DALLAS, Jun 20, 2006 (BUSINESS WIRE) -- Natural Health Trends Corp. (BHIP) , an international direct-selling company, today announced its financial results for the first quarter ended March 31, 2006.
Net sales in the first quarter of 2006 were $39.5 million, compared to $42.8 million for the first quarter a year ago. This net decrease of $3.3 million, or 8%, was due to sale of the Company's 51% equity interest in KGC Networks ("KGC"), effective December 31, 2005. Excluding KGC, the Company's net sales increased $5.1 million, or 15%, over the comparable period in the prior year. This increase was primarily due to growth in the Hong Kong-based business (contributing $3.9 million of the total increase), South Korea ($1.2 million), and the opening of the Japan and Mexico offices (contributing $1.8 million and $1.1 million, respectively), offset by reductions in net sales in North America ($1.8 million) and Southeast Asia ($1.0 million).
The overall growth in net sales is attributable to an increase in the number of active independent distributors. As of March 31, 2006, the operating subsidiaries of the Company had 124,000 active distributors, compared to 122,000 and 92,000 active independent distributors at the end of 2005 and the end of the first quarter of 2005, respectively, excluding KGC.
For the first quarter of 2006, the Company incurred a net loss of $1.1 million, or $0.15 per fully diluted share, compared to a net income of $2.8 million or $0.34 per fully diluted share a year ago in the comparable quarter.
Gross profit margin for the first quarter was 79.5% of net sales, versus 80.9% for the same period a year ago. The percentage decrease results from greater importation cost on Hong Kong products delivered into China, due to changes in the Company's logistical processes over a year ago.
Distributor commissions were 52.4% of net sales for the three months ended March 31, 2006, compared with 49.8% of net sales for the three months ended March 31, 2005. Excluding KGC, distributor commissions as a percentage of sales over a year ago increased 2.2% primarily as a result of the depth of the Company's distributor network.
Selling, general and administrative expenses ("SG&A") were $11.7 million for the first quarter of 2006, compared with $9.2 million for the same period in the prior year. Excluding KGC, SG&A increased by $4.4 million, or 60%, mainly due to increases in the costs of opening new markets in Mexico ($0.4 million) and Japan ($1.0 million); costs of expansion into China ($0.7 million); increased costs, mainly in personnel, professional fees and credit card charges and assessments in Hong Kong ($0.5 million); and higher personnel costs, professional fees, and travel costs in North America ($1.2 million).
Other income was $0.2 million for the three months ended March 31, 2006 compared with an expense of $0.3 million a year ago. This increase in other income results primarily from interest imputed on the KGC receivable of $165 thousand and a reduction in foreign currency losses of $213 thousand due to the elimination of the Company's exposure to the euro.
Mr. Curtis Broome, President of NHT Global, a subsidiary of Natural Health Trends Corp., said "With the relatively new direct selling environment in China, we anticipate more short-term volatility in the coming months with respect to our Hong Kong-based business. But we are very excited about our progress in Japan, Mexico, South Korea, Taiwan and the Philippines. In addition, we expect that more momentum can be created in Japan with an official opening event in Tokyo."
At the end of the March 2006, the Company's cash and cash equivalents totaled $21.6 million, an increase of $3.1 million from prior year end. Cash provided by operations was $2.8 million in the first quarter of 2006.
As of March 31, 2006, the Company had deferred revenue of $10.8 million, of which $2.3 million pertained to product sales and $6.9 million pertained to unamortized enrollment package revenue. Additionally, deferred revenue included $1.6 million of Gourmet Coffee Cafe product shipped but unrecognized as of March 31, 2006 ($1.2 million in Gourmet Coffee Cafe related costs are also deferred and recorded in other current assets as of March 31, 2006).
About Natural Health Trends Corp.
Natural Health Trends Corp. is an international direct-selling company operating through its subsidiaries in 15 countries throughout Asia, North America, Eastern Europe and Latin America. The Company markets premium quality personal care products under the NHT Global (formerly Lexxus International) brand and markets its nutritional supplement products under the Kaire brand. Additional information can be found on the Company's website, and management encourages interested parties to register for updated corporate information via e-mail on the Company's homepage, www.naturalhealthtrendscorp.com. More information on NHT Global can be found www.nhtglobal.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Forward-looking statements in this release do not constitute guarantees of future performance. Such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those anticipated. Such statements may relate, among other things, to our relationship with our distributors; our need to continually recruit new distributors; our internal controls and accounting methods that may require further modification; regulatory matters governing our products and network marketing system; our relationship with our majority owned subsidiary operating in Russia and other Eastern European countries; our ability to recruit and maintain key management; adverse publicity associated with our products or direct selling organizations; product liability claims; our reliance on outside manufacturers; risks associated with operating internationally, including foreign exchange risks; product concentration; dependence on increased penetration of existing markets; adverse consequences from audit committee investigation and/or management reorganization; the competitive nature of our business; and our ability to generate sufficient cash to operate and expand our business. For a more detailed discussion of the risks and uncertainties of our business, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission. We assume no obligation to update any forward-looking information contained in this press release or with respect to the announcements described herein.