Nature's Sunshine Products Inc. 2026 Q2 Earnings Call

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-ins through August 20th 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 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. I'd like to turn the call over to the CEO of Nature's Sunshine, Ken Romanzi.

Ken? Thank you, Nate. 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 in 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, Jonathan Lanoy, provides the details of our Q2 performance.

John? 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, 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 of 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 three times 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 have worked 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 four 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 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 planned strategic initiatives. Our balance sheet remains clean, with cash and cash equivalents of $82.5 million and zero 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 six months ended June 30th, 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. 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 to 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's Sunshine's new chief financial officer. Ruth brings a wealth of financial leadership experience from blue-chip consumer product companies such as Ford, The Estée Lauder Companies, and PepsiCo. As the financial leader of The Estée Lauder Companies' 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.