. I would love to know your reaction to the comments by Scott Van Winkle from Cannaccord Adams (AP wire story) regarding auditors resignation. Esentially he says they may just be to busy with other companies fighing through regulatory issues. I was amazed.

David J. Phillips said...

Canaccord Adams analyst Scott Van Winkle said, "Grant Thornton's resignation may stem from the accounting firm's involvement with another company fighting through regulatory issues."

"Grant Thornton likely has enough on its plate when it comes to controversy, and is mitigating its risk," Van Winkle said in a note to investors.

Read between the lines, GT left because USANA would not hire an INDEPENDENT, third party to investigate Barry Minkow's allegations of sales fraud!

Ari said...

I've also been reading your blog for the past few weeks. I think your analysis of USANA is dead on. My question is why the stock has moved back up to $50. And with reporting positive results (according to management), don't you think the August puts are a tad risky as it may take more time for the truth to come to light?

I was short on USANA through the original Minkow reports, but have been sitting it out as the stock has slowly rebounded. Where do you see the top before the pyramid (pun intended) comes crashing down?

Rodger Brunk said...

David - Hope you get a chance to review the USNA 10-Q some interesting reading. They just couldn't couldn't have the CEO / CFO sign SOBOX 302 and 906 etc. since GT resigned. ... and the stock closes at $29.48 before the filing.
Keep up the great analysis - you have a great blog that I have sent numerous people to.

David J. Phillips said...

Roger:

Thank you for helping to spread "the 10Q Detective" gospel. As I do not receive monetary compensation for my due diligence & other research efforts, I appreciate you helping to attract more readers to my blog -- massaging my ego helps, too!