Nu Skin Enterprises Reports Second-Quarter 2019 Results

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Aug 06, 2019, 16:53 ET

PROVO, Utah, Aug. 6, 2019 /PRNewswire/ -- Nu Skin Enterprises, Inc. (NYSE: NUS) today announced second-quarter 2019 results.

Executive Summary
Q2 2019 vs. Prior-Year Quarter
Revenue:	$623.5 million; (11%) (4%) fx impact or ($31 M)
Earnings Per Share (EPS):	$0.83; (8%)
Sales Leaders:	61,563; (14%)
Customers:	1,160,420; +1%

"As previously announced, our second-quarter results were negatively impacted by limited sales meetings, media scrutiny and consumer sentiment in Mainland China in connection with the recently completed 100-day review of the nutrition and direct sales industries," said Ritch Wood, chief executive officer. "Outside of Mainland China, most of our other markets performed in-line with expectations. Our customer numbers remained steady as we continued our customer-focused initiatives globally, while sales leaders declined 14 percent, primarily due to Mainland China."

Q2 2019 Year-Over-Year Operating Results
Revenue:	$623.5 million compared to $704.2 million (4%) fx impact or ($31 M)
Gross Margin:	75.3% compared to 76.1% Higher percentage of manufacturing revenue Nu Skin business was 77.8% compared to 77.9% Impacted by fx, offset by cost savings
Selling Expenses:	39.4% of revenue compared to 38.7% Nu Skin business was 41.5%
G&A Expenses:	24.0% of revenue compared to 25.6%
Operating Margin:	11.9% compared to 11.8%
Other Income / (Expense):	($3.3) million compared to ($11.2) million
Income Tax Rate:	34.6% compared to 28.8%
EPS:	$0.83 compared to $0.90

Stockholder Value
Dividend Payments:	$20.6 million
Stock Repurchases:	Nil

Q3 and Full-Year 2019 Outlook
Q3 2019 Revenue:	$595 to $615 million; (9%) to (12%) • Approximately (2%) fx impact
Q3 2019 EPS:	$0.74 to $0.81
2019 Revenue:	$2.48 billion to $2.52 billion; (6%) to (8%) • Approximately (3%) to (4%) fx impact
2019 EPS	$3.20 to $3.35

"We remain committed to our long-term growth strategy focused on attracting and retaining customers, and are confident that, despite recent external factors, we are moving in the right direction," said Wood. "We are encouraged by the resumption of some sales leader meetings in key areas of Mainland China. We remain optimistic about our opportunities with several key initiatives slated for the back half of the year around our Nu Skin LIVE global sales conference. Additionally, we will roll-out our new and improved Galvanic Spa beginning in September, which we believe will help drive global revenue. Finally, we are encouraged with the steady sales growth of our manufacturing platform, which we intend to continue to leverage moving forward."

Mark Lawrence, chief financial officer, added, "Consistent with the guidance provided on July 16, we anticipate annual revenue in the $2.48 to $2.52 billion range, with an approximate 3 to 4 percent unfavorable foreign currency impact, and earnings per share of $3.20 to $3.35. For the third quarter, we project revenue of $595 to $615 million, with an approximate 2 percent negative foreign currency impact, and earnings per share of $0.74 to $0.81."

Conference Call
The Nu Skin management team will host a conference call with the investment community today at 5 p.m. (ET). Those wishing to access the webcast, as well as the financial information presented during the call, can visit the Investor Relations page on the company's website at ir.nuskin.com. A replay of the webcast will be available at the same URL through Aug. 20, 2019.

About Nu Skin Enterprises, Inc.
Founded 35 years ago, Nu Skin Enterprises, Inc. (NSE) empowers innovative companies to change the world with sustainable solutions, opportunities, technologies, and life-improving values. The company currently focuses its efforts around innovative consumer products, product manufacturing and controlled environment agriculture technology. The NSE family of companies includes Nu Skin, which develops and distributes a comprehensive line of premium-quality beauty and wellness solutions through a global network of sales leaders in Asia, the Americas, Europe, Africa and the Pacific; and a collection of sustainable manufacturing and technology innovation companies. Nu Skin Enterprises is traded on the New York Stock Exchange under the symbol "NUS." More information is available at nuskinenterprises.com.

Important Information Regarding Forward-Looking Statements: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent the company's current expectations and beliefs. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws and include, but are not limited to, statements of management's expectations regarding the company's performance, growth, product launches, strategies and initiatives; projections regarding revenue, earnings per share, foreign currency fluctuations and other financial items; statements of belief; and statements of assumptions underlying any of the foregoing. In some cases, you can identify these statements by forward-looking words such as "believe," "expect," "continue," "anticipate," "optimistic," "project," "estimate," "intend," "plan," "continue," "likely," "will," "would," "could," "may," "might," the negative of these words and other similar words.

The forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed herein. These risks and uncertainties include, but are not limited to, the following:

adverse publicity related to the company's business, products, industry or any legal actions or complaints by the company's sales force or others;
risk that direct selling laws and regulations in any of the company's markets, including the United States and Mainland China, may be modified, interpreted or enforced in a manner that results in negative changes to the company's business model or negatively impacts its revenue, sales force or business, including through the interruption of sales activities, loss of licenses, imposition of fines, or any other adverse actions or events;
any failure of current or planned initiatives or products to generate interest among the company's sales force and customers and generate sponsoring and selling activities on a sustained basis;
uncertainty regarding the continued impact of the 100-day review and negative media and consumer sentiment in Mainland China on our business operations and results;
risk of foreign-currency fluctuations and the currency translation impact on the company's business associated with these fluctuations;
uncertainties regarding the future financial performance of the businesses the company has acquired;
risks related to accurately predicting, delivering or maintaining sufficient quantities of products to support planned initiatives or launch strategies, and increased risk of inventory write-offs if the company over-forecasts demand for a product or changes its planned initiatives or launch strategies;
regulatory risks associated with the company's products, which could require the company to modify its claims or inhibit its ability to import or continue selling a product in a market if the product is determined to be a medical device or if the company is unable to register the product in a timely manner under applicable regulatory requirements;
unpredictable economic conditions and events globally, including trade policies and tariffs;
uncertainties related to interpretation of, and forthcoming regulations under, the recently enacted U.S. tax reform legislation; the company's future tax-planning initiatives; any prospective or retrospective increases in duties on the company's products imported into the company's markets outside of the United States; and any adverse results of tax audits or unfavorable changes to tax laws in the company's various markets; and
continued competitive pressures in the company's markets.

The company's financial performance and the forward-looking statements contained herein are further qualified by a detailed discussion of associated risks set forth in the documents filed by the company with the Securities and Exchange Commission. The forward-looking statements set forth the company's beliefs as of the date that such information was first provided, and the company assumes no duty to update the forward-looking statements contained in this release to reflect any change except as required by law.

Non-GAAP Financial Measures: Constant-currency revenue change is a non-GAAP financial measure that removes the impact of fluctuations in foreign-currency exchange rates, thereby facilitating period-to-period comparisons of the company's performance. It is calculated by translating the current period's revenue at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period's revenue. The company believes that constant-currency revenue change is useful to investors, lenders and analysts because such information enables them to gauge the impact of foreign-currency fluctuations on the company's revenue from period to period.

The following table sets forth revenue for the three-month periods ended June 30, 2019 and 2018 for each of our reportable segments (U.S. dollars in thousands):

	Three Months Ended June 30,						Constant- Currency
	2019		2018		Change		Change

Nu Skin
Mainland China	$	185,333	$	245,256		(24%)		(19%)
Americas/Pacific		92,841		103,990		(11%)		(6%)
South Korea		84,732		91,624		(8%)		—
Southeast Asia		75,395		79,223		(5%)		(3%)
Japan		65,251		64,113		2%		2%
Hong Kong/Taiwan		43,712		52,206		(16%)		(14%)
EMEA		43,400		44,010		(1%)		5%
Other		1,249		1,030		21%		21%
Total Nu Skin		591,913		681,452		(13%)		(9%)
Manufacturing		31,557		22,738		39%		39%
Grow Tech		30		—		—		—
Total	$	623,500	$	704,190		(11%)		(7%)

The following table sets forth revenue for the six-month periods ended June 30, 2019 and 2018 for each of our reportable segments (U.S. dollars in thousands):

	Six Months Ended June 30,						Constant- Currency
	2019		2018		Change		Change

Nu Skin
Mainland China	$	393,821	$	442,787		(11%)		(5%)
Americas/Pacific		179,297		196,279		(9%)		(2%)
South Korea		168,585		180,554		(7%)		(1%)
Southeast Asia		147,890		150,083		(1%)		1%
Japan		127,360		127,337		—		1%
Hong Kong/Taiwan		84,270		93,198		(10%)		(7%)
EMEA		85,218		88,991		(4%)		3%
Other		(177)		1,265		(114%)		(114%)
Total Nu Skin		1,186,264		1,280,494		(7%)		(2%)
Manufacturing		60,829		39,915		52%		52%
Grow Tech		30		—		—		—
Total	$	1,247,123	$	1,320,409		(6%)		(1%)

The company's Customers and Sales Leaders statistics by segment for the three-month periods ended June 30 are presented in the following table:

	As of June 30, 2019				As of June 30, 2018				% Increase (Decrease)
	Customers		Sales Leaders		Customers		Sales Leaders		Customers		Sales Leaders

Mainland China		226,877		24,336		209,456		33,378		8%		(27%)
Americas/Pacific		253,684		8,161		265,431		8,964		(4%)		(9%)
South Korea		180,365		7,239		183,978		6,875		(2%)		5%
Southeast Asia		137,450		7,417		134,601		7,597		2%		(2%)
Japan		127,900		5,931		131,593		5,972		(3%)		(1%)
Hong Kong/Taiwan		70,089		4,223		75,828		4,196		(8%)		1%
EMEA		164,055		4,256		147,048		4,355		12%		(2%)

Total		1,160,420		61,563		1,147,935		71,337		1%		(14%)

"Customers" are persons who purchased products directly from the company during the previous three months. Our Customer numbers do not include consumers who purchase products directly from members of our sales force.

"Sales Leaders" are independent distributors, and sales employees and independent marketers in China, who achieve certain qualification requirements.

NU SKIN ENTERPRISES, INC.
Consolidated Statements of Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018

Revenue	$	623,500	$	704,190	$	1,247,123	$	1,320,409
Cost of sales		154,028		168,549		300,692		314,830
Gross profit		469,472		535,641		946,431		1,005,579

Operating expenses:
Selling expenses		245,828		272,757		495,536		530,459
General and administrative expenses		149,442		180,120		308,040		333,366
Total operating expenses		395,270		452,877		803,576		863,825

Operating income		74,202		82,764		142,855		141,754
Other income (expense), net		(3,326)		(11,165)		(6,174)		(9,958)

Income before provision for income taxes		70,876		71,599		136,681		131,796
Provision for income taxes		24,527		20,638		47,330		45,296

Net income	$	46,349	$	50,961	$	89,351	$	86,500

Net income per share:
Basic	$	0.83	$	0.92	$	1.61	$	1.58
Diluted	$	0.83	$	0.90	$	1.59	$	1.53

Weighted-average common shares outstanding (000s):
Basic		55,536		55,608		55,486		54,807
Diluted		55,943		56,713		56,030		56,430

NU SKIN ENTERPRISES, INC.
Consolidated Balance Sheets (Unaudited)
(U.S. dollars in thousands)

	June 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	360,632	$	386,911
Current investments		7,733		11,346
Accounts receivable		61,571		53,282
Inventories, net		292,696		295,821
Prepaid expenses and other		65,551		51,877
Total current assets		788,183		799,237

Property and equipment, net		442,990		464,535
Right-of-use assets		118,507		—
Goodwill		196,573		196,573
Other intangible assets, net		84,482		89,989
Other assets		160,363		144,112
Total assets	$	1,791,098	$	1,694,446

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	48,551	$	47,617
Accrued expenses		306,497		322,583
Current portion of long-term debt		59,500		69,455
Total current liabilities		414,548		439,655


Operating lease liabilities		84,102		—
Long-term debt		348,986		361,008
Other liabilities		108,512		111,916
Total liabilities		956,148		912,579


Stockholders' equity:
Class A common stock		91		91
Additional paid-in capital		556,294		552,564
Treasury stock, at cost		(1,324,834)		(1,326,605)
Accumulated other comprehensive loss		(81,276)		(79,934)
Retained earnings		1,684,675		1,635,751
Total stockholders' equity		834,950		781,867
Total liabilities and stockholders' equity	$	1,791,098	$	1,694,446