We generated $104 million of operating cash flow during fiscal 2022, ended the year with $288 million in cash and cash equivalents, and remained debt-free. We did not repurchase shares during the quarter and, as of December 31, 2022, we had approximately $83 million remaining under the current share repurchase authorization. For the full year, we repurchased 288 thousand shares for a total investment of $25.4 million.
Fiscal Year 2023 Outlook
We are reiterating our consolidated net sales and earnings per share outlook for fiscal year 2023 as follows:
| Fiscal Year 2023 Outlook |
| | Range |
| Consolidated Net Sales | $850 - $950 million |
| Diluted EPS | $2.35 - $3.30 |
Our fiscal year 2023 outlook for the year reflects:
| • | An unfavorable currency exchange rate impact on net sales of approximately $30 million |
| • | An operating margin in the range of 8% to 10% |
| • | An annual effective tax rate of approximately 36% |
| • | An annualized diluted share count of 19.2 million |
Our outlook anticipates a wider-than-typical range of financial performance largely due to continued uncertainty surrounding the impact of the change in COVID policy in mainland China as well as the economic and operating environment in many of our markets during fiscal 2023.
We anticipate continued pressure on our operating margin year-over-year, primarily due to the loss of leverage on lower year-over-year net sales. In addition, we continue to experience inflationary pressure, although at a moderated level, compared to the prior year, across several areas of our business including materials, wages, and distribution costs. We are also planning for increased travel and event-related costs as we gradually return to more live events. Several cost and margin management efforts have been incorporated into our plans to alleviate these collective cost pressures, highlighted by enhanced inventory management, employment cost initiatives, and price adjustments.
Our annual effective tax rate is anticipated at 36% which is higher than historic levels. This increase is primarily related to the geographic mix of taxable income as well as generally softer sales on a year-over-year basis.
2023 Operating Strategy
We enter fiscal year 2023 with an Active Customers base that is 13% lower compared to the beginning of 2022. Consequently, our strategies during 2023 are centrally focused on increasing the number of Active Customers in our business. These efforts include a return to live sales meetings and events where possible, new market expansion, new incentive opportunities for our salesforce, and pursuing additional acquisition opportunities. Additionally, we continue to execute our long-term strategy with a focus on digital commerce, product development, and improvements to ensure the best overall customer experience.
Return to Live Sales Meetings and Events
In-person events have historically been a catalyst to customer engagement and a catalyst to positive momentum in USANA’s business. As we enter 2023, we plan to host more live sales meetings and events, along with management training and coaching for our salesforce, in markets where permitted. We have two live events planned in the first half of the year in North Asia and Greater China, with in-person attendance for each event expected to be strong, particularly given the absence of these events over the past several years.
New Market Expansion
We currently operate in 24 markets globally and over the past year we have accelerated our market expansion readiness. We are focused on markets that will contribute to an increased number of Active Customers who are consuming our products on a regular basis, are familiar with and supportive of the direct selling model, provide diversification to our existing sales portfolio, and an opportunity to generate attractive financial return on investment.
New Incentive Opportunities for our Salesforce
In place of the larger short-term sales promotions that we have offered during the last several years, we plan to focus on smaller market or region-specific promotions staggered throughout the year that are designed to drive long-term sustainable results. We will also begin hosting in-person sales incentive trips again, where we will recognize and reward our top performing sales leaders. These trips have been absent the last two years, and our salesforce is looking forward to these opportunities. Lastly, we recently launched a new Affiliate program in select markets that offers an alternative and new sales incentive opportunity for sellers, customers, and social influencers. While this program is new and will take some time to contribute meaningfully, it represents a strategic new component of our overall incentive offering that is simple and straightforward. We believe this program will be successful in generating sales and customer growth over time.
Pursuing Additional Acquisition Opportunities
We continue to evaluate business development opportunities that are additive to the long-term success of USANA. Our focus remains on opportunities that strengthen, diversify, and grow our worldwide business by focusing on: (i) overall health and wellness; (ii) vertical integration; (iii) product and category expansion; (iv) channel expansion; and (v) expanding our core competencies. In 2023, we also plan to grow the two companies we acquired in 2022.
Digital Commerce Initiatives
We plan to continue to expand and enhance the digital capabilities we implemented last year, by further improving our onboarding program and training tools for our Associates, as these two capabilities are foundational to driving more efficient customer acquisition and retention. Our digital team will also collaborate with our sales leaders and continuously evaluate customer feedback to ensure we are providing the best possible customer experience with our recently launched Affiliate program.
In closing, we remain confident in our strategies and believe the successful execution of these initiatives will position us to expand and grow our business globally.
Kevin Guest
CEO
Douglas Hekking
CFO
Safe Harbor
This Management Commentary contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Our actual results could differ materially from those projected in these forward-looking statements, which involve a number of risks and uncertainties, including: uncertainty related to the COVID-19 pandemic (“COVID-19”) to our business, operations and financial results; the potential for a resurgence of COVID-19 spread in any of our markets in the future; the impact of COVID-19 on the domestic and world economies, including any negative impact on discretionary spending, consumer demand, and consumer behavior in general; regulatory risk in China in connection with the health products and direct selling business models; regulatory risk in the United States in connection with the direct selling business model; potential negative effects of deteriorating foreign and/or trade relations between the United States and China; compliance with data privacy and security laws and regulations in our markets around the world; potential negative effects from geopolitical relations and conflicts, including the Russia-Ukraine conflict; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; global economic conditions generally, including increasing inflationary pressure around the world and any negative impact on our operating costs, consumer demand and consumer behavior in general; reliance upon our network of independent Associates; risk associated with governmental regulation of our products, manufacturing and direct selling business model; adverse publicity risks globally; risks associated with our international expansion and operations; and uncertainty relating to the fluctuation in U.S. and other international currencies. The contents of this Management Commentary should be considered in conjunction with the risk factors, warnings, and cautionary statements that are contained in our most recent filings with the Securities and Exchange Commission. The forward-looking statements in this Management Commentary set forth our beliefs as of the date hereof. We do not undertake any obligation to update any forward-looking statement after the date hereof or to conform such statements to actual results or changes in the Company’s expectations, except as required by law.
