Welcome to the USANA Health Sciences quarter one earnings conference. (Operator Instructions) I would now like to turn the conference over to Riley Timmer, Executive Director of Finance.

We appreciate you joining us today to review our final first quarter results. As a reminder today’s conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com and as always a replay will be available on our website shortly after this call. Before I turn the time over to Gil, I remind you that during the course of this conference call management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause our actual result to differ perhaps materially from the results projected in those forward-looking statements. We caution you that these statements should be considered in conjunction with the disclosures including the specific risk factors and financial data contained in our most recent filings with the SEC. Also during the course of this call management will discuss non-GAAP information. We provide non-GAAP measures to assist investors in understanding our operating performance. I’ll now turn the call of over to Gil Fuller, our Executive Vice President and CFO.

I am pleased to be joined by Dave Wentz, our President, who you will hear from shortly. Also in attendance are Fred Cooper, Executive Vice President of Operations; Bradford Richardson, Executive Vice President of Asia-Pacific; and Mark Wilson, Executive Vice President of Customer Relations. This afternoon I will provide you with a review of our first quarter financial results and a few of the challenges that we faced during the quarter. I will then talk about our guidance for the second quarter of 2008 as well as our updated forecast for the full year. Net sales in the first quarter were $101.6 million, an increase of 0.9%, just under 1%, compared with $100.6 million reported in the first quarter of 2007. Net sales growth during the quarter was primarily driven by a 2.5% increase in the number of active associates compared with the same period last year and a $5.6 million benefit from stronger foreign currencies. Obviously, we were disappointed with this result. Dave will address the factors that caused sales to be lower than expected during his prepared comments. However, before I move on I will make one quick comment. During our preliminary call three weeks ago, a question was asked about retention of our customers. Let me reiterate that our first quarter results were not the result of decreased customer retention. In fact our monthly auto ship rate during the first quarter continued to grow and represented 52.3% of our total product sales. Our earnings per share from continuing operations were $0.46 in the first quarter, a decrease of about 28% compared with the $0.64 per share in the first quarter of 2007. Let’s now go through our operating results and talk about the major line items on the first quarter statement of earnings. Our gross margins in…

The first quarter of 2008 was a challenging quarter for USANA. I was personally disappointed with our financial results but I am very optimistic about our future growth prospects. Our sales in the U.S. during the first quarter declined 8.3% to $38.6 million compared with $42.1 million in the first quarter of last year. The addition in the number of active associates declined 3.3% on a year-over-year basis. There were three main factors that I believe contributed to our results in the U.S. First, our promotions during the quarter did not have the positive impact that typically drives our sales. Frankly some of the new things we tried were simply not effective. For example this year we held our RESET meetings via a live satellite broadcast. We have been successfully doing this in our Mexico market and delivering good results. We tried this technology in the U.S. and Canada because we thought we could reach more people throughout North America. What we found is that at least in the short-term, the live broadcast was far less effective than going out on the road and meeting face to face with our associate leaders. Unfortunately the results did not pan out the way we had hoped. Keep in mind however that we often see a delayed or lag effect with our promotions. So it’s not always easy to tell right away if a promotion has or has not been effective. Our plans for future in sales and promotions in the U.S. is to do a combination of both new promotions based on our market research as well as the tried and tested promotions that we know incent and excite associates to grow the business. As was mentioned on our preliminary conference call on March 27, we’ve launched a global promotion on March…

(Operator Instructions) Our first question comes from Simeon Gutman - Goldman Sachs.

Do you think or does it feel to you that the U.S. business will have reached the bottom in this first quarter or is there potential to get a little bit worse before it gets better?

We are certainly hoping and believe that the first quarter was the low point for any of our markets. We are really disappointed in that. So we are hopeful that we build from that and go the other direction.

I think we have a lot of things coming out, we’re stoking the fire with a lot of exciting things and I think we have things lined up to create a better second quarter definitely.

And the morale from your ground level distributors, I don’t know if that’s surface to the top but do they view the RESET promotion being unsuccessful? And are they aware that you are saying, it might have been our fault, the way we attacked the promotion, do they see that and does that hurt their morale in anyway? Do you have any anecdotes from that?

I think there are always some disappointment when they don’t see the growth in the organization that they hope from certain things but we’re putting out a lot of things that they do like and we are bringing them into talk with them and get more of their ideas and more of their input so that they can be a part of making sure that the growth continues and their organizations grow. So we’re are excited about having them all in and talking and sharing ideas because they are the experts out in the field and we’re looking forward to spending some quality time with all of them and discussing ideas for the future.

And has all of this maybe prompted to think a little differently about a product promotion and I thought I heard rumblings that there might be not a promotion but a new launches instead of it being solely at the Salt Lake Convention at earlier venues, is that something you are considering?

We still think of the convention as our best venue for launching products where we have the majority of our leaders and can really give a good message and explain the benefits of any new products and send them off convention well armed. So we may occasionally but for the most part convention provides the best venue that we believe to launch anything.

The Asian business in Malaysia, how does that perform versus your expectations? Did you think it would just be stable at this point and then if you look at the collective picture, would you have encouraged us to do, Singapore is always a little more disappointing and was it just because there was a convention down there that we saw that stableness and what’s the outlook for that collective market?

Well, Malaysia definitely surpassed our wildest expectation. It’s an incredible market, incredible strength throughout the year. Definitely we saw some in shifting of business from Singapore to Malaysia once that market opened. And so there is going to be a rebalancing, so to speak, of leadership between the two countries as they now move forward growing their own regions, lot of excitement from Malaysia pulled away from Singapore. But I think we can now move forward in 2008 and grow both markets. Bradford and his team did an incredible job of having the sustained year where usually we see a huge increase in the first few months and then sorting out and then growing from there but in Malaysia we just saw continual strength that was very impressive.

And for Singapore should that market be up this year or it probably will be down?

It’s tough to say with the Singapore and Malaysia being such combined type markets on where it would all sort out. But we hope to grow Singapore definitely from where it is.

Can you just elaborate a bit more on the market research, what specifically you are looking to do? And then Gil can you just comment on what’s been cancelled, what are you thinking about canceling on the expense side?

Market research wise, we’re doing a lot of targeting, trying to find entrepreneurs. We have realized that there is a certain mindset of person who is successful in this business. And a lot of our market research has been toward the entrepreneurs out there that our associates are looking for and how to help them succeed in finding entrepreneurs, communicate with those entrepreneurs and then how we can help those entrepreneurs be successful. In additional a lot of market research that is being done on products, looking at what’s out there and what trends are moving in what directions and making sure that we take advantage of those trends and product direction going forward. Those would be the two main fronts of our market research.

Yes, we are just taking a look at everything to just brainstorm with my colleagues here at the EVP level. And we have done some things like postpone some capital expenditures that we can do later on rather than doing them now. And we won’t obviously, won’t do anything that this will be economically driven I can assure you. If it makes sense to do it, we’ll do it, if not we’ll postpone it and do it when it’s more appropriate. We are taking a look at headcount issues and where appropriate, we are backing off of things that we might otherwise have done there. And just in brainstorming a bunch of general things we are looking at, how to be more efficient in everything from procuring materials, to looking at packaging. We are just taking a hard look at our planned expenditures and seeing what we can do to, whether it’s planned hires or planned projects, we are just taking a look at them and evaluating them in the basis of the current situation. And hopefully the first quarter, as I have mentioned in the prepared remarks, had a string of things in there that we certainly hope to avoid, like the extra accounting fees and that kind of thing that were in that first quarter.

Our next question is from Doug Lane - Jefferies.

I just wondered if you could elaborate on the promotions, how this year is different from past years, and what you are going to change going forward that you are looking at to reenergize the sales force, whether it is more on the ground events, any change in the compensation system on a permanent basis, just more granularity on what you’re doing on the promotional front, if you don’t mind?

On promotional front, we are looking to do a combination of ones that we know have worked in the past, with some new ones to find out which ones in the future will be those tried and tested promotions. The one we just launched, the PaceSetter Creator, we are very excited about because we believe it rewards the right things, it encourages people to get started fast. Once they have success quickly, it helps them in their future growth, if they take too long to get started and procrastinate too long, it is tough to get things going and so we want to take advantage of their initial excitement to get them off to a quick start. And so we are rewarding those people who bring in and help those people get successful as well as those who achieve the success. So that promotion we are very excited about. We are also looking to discuss with the field some possible enhancements that may be permanent. If we are able to come up with some ideas that will get them excited about the long-term growth possibilities, we will make some additional enhancements to our compensation plan. If we don’t find anything, we will continue to focus on the contests and promotions that we know work as well as trying a few here or there, new ones to find out other possible promotions to keep in our arsenal, so to speak, to have in our back pocket for when we need them. So number of different things going on there, a lot of research being done. And looking forward to a lot of good discussions with the leaders, make sure we are giving them what they want. They are the ones that know best what will excite them and push them to work harder than they have been working, what will drive them to reach those higher levels, so we look forward to those conversations.

I think Gil mentioned that your associate incentives could be a little bit higher as a percent of sales in the second quarter than the first quarter. Should we view this as a sort of new level of spending here? Or is this just a function of the sales that are slowing down here and that if sales growth resumes the associate incentives go back to being closer to 40% of sales?

I think we have been saying recent quarters that we look for that number to be between 40% and 41%. It can move around a bit depending on what’s going on, what contests are taking place and then ultimately how successful the contest or incentive might be. Our objective, as Dave mentioned I think in his prepared comments, is whatever we do there in enhancing the compensation plan that we would look for ways to make that self funding that is, pay for performance kind of objective.

Gil, can you give us an update on your viewpoint on stock buyback here?

Well, we’ve got a $50 million authorization out there that has not been utilized and we are coming to the tail end of this large, at least for us, capital expenditure program. And so we expect that this program will be winding down with the major projects done by the end of the second quarter or early third quarter. With this credit crunch just as an abundance of caution, I have felt reluctant to push too close to the line of credit limits that we’ve got, not withstanding the temptation to be out there with the stock so undervalued. So it’s going to be a question of cash flow and wanting to make sure we’ve got reserves if needed. But certainly we’ve got a $50 million authorization. That’s available.

Our next question is from Scott Van Winkle - Canaccord Adams.

The geographical disclosure change, I guess you can have news scan or like some others out there do the same thing, but is that in association with any change in how you manage the divisions or the regions?

Somewhat, I guess it is a little bit. Mainly it was just to be more similar to the other companies and to realize that there is a inner flow of associates between a lot of lines. North America leaders move amongst all three countries continually. Australia, New Zealand back and forth constantly, so there is definite areas where, yes, we can draw with the border but it doesn’t really signify the borders of the associates look at for where they build their business and the regions tend to flow together sometimes.

But we have made a couple of alignments out there. With the growth in Asia-Pacific we have done some management realignment a bit as well. But specifically for the reason that Dave outlines, it’s hard to distinguish in many ways, because the way our commission plan works, Singapore and Malaysia for example, for those that’s under common leadership over there now.

Dave, I think you mentioned some encouragement early in the upcoming quarter; maybe it was the late promotions from Q1. Did I get that right? How do you get measure when you look at the trends now and as you start to see an improvement, how you are going to measure it? You’re going to measure it first with distributor accounts? Or you going to measure it just, based on revenues, preferred customers, a little clarity there?

The first few weeks are looking good, but it’s always tough to tell whether it’s things that we finished first quarter that people are running with, like the Kuala Lumpur convention, or whether it’s already the new promotion that we just launched at the beginning of the second quarter. I think probably combination of the two has created some good weeks but it’s hard to pinpoint exactly which it is. And going forward, we always watch sales and distributor count, hand in hand. And when either one of them start to deviate from what we like we simply address it and put things into place to, take into account whichever it is that has changed from what we expected.

And the PaceSetter Creator promotion was that launched at convention?

PaceSetter was launched in Kuala Lumpur and around the world at the same time.

How are you going to launch the upcoming promotion you mentioned in a couple of weeks, what kind of communication are you going to do?

Our usual communication, emails, calls, web, conference call, live meeting, our conference call mechanism, where appropriate there will be flyers in the offices. Everyone comes into the Hong Kong office you don’t even have to email them. So depending on whatever the market standard communication is, it will be the usual that we do for every promotion.

Our next question is from Rommel Dionisio - Wedbush Morgan.

You have talked about repackaging the Sense line in Asia in March and I just want to touch base on how that went and what the reception was to that?

Yes, that was just launched few weeks ago, Bradford, anything we have seen right off the bat?

Well no, I don’t have any specific response in that I think people are excited after the convention both by the promotions and new product offerings by including the macro nutritional products being offered in Malaysia as well. But they are excited about having new packaging and people are always excited when new products come into the market. So we are pleased with the reception from the convention announcements.

I think in the last conference call you talked about some supply chain initiatives, high-speed bottling line, new shipping line by mid ‘08 and I just wanted to see a if you are on track with that. Is it possible to quantify potential cost savings on that and the impact on gross margins going forward?

On the gross margin line, we would expect to see some progress there, modest but steady and that’s why we are doing this. We look at these things pretty carefully and go through the IRR calculations and this kind of thing and so Fred I’m not sure about the timing, can you give us an update on the timing? You have got a packaging line and a shipping line.

Yes, on both of those. Honestly it would be a guess to find out how soon that they would go forward. I’m sorry, I can’t answer it any better than that but I wouldn’t know. I didn’t come prepared for how soon you would expect it or the amount.

Just in terms of when would the shipping line be?

Active third quarter, but when do I see the dramatic impact because I have got to take into account making it assemble correctly, get the throughput rate that I anticipated and we are also looking at doing some structural changes to the packaging material itself to make it incur a better shelf life and better ease of use and convenience. So there are a lot of dimensions to that question on when I could expect to realize it.

But hopefully by the third quarter it would be up and running and whether or not we are down the learning curve with that where we will see the benefits.

The packaging line is up and the running.

Yeah. And the benefits, how efficient are you right now on the packaging?

We are probably at about 60%, 70% of where we had hoped to be when we initially did the ROI but progressing every quarter.

And our last question comes from Mimi Noel - Sidoti.

Dave, although you are talking about being very excited about some of the promotional activities you have in the pipeline, you have remained somewhat vague about them. You have given one example and I understand with the newer programs, you can’t announce it ahead of when your associates would learn of it. But can you talk about maybe some of the tried and true methods that you have used in the past and also maybe point to more quantifiable evidence of how effective they are like point to a quarter or certain market in which you use the program?

You are absolutely correct, Mimi, and if I were to point you just to a couple, I might spill the beans a little basically on what we are looking to do in a couple of weeks here.

Is there anything you can give me that would give me a little bit more confidence in what it is you are doing? Because I understand why you need to be vague but I also don’t have a whole lot to hold on to?

We’ve had six years of wonderful growth and those promotions and contests. You can see the results over the last six years. If you wanted to target one and specifically look at it, you could look at our announcements on what contests we launched and during what time and how much growth we are experiencing during that quarter and pick and choose the one that you wanted to investigate. We have looked at those and we’re choosing which ones to roll out and at what times and I guess our track record speaks for itself.

Turning to the SG&A expenses that you listed early in the call certainly some of them are going to be recurring such as wages but I just want to be clear the accounting legal $930,000, the celebration the expense, the marketing $500,000 roughly, those are all not likely to recur or better said they are non-recurring?

Yes, I think certainly the accounting fees will go down substantially. We still have to have quarterly reviews of course. And our current firm is somewhat more expensive than our past accounting firm. But you won’t have the two accounting firms working together to get a 10-K out like we have in that. For us, so that was a bit of challenge. On the marketing research stuff, Dave, I’m not sure where we are in it but I think that is substantially complete.

It’s in there.

Yes, so we should see some diminished expenditures there. On the celebrations, we’ve got another celebration next week actually in Orlando. And we have one in May in Toronto. So we’ve got two more celebrations but the Asia-Pacific convention is now behind us that was successful and accomplished. We do have the international convention coming up in the third quarter.

There are no further questions.

Thank you for your questions. We continue to remain confident in the future outlook of USANA and including the investment opportunity we provide, if you do have any remaining questions please feel free to contact us at investor.relations@us.usana.com or call Riley Timmer, Executive Director of Finance at 801-954-7922. We appreciate your interest in USANA and thank you again for joining us on this call.