USANA Health Sciences, Inc. (NYSE:USNA)’s weaker-than-expected second quarter results are mainly being blamed on a sales decline in China. However, Wedbush analysts say management told them that sales there have already begun to rebound for the third quarter. They maintained their Neutral rating and $70 per share price target on USANA.

USANA

USANA management reiterates guidance

In its second quarter report, USANA reported revenue of $188 million and earnings of $1.36 per share. Analysts had been expecting $198 million in revenue and $1.50 per share in earnings. Management still expects the company to post sales of between $770 million and $790 million and earnings per share of between $5.50 and $5.65 for the full year. They are still convinced that USANA will see an operational turnaround in the second half of the year in spite of flat second quarter sales.

In a report dated July 30, 2014, analysts Rommel Dionisio and Alicia Reese note, however, that the company did see an 11.4% increase in sales associates. They say that’s an “encouraging” indication that sales growth could indeed rebound in the next few quarter. They also point out that year over year comparisons are getting a lot easier later this year because it marks a year since the company’s price cuts last year.

USANA sees decline in China

The Wedbush team blames China for the second quarter miss because it’s USANA’s biggest market, with 39% of sales. The company saw a 4% sales decline there after posting double-digit growth in multiple quarters. USANA had slowed down recruiting until there was a resolution to the Chinese government’s investigation of competitor Nu Skin Enterprises, Inc. (NYSE:NUS). That ended in May with no impact on the industry, and management said they resumed normal recruitment activities in China late in the second quarter.

Because of the second quarter miss, the Wedbush team cut their 2014 estimates, although they maintained their expectations for 2015. Nonetheless, they’re still expecting a rebound in the second half of this year as business in China returns to normal. Their new earnings per share estimate for 2014 is $5.60, down from their previous estimate of $5.65. They kept their 2015 forecast of $6.38 per share.