Nu Skin Enterprises Reports Second Quarter 2023 Financial Results

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Aug 01, 2023, 16:07 ET

PROVO, Utah, Aug. 1, 2023 /PRNewswire/ -- Nu Skin Enterprises, Inc. (NYSE: NUS) today announced second quarter 2023 results in line with expectations.

Executive Summary
Q2 2023 vs. Prior-year Quarter

Revenue:	$500.3 million; (11)% • (3)% FX impact or $(16.4) million
Earnings Per Share (EPS):	$0.54 compared to $0.67 or $0.77 excluding charges associated with our exit from Grow Tech
Customers:	1,041,118; (25)%
Paid Affiliates:	187,652; (23)% • An adjustment to eligibility requirements accounted for approximately (13)% of the decline
Sales Leaders:	45,807; (9)%

"Our second quarter results improved sequentially and landed within our guidance range, driven in large part by year-over-year gains in Mainland China and our Rhyz segments," said Ryan Napierski, Nu Skin president and CEO. "We are seeing early signs of momentum building in Mainland China; however, we continue to be negatively impacted in several key markets by macro-economic factors and associated price increases that have had a dampening effect on consumer spending and customer acquisition.

"Despite the lingering macro challenges, we continue to make steady progress toward our Nu Vision 2025 strategy. In Q3 we will be rolling out ageLOC® TRMe®, our personalized weight management system, in China. Most other markets will begin introducing ageLOC WellSpa iO™, a smart device system focused on holistic wellness and beauty, with consumer launches in Q4 to help us drive year-over-year growth in the quarter. To complement these introductions, we will be introducing a new channel growth incentive in the second half to attract new affiliates and develop sales leaders. In addition, our Vera® and Stela apps continue to gain healthy traction as downloads and monthly active users exceed expectations.

"We continue to be pleased with the performance of Rhyz improving 33% year over year. As part of building our long-term enterprise strategy, we announced today the Rhyz acquisition of BeautyBio, an omnichannel, clean and clinically proven skincare and beauty device brand. BeautyBio's unique device IP in hydration facial and micro-needling technology will further strengthen Nu Skin's position as the world's best-selling beauty device systems brand.* Our expertise in devices, manufacturing and technology will help BeautyBio reach its potential as we explore synergies within the Rhyz ecosystem."

Q2 2023 Year-over-year Operating Results

Revenue:	$500.3 million compared to $560.6 million • (3)% FX impact or $(16.4) million
Gross Margin:	72.9% compared to 73.6% • Nu Skin business was 77.2% compared to 77.0% • Impacted by revenue growth in Rhyz Manufacturing
Selling Expenses:	37.0% compared to 39.1% • Nu Skin business was 40.2% compared to 42.0%
G&A Expenses:	27.4% compared to 25.3%
Operating Margin:	8.5% compared to 9.2%
Other Income / (Expense):	$(5.4) million compared to $(8.6) million
Income Tax Rate:	27.5% compared to 20.2%
EPS:	$0.54 compared to $0.67 or $0.77 excluding charges associated with our exit from Grow Tech

Stockholder Value

Dividend Payments:

$19.5 million

Stock Repurchases:

$0.0 million

• $175.4 million remaining in authorization

Q3 and Full-year 2023 Outlook

Q3 2023 Revenue:	$500 to $540 million; (7)% to 0.5% • Approximately (2) to (1)% FX impact
Q3 2023 EPS:	$0.54 to $0.69
2023 Revenue:	$2.00 to $2.08 billion; (10)% to (6)% • Approximately (3) to (2)% FX impact
2023 EPS:	$2.15 to $2.45 or $2.30 to $2.60 non-GAAP

"Taking into account first half results, a stronger-than-expected U.S. dollar and recent acquisitions, we are adjusting our 2023 guidance, which continues to show sequential improvements in the back half of the year with a return to year-over-year growth in the fourth quarter," said James D. Thomas, chief financial officer. "We now anticipate our annual revenue to be $2.00 to $2.08 billion, with an approximate 2 to 3 percent foreign currency headwind. We are also adjusting reported EPS of $2.15 to $2.45, or $2.30 to $2.60 excluding first quarter restructuring charges. For the third quarter, we project revenue of $500 to $540 million, assuming a negative foreign currency impact of approximately 1 to 2 percent, with reported earnings per share of $0.54 to $0.69. In summary, while the persistence of macro headwinds has made the journey more challenging than expected, we continue to invest in key growth initiatives that support our long-term enterprise strategy and remain confident in our direction and future."

Conference Call

The Nu Skin Enterprises 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 on the same page through Aug. 15, 2023.

About Nu Skin Enterprises Inc.

The Nu Skin Enterprises Inc. (NYSE: NUS) family of companies includes Nu Skin and Rhyz Inc. Nu Skin is an integrated beauty and wellness company, powered by a dynamic affiliate opportunity platform, which operates in nearly 50 markets worldwide. Backed by nearly 40 years of scientific research, the company's products help people look, feel and live their best with brands including Nu Skin® personal care, Pharmanex® nutrition and ageLOC® anti-aging, which includes an award-winning line of beauty device systems. Rhyz is the strategic investment arm of Nu Skin Enterprises. Formed in 2018, Rhyz is a synergistic ecosystem of consumer, technology and manufacturing companies focused on innovation within the beauty, wellness and lifestyle categories.

*Source Euromonitor International Limited; Retail Value RSP terms; all channels; 2017 to 2022. Beauty Systems are at-home Skin Care Beauty Devices that are exclusively paired or recommended to be used with a topical consumable of the same brand. Claim verification based on Euromonitor custom research and methodology conducted April - June of 2023. Sales of at-home skin care beauty devices includes sales of electric facial cleansers as defined in Passport database. This category does not include hair care/removal appliances, body shavers, and oral care appliances.

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 macro-environment and the company's performance, growth, shareholder value, strategies, transformation, initiatives, product pipeline and product introductions/launches, digital and social-commerce tools and initiatives, benefits of the BeautyBio acquisition, customers, sales leaders, and affiliates; projections regarding revenue, expenses, operating income, earnings per share, foreign currency fluctuations, uses of cash 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," "anticipate," "project," "continue," "outlook," "guidance," "remain," "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:

risk that epidemics, including COVID-19 and related disruptions, and other crises could negatively impact our business;
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, increased scrutiny of sales force actions, 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;
political, legal, tax and regulatory uncertainties, including trade policies, associated with operating in Mainland China and other international markets;
uncertainty regarding meeting restrictions and other government scrutiny in Mainland China, as well as 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;
the company's future tax-planning initiatives; any prospective or retrospective increases in duties or tariffs 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 that 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.

Earnings per share, excluding charges associated with our exit from Grow Tech or restructuring and impairment charges, is also a non-GAAP financial measure. Charges associated with our exit from Grow Tech and restructuring and impairment charges are not part of the ongoing operations of our underlying business. The company believes that these non-GAAP financial measures are useful to investors, lenders and analysts because removing the impact of charges associated with our exit from Grow Tech and restructuring and impairment charges facilitates period-to-period comparisons of the company's performance. Please see the reconciliations of these items to our earnings per share and operating margin calculated under GAAP, below.

The following table sets forth revenue for the three-month periods ended June 30, 2023 and 2022 for each of our reportable segments (U.S. dollars in thousands):

	Three Months Ended June 30,						Constant- Currency
	2023		2022		Change		Change
Nu Skin
Americas	$	107,641	$	124,445		(14) %		(10) %
Mainland China		88,362		86,808		2 %		8 %
Southeast Asia/Pacific		63,764		94,067		(32) %		(30) %
South Korea		53,686		69,308		(23) %		(19) %
Japan		50,862		55,952		(9) %		(4) %
Europe & Africa		46,968		50,871		(8) %		(9) %
Hong Kong/Taiwan		37,108		39,327		(6) %		(3) %
Nu Skin other		597		1,318		(55) %		(55) %
Total Nu Skin		448,988		522,096		(14) %		(11) %
Rhyz Investments
Manufacturing		45,551		38,229		19 %		19 %
Rhyz other		5,718		290		1872 %		1872 %
Total Rhyz Investments		51,269		38,519		33 %		33 %
Total	$	500,257	$	560,615		(11) %		(8) %

The following table sets forth revenue for the six-month periods ended June 30, 2023 and 2022 for each of our reportable segments (U.S. dollars in thousands):

	Six Months Ended June 30,						Constant- Currency
	2023		2022		Change		Change
Nu Skin
Americas	$	208,798	$	248,025		(16) %		(12) %
Mainland China		156,338		211,303		(26) %		(21) %
Southeast Asia/Pacific		131,574		184,303		(29) %		(26) %
South Korea		124,010		141,441		(12) %		(8) %
Japan		103,468		117,743		(12) %		(3) %
Europe & Africa		94,412		103,839		(9) %		(8) %
Hong Kong/Taiwan		71,656		77,821		(8) %		(4) %
Nu Skin other		482		1,938		(75) %		(75) %
Total Nu Skin		890,738		1,086,413		(18) %		(14) %
Rhyz Investments
Manufacturing		81,318		78,570		3 %		3 %
Rhyz other		9,663		531		1720 %		1720 %
Total Rhyz Investments		90,981		79,101		15 %		15 %
Total	$	981,719	$	1,165,514		(16) %		(12) %

The following table provides information concerning the number of Customers, Paid Affiliates and Sales Leaders in our core Nu Skin business for the three-month periods ended June 30, 2023 and 2022:

	Three Months Ended June 30,
	2023		2022		Change
Customers
Americas		263,138		302,849	(13) %
Mainland China		214,907		392,268	(45) %
Southeast Asia/Pacific		106,283		152,775	(30) %
South Korea		112,019		135,290	(17) %
Japan		112,484		122,643	(8) %
Europe & Africa		177,472		205,379	(14) %
Hong Kong/Taiwan		54,815		69,411	(21) %
Total Customers		1,041,118		1,380,615	(25) %

Paid Affiliates
Americas		36,048		44,523	(19) %
Mainland China		28,825		19,257	50 %
Southeast Asia/Pacific		32,769		41,512	(21) %
South Korea⁽¹⁾		23,012		48,605	(53) %
Japan		36,765		38,269	(4) %
Europe & Africa⁽¹⁾		19,906		32,323	(38) %
Hong Kong/Taiwan⁽¹⁾		10,327		17,644	(41) %
Total Paid Affiliates		187,652		242,133	(23) %

Sales Leaders
Americas		7,872		9,320	(16) %
Mainland China⁽²⁾		13,777		11,458	20 %
Southeast Asia/Pacific		5,814		8,407	(31) %
South Korea		5,784		6,557	(12) %
Japan		5,853		6,097	(4) %
Europe & Africa		4,105		5,192	(21) %
Hong Kong/Taiwan		2,602		3,054	(15) %
Total Sales Leaders		45,807		50,085	(9) %

(1) The June 30, 2023 number is affected by a change in eligibility requirements for receiving certain rewards within our compensation structure. We plan to implement these changes in additional segments over the next several quarters.

(2) The June 30, 2023 number reflects a modified Sales Leader definition, as described in our quarterly report on Form 10-Q.

"Customers" are persons who have purchased directly from the Company during the three months ended as of the date indicated. Our Customer numbers include members of our sales force who made such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force.
"Paid Affiliates" are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the three-month period. In all of our markets besides Mainland China, we refer to members of our independent sales force as "Brand Affiliates" because their primary role is to promote our brand and products through their personal social networks.
"Sales Leaders" are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end of each month of the quarter.

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,
	2023		2022		2023		2022
Revenue	$	500,257	$	560,615	$	981,719	$	1,165,514
Cost of sales		135,542		148,100		269,130		309,599
Gross profit		364,715		412,515		712,589		855,915

Operating expenses:
Selling expenses		185,165		219,426		373,289		462,125
General and administrative expenses		137,044		141,562		270,943		290,118
Restructuring and impairment expenses		—		—		9,787		—
Total operating expenses		322,209		360,988		654,019		752,243

Operating income		42,506		51,527		58,570		103,672
Other expense, net		(5,393)		(8,640)		(6,869)		(10,093)

Income before provision for income taxes		37,113		42,887		51,701		93,579
Provision for income taxes		10,221		8,650		13,433		20,626

Net income	$	26,892	$	34,237	$	38,268	$	72,953

Net income per share:
Basic	$	0.54	$	0.68	$	0.77	$	1.45
Diluted	$	0.54	$	0.67	$	0.76	$	1.43

Weighted-average common shares outstanding (000s):
Basic		49,931		50,368		49,789		50,181
Diluted		50,161		50,960		50,098		50,959

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

	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	235,554	$	264,725
Current investments		16,772		13,784
Accounts receivable, net		67,166		47,360
Inventories, net		372,250		346,183
Prepaid expenses and other		100,833		87,816
Total current assets		792,575		759,868

Property and equipment, net		430,328		444,806
Operating lease right-of-use assets		94,707		98,734
Goodwill		229,469		206,432
Other intangible assets, net		112,619		66,701
Other assets		234,078		244,429
Total assets	$	1,893,776	$	1,820,970

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	49,529	$	53,963
Accrued expenses		255,510		280,280
Current portion of long-term debt		140,000		25,000
Total current liabilities		445,039		359,243

Operating lease liabilities		74,487		76,540
Long-term debt		367,753		377,466
Other liabilities		111,152		110,425
Total liabilities		998,431		923,674

Commitments and contingencies

Stockholders' equity:
Class A common stock – 500 million shares authorized, $0.001 par value, 90.6 million shares issued		91		91
Additional paid-in capital		615,579		613,278
Treasury stock, at cost – 40.6 million and 41.1 million shares		(1,557,777)		(1,569,061)
Accumulated other comprehensive loss		(101,446)		(86,509)
Retained earnings		1,938,898		1,939,497
Total stockholders' equity		895,345		897,296
Total liabilities and stockholders' equity	$	1,893,776	$	$1,820,970

NU SKIN ENTERPRISES, INC. Reconciliation of Earnings Per Share Excluding Impact of Restructuring to GAAP Earnings Per Share (in thousands, except for per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	26,892	$	34,237	$	38,268	$	72,953
Impact of restructuring and impairment expense:
Restructuring and impairment		-		-		9,787		-
Tax impact		-		-		(2,593)		-
Impact of charges associated with our Q4 exit from Grow Tech:
Unrealized loss on investment		-		5,711				5,711
Tax impact		-		(459)				(459)
Adjusted net income	$	26,892	$	39,489	$	45,462	$	78,205


Diluted earnings per share	$	0.54	$	0.67	$	0.76	$	1.43
Diluted earnings per share, excluding restructuring impact	$	0.54	$	0.77	$	0.91	$	1.53

Weighted-average common shares outstanding (000)		50,161		50,960		50,098		50,959

NU SKIN ENTERPRISES, INC. Reconciliation of Earnings Per Share Excluding Impact of Restructuring to GAAP Earnings Per Share

	Year ended December 31,
	2023 - Low-end		2023 High-end
Earnings Per Share	$	2.15	$	2.45
Impact of Q1 restructuring and impairment expense:
Restructuring and impairment		0.20		0.20
Tax impact		(0.05)		(0.05)
Adjusted EPS	$	2.30	$	2.60