Nu Skin Enterprises (NUS, Financial), is also a multi-level marketer, or MLM, just like Avon Products (AVP, Financial) and Herbalife (HLF, Financial) which I had covered earlier this month (here and here). Like its MLM peers, Nu Skin also has exposure to the international market and hence has to deal with forex translation headwinds. The personal products company develops and distributes anti-aging personal care products and nutritional supplements under the Nu Skin and Pharmanex brands globally, with one-third of its revenue coming from China.
The company posted first-quarter results and it spooked investors as it failed to meet expectations on both top- and bottom-line. Let’s recap the numbers.
First quarter recap
The first quarter was negatively impacted by currency headwinds, just like its other MLM peers, due to strong US dollar. Forex headwinds negatively impacted the numbers by around 7%.
- Net sales came in at $543.3 million, which was near the top-end of the company’s guided range. However, it fell short of analysts’ expectations by $1.32 million and it was less than what the company had hoped for. First quarter is historically the lowest sales season for the company, especially because of the timing of Chinese New Year.
- In the recently reported Nu Skin missed to beat analysts’ expectations by $0.01 per share as it clocked $0.72 per share. However, negative impact of currency translations hit the bottom line by $0.12 per share.
- The company paid $20.7 million in dividends and repurchased $26.3 million worth company’s shares, leaving remaining authorization at $322.5 million as of the end of March. Nu Skin continues to believe that share repurchases are a good use of free cash.
- The company generated around $74 million cash from operations.
New products to drive growth
Nu Skin, like its MLM peers, is banking on driving growth by way of new products that it is planning to launch as the year progresses. Few notable launches scheduled are:
- The personal products company is ramping up for introducing new ageLOC products and believes that the same will be an important catalyst for accelerated growth in the back half of the year.
- In April, the company launched its new Epoch Essential Oils in the U.S. and Canada.
- The company will also be launching ageLOC line of essential cosmetic oils in China starting in June. In order to capitalize on growth prospects, this launch will be used in conjunction with the Galvanic Spa in Mainland China, where it is already a top-selling product.
- Down the line, ageLOC Youth and ageLOC Me are also slated for launch during the fiscal 2015. These products have been in development pipeline for several years. ageLOC Me includes an innovative anti-aging skin care device aimed at to personalized skin care regimen by customers based on their individual skin care preferences. On the other hand, ageLOC Youth is the most advanced anti-aging supplement that has ever been developed by the company.
Looking ahead
The guidance for the second quarter and fiscal 2015 will be negatively impacted by currency translations. The negative impact is estimated to be around 7% for fiscal 2015, up from 4% to 6% that was estimated earlier.
However, second-quarter growth in local currency terms is expected to be 15%. The timing of launch of new products is somewhere between third- and fourth-quarter fiscal 2015. But, the company is confident that these new line of products will go a long way in driving growth.
For the second quarter, net sales are expected to rope in $540 million to $560 million and deliver earnings of $0.72 to $0.75 per share. The negative impact of currency translations is expected to be in the rage of 7% to 8%.
For fiscal 2015, revenues are expected to be in range of $2.45 billion to $2.5 and deliver earnings of $3.65 to $3.75 per share.
Final words
Next five years growth is pegged at a CAGR of 2.90% versus industry average of 13.93% and 7.28% of S&P 500. With a trailing P/E of 18.37 and forward P/E of 12.12, the stock may look attractive. However, the currency headwinds are strong and about two-thirds revenue of Nu Skin comes from international markets. So, unless there’s a significant revenue growth to offset the currency headwinds, I would prefer to stay away from the stock for a quarter or two.
