A Bad Prescription From USANA

USANA Health Sciences' (Nasdaq: USNA  ) products help people lose weight, but the company had a loss of its own on Friday. After USANA lowered its revenue and earnings per share guidance for the year, investors gave its shares an unhealthy 21% discount.

Reports emerged last year accusing USANA of being a pyramid scheme, prompting the SEC to announce a informal inquiry (now closed) into the company. Since then, shares of the health-care vitamin and supplement maker have fallen sharply. The latest drop followed Friday's news of significant cuts in revenue and earnings projections for 2008.

USANA employs a unique business model -- described as a "network marketing system" -- to sell its nutrition and health products. Its guidance for 2008 now calls for sales to only "increase modestly" compared to its previous forecast of 7% to 10% sales growth. USANA's earnings forecast took an even worse bath, from a previous 7% to 10% EPS growth forecast in 2008, to a 20% decline year over year.

USANA blamed its bleak financial forecast on the U.S. economy, and a falloff in its efforts to recruit new buyers-turned-sellers for its products. It said this decline in active "associates" in the U.S. partly resulted from all the negative press -- much of it deserved, in my opinion -- that the company received last year.

Since some of USANA's management team had multiple news sources question its credibility last year on a wide range of issues, it's hard to argue that there might not be scary skeletons lurking in the company's closet. We'll have to wait and see whether the macroeconomic difficulties that USANA cited as a partial reason for its financial growth slowdown affect other direct-selling health-care companies like Nu Skin Enterprises (NYSE: NUS  ) or Herbalife (NYSE: HLF  ) . If not, USANA may just be making excuses for a business in decline.


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