Bungled software implementation hurts Nature’s Sunshine

By Hank Schultz

- Last updated on GMT

Related tags Revenue

Bungled software implementation hurts Nature’s Sunshine
Network marketing company Nature’s Sunshine reported disappointing earnings yesterday, driven mostly by a protracted and difficult software switchover, according to management.

The company’s sales declined within the Nature’s Sunshine product portfolio in North America, and the subsidiary Synergy Worldwide sales declined as well.  Net sales in the second quarter of 2017 were $81.3 million compared to $89.4 million in the same quarter last year. On a local currency basis, net sales declined by 8.9% year-over-year.

The company, which markets a variety of dietary supplements and meal replacement shakes, also posted another loss.  After losing $6.7 million on sales of $84 in the fourth quarter of fiscal 2016, the company posted a razor thin profit in the first quarter of 2017.  As for the second quarter, the results of which were posted yesterday, Nature’s Sunshine showed a slight loss of $200,000.  Stock traders reacted negatively, sending the company’s shares down 18% on Tuesday.  The shares are now trading at about $10.05 a share, off from a 52-week high of $16.35 and an all-time high of $23.24.

Ball dropped on software

The primary reason for this according to CEO Greg Probert has been a problematic implementation of an Oracle software system.  The switchover has not gone smoothly and is costing the company sales and is making the recruitment and retention of new sales associates difficult.

“We anticipated that the amortization cost of the Oracle system would impact our earnings in the second quarter and beyond . . .  however, we also encountered unanticipated disruptions to certain operational functions within the organization that negatively impacted sales and earnings during the quarter,​ Probert told analysts on a conference call yesterday.  The call was posted in transcript form on the site seekingalpha.com​.

Probert said the pain of the software snafu will continue.

“These operational challenges included increased wait times in our call center, difficulties with our online ordering system and a negative impact to promotional activity. We are working diligently to correct these issues but continue to encounter challenges. While we are working to return to targeted levels of operational performance, we anticipate that continued implementation challenges could have an ongoing impact to revenue and profitability throughout the remainder of the year,​ he said.

License for China granted

A bright spot for the company has been the long-awaited direct sales license in China, which was granted on May 16, 2017.  While Nature’s Sunshine’s sales in Russia and Eastern Europe have held strong despite economic and geopolitical challenges, the company has yet to see a return on the investment it has made to try to enter the Mainland China market. Other publicly traded network marketers such as Herbalife and Usana beat Nature’s Sunshine to the Chinese market and now derive a big portion of their overall revenue there.

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