DALLAS--March 23, 2005--Natural Health Trends Corp. (NASDAQ NMS:BHIP), an international direct-selling company, today announced its financial results for the fourth quarter and year ended December 31, 2004.
Fourth quarter net sales in 2004 were approximately $36.3 million, up 61% from $22.6 million for the comparable period a year ago. The growth in sales was attributable to an increase in the number of distributors. As of December 31, 2004, the operating subsidiaries of Natural Health Trends Corp. had approximately 133,000 active distributors, up from 76,000 at the end of 2003.
Gross profit margin for the fourth quarter was $29.0 million, or 79.8%, versus $17.1 million, or 75.5% a year ago. The improvement can be mainly attributed to the elimination of commissions paid to Marketvision Communications Corp., the Company's Internet-based distributor system service provider, which was acquired by the Company on March 31, 2004.
For the fourth quarter, the Company recorded a net loss of approximately $802,000, or a loss of $0.12 per fully diluted share. In the fourth quarter of 2003, the Company had a net income of $1.1 million, or $0.19 per fully diluted share. The decrease in net income was due to higher commissions paid to distributors and selling, general and administrative expenses, or SG&A, partly offset by the margin flow-through of the higher volume.
Mark Woodburn, President of Natural Health Trends Corp., said, "The fourth quarter of 2004 capped off a very respectable year for Natural Health Trends Corp. We are very pleased with our top-line growth for both the quarter and the year. We made significant investment in building our markets and the pay-off is not immediate. We are obviously less than satisfied with the bottom line results and are working to ensure that 2005 shows improvement in this area. Still we finished 2004 with over $22 million in cash and working capital of $17.5 million. This gives us liquidity to rapidly develop newly entered markets. We also had $9.6 million in deferred revenue as of December 31, 2004. Approximately $4.7 million of the deferred revenue was related to membership enrollment, which when recognized as revenue has no cost of sales or commission expenses associated with it. The $4.9 million was for product orders taken but unshipped as of year end. When we do ship these orders and recognize them as revenue, related product costs and applicable commissions will be expensed."
For the twelve months ended December 31, 2004, net sales rose 113% to approximately $133.2 million compared to $62.6 million for fiscal year 2003. Two-thirds of this rise was attributable to the increased number of active Lexxus distributors while the balance represented higher sales generated per distributor.
Gross profit was approximately $103.9 million or 78.0% of net sales for the twelve months ended December 31, 2004, compared with approximately $48.9 million or 78.1% of net sales for the twelve months ended December 31, 2003.
Net income was approximately $1.2 million, or $0.18 per fully diluted share, for the twelve months ended December 31, 2004 compared to net income of approximately $4.7 million, or $0.83 per fully diluted share, for the preceding year. The decrease in net income for the full year is due to higher distributor commissions as a percentage of sales as well as increased SG&A spending, partly offset by the margin flow-through on greater sales.
As disclosed in a Form 8-K filed on March 23, 2005, the financial statements of the fourth quarter of 2003 and the first quarter of 2004 have been revised to address certain 2003 revenue and expense cut-off issues. With the revisions, the revenue in the fourth quarter of 2003 was reduced by approximately $310,000, and the net income was reduced by approximately $650,000. The revenue and net income of the first quarter of 2004 were increased by $310,000 and $650,000 respectively.
Chris Sharng, CFO of Natural Health Trends Corp., said, "The increase in SG&A expenses for the fourth quarter as well as the full year was driven by our increased marketing and promotional activities world-wide, higher credit card fees, increased audit and legal costs, higher personnel costs, special expenses the Company incurred as a result of the negative television program aired in China in April 2004 and the costs associated with building new markets in China, Mexico and Japan. We also had more depreciation and amortization due to the Marketvision acquisition."
Woodburn concluded, "During 2004, we began to devote more of our resources to building a solid infrastructure upon which we can continue to drive our business forward. With an experienced management team now in place, combined with strong distributor growth in 2004, we are optimistic about our performance in the coming year. We expect to start generating revenue from the Japanese and Mexican markets, the world's 2nd and 4th largest direct-selling markets, in the next few months. We also foresee continuing to increase our reach inside our established markets. New products are in the pipeline which we hope will have a significant positive impact on our revenues before the end of the year."
Natural Health Trends will host a conference call on Thursday, March 24 at 10:00 a.m. EST. Those who wish to participate in the conference call may telephone 888-335-6674 approximately 15 minutes before the 10:00 a.m. EST starting time. If you cannot participate in the call, but wish to hear it, you may login to Natural Health Trends Corp.'s homepage at www.naturalhealthtrendscorp.com and click on either Windows Media or Real Player approximately 1 1/2 hours after the completion of the call.
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 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; 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-KSB for the fiscal year ended December 31, 2003 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.