Nu Skins 4th Quarter Disappoints Wall Street

The stock price of Nu Skin Enterprises Inc., the direct seller of skin care and nutritional products, recently endured a beating after the company’s fourth-quarter results missed Wall Street’s expectations.

Shares (NYSE: NUS) sunk to a 52-week low (US$23.51) the day after its Feb. 11 earnings report, but they have rebounded somewhat since then. The stock price opened today at $28.40.

In its earnings release, Nu Skin reported fluctuations in foreign currency hurt sales. While revenue “grew on a constant-currency basis," the foreign currency fluctuations negatively impacted sales by 7 percent, or approximately $42 million.

The Provo, Utah-based company derives nearly 90 percent of revenues outside the United States, and while it reported fourth-quarter growth in the Americas, Nu Skin fell short of expectations elsewhere. In South Korea for instance, Nu Skin brought in just half of its expected orders for an anti-aging line of products, financial analysts said.

In Greater China, revenues for the three-month period declined 8 percent to $195.5 million from $213 million the prior year. Overall, fourth-quarter revenues fell to $572.2 million from $609.6 million.

The company reported annual revenues of $2.25 billion, versus $2.57 billion in 2014. A stronger U.S. dollar negatively impacted revenues 8 percent, Nu Skin said.

Nu Skin also lowered its expectations for the year. The company forecasted 2016 earnings per share of $2.40 to $2.60, versus its previous estimate of $3.25 to $3.40.

“We do not see any reason to rush into the shares, as fundamentals appear even more challenged than we anticipated," J.P. Morgan analysts said in a Feb. 12 equity research note rating the stock a “neutral."

The quarter wasn’t all bad news. Nu Skin Chief Executive Truman Hunt cited “positive results" in the Americas, Japan and South Asia, where the company launched new products. In the Americas, revenues rose 16 percent to $95.5 million.

“In South Korea and China, we are moderating our expectations based on the December launch of ageLOC Me [skin care solution] in South Korea and economic uncertainty in China," Hunt said in a statement.

China has been an increasingly important market for Nu Skin and other U.S.-based companies with direct sales models, but some marketers operating there including Amway have reported a slowdown in the region.

Mainland China, Nu Skin’s largest market, comprised around 25 percent of its total annual revenues. In 2014, a government investigation and Nu Skin’s decision to suspend applications for new sales reps hurt its momentum in the region.

But the business in Mainland China “stabilized" last year, the company noted in its annual regulatory filing, “and we continue to work to renew growth in the market by engaging and growing our sales force."

J.P. Morgan analysts attributed uncertainty surrounding Nu Skin’s numbers to a “slower than anticipated uptake" for Nu Skin’s TR-90 weight-management system, “lack of meaningful new product launches in 2015, together with a slower rebound in China."

“Although the company’s current launches look promising, initial LTOs [limited time offers] have had mixed results across various markets," the analysts wrote in their equity research note. “We also remain concerned about deterioration in the number of active distributors."

The direct sales model is subject to highs and lows, Wall Street analysts noted.

“As most know, direct selling is a momentum business without the secured and resilient retail distribution for traditional consumer products," said Deutsche Bank Securities Inc. analysts in a Feb. 12 research note, who maintained a “buy" on Nu Skin’s stock. “As a result, sales trends are either feast or famine over long cycles, and it seems Nu Skin is currently sliding down the back side of the bell curve.

“However, we believe the stock reflects this dynamic," the analysts continued, “disappointing revised guidance seems reasonably conservative provided China and Korea doesn’t worsen considerably, and new products and putting the balance sheet to work should soften some of the blow."

Founded in 1984, Nu Skin offers beauty and wellness solutions in 54 markets around the world. Its brands include the Nu Skin personal care brand, the Pharmanex nutrition brand and the ageLOC anti-aging brand, which has yielded more than $5 billion in sales since its 2008 introduction.

The company is among a number of U.S.-based multi-level marketers that sell nutritional products around the world. As of Dec. 31, 2015, around 994,000 individuals purchased products directly from Nu Skin during the previous three-month period, according to Nu Skin’s annual regulatory filing.