Investors shy away from Nu Skin as profits fall on China troubles
While the third quarter results failed to ignite any enthusiasm from the investment world, the problem was exacerbated by a recent report from Probes Reporter that the company is also facing an undisclosed SEC probe relating to its activities.
The culmination of these problems has resulted in share prices dropping from just under $53 a share to under $40 a share at the close of business on November 14th.
"We rate Nu Skin Enterprises a hold. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either positive or negative performance for this stock relative to most other stocks,” an analyst from Th eStreet Quant Ratings stated.
"The company's strengths can be seen in multiple areas, such as its attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share."
The company said that revenues for the third quarter fell by 30% compared to the prior year, to $638.8m, as sales took a big fall in China as its sales in the region continue a slow recovery following its voluntary suspension of sales in the country earlier in the year.
But the company’s problems were further exacerbated by the fact that revenues during the period also fell in the Southeast Asia and EMEA regions.
However, in the comparable period last year, the company did point out that it had registered sales of $203m attributable to its limited-time introduction of its age LOC TR90 weight management system, which would be difficult to replicate in the longer-term.
Currency translations make matters worse
Revenue during the quarter was also negatively impacted by 3% as the US dollar continued to be strong against a number of leading international currencies.
"We believe our business in China is stabilizing as we are seeing improving trends in the early sales leader pipeline, we strengthened our capital structure and balance sheet flexibility, we are making good progress in our product development efforts, and we generated positive operating cash flow,” said Truman Hunt, president and chief executive officer.
"Our sales results are heavily impacted by our product launch schedule. Last year's second-half launch, which generated approximately $550 million in sales, provides a difficult year-over-year comparison.”
Looking ahead, the company says it remains focused on rekindling its business in China and is preparing a significant number of new product launches for the coming quarters.
However, the outlook remains compromised for the business on account of forecast sales for its age LOC TR90 brand, which are expected to be well below those for the corresponding period in the previous year.
“While we anticipate core business trend improvement, we estimate $20 million of LTO sales in the fourth quarter versus $350 million of LTO sales in the fourth quarter of 2013, and $80 million of LTO sales in the third quarter of 2014,” Hunt said.