Nu Skin (NUS) Beats On Q1 Earnings & Revenues, Q2 View Soft

Shares of Nu Skin Enterprises, Inc. (NYSE:NUS) surged roughly 15.4% during the after-market trading session on Apr 30, 2019 buoyed by first-quarter 2019 results. The company not only reported better-than-expected numbers but also recorded year-over-year growth in both the top and bottom line. While this was the second straight quarter of positive earnings surprise, it was the fifth successive quarter of revenue beat.

The performance can be attributed to the company’s technology and business expansion initiatives as well as customer acquisition and retention program. The company’s focus on expansion of global beauty device systems with product introductions and line extensions coupled with optimization of Velocity sales compensation program also bode well.

In spite of these tailwinds, Nu Skin’s projection for second-quarter 2019 raises concern. For the second quarter, management now anticipates revenues in the band of $660-$680 million, indicating 3-6% decline from the year-ago period. This includes an expected 4-5% negative foreign currency impact.

Further, the company expects second-quarter earnings per share in the band of 91-98 cents, the mid-point of which 95 cents is below the current Zacks Consensus Estimate of 98 cents. In the prior-year period, the company reported earnings of 90 cents, including foreign currency translation loss of 13 cents and purchase accounting charge of 5 cents. Adjusted earnings for the second-quarter 2018 came in at $1.08 per share.

The company highlighted that the prior-year quarter gained from the introduction of LumiSpa in Mainland China, which generated approximately $95 million in sales, consequently making the year-over-year comparison a bit challenging. Moreover, management pointed that major product initiatives for this year are slated for the latter half.

We note that shares of this Zacks Rank #4 (Sell) company have plunged 23% against the industry’s growth of 23.4% in the past three months.

Q1 Highlights

Nu Skin delivered quarterly earnings of 77 cents a share that surpassed the Zacks Consensus Estimate of 71 cents, and surged 20% from the year-ago period. The bottom line benefited from margin expansion, in spite of adverse currency fluctuations.

Revenues amounted to $623.6 million, which also came ahead of the Zacks Consensus Estimate of $615.4 million and increased 1% from the prior-year quarter. However, the metric includes a negative impact of 6% from foreign currency fluctuations.

On a constant currency basis, the top line increased 7%. Notably, the top line gained from decent performance across Mainland China and Southeast Asia regions. We also note that sales leaders remained almost flat year over year at 63,248, while Nu Skin’s customer base increased 10% to 1,193,206.

Gross profit came in at $477 million, up about 1.5% from the year-ago period. Gross margin expanded 20 bps to 76.5%. Core Nu Skin gross margin improved 80 bps to 78.7% due to positive product mix, cost containment efforts and benefit arising from product sourced from owned manufacturing entities.

Selling expenses, which accounted 40% of revenue, fell 3.1% to $249.7 million. Meanwhile, general and administrative expenses, which accounted 25.4% of revenue, increased 3.5% to $158.6 million.

Operating income jumped 16.4% to $68.7 million on account of higher revenues and lower selling expenses. Notably, operating margin increased 140 bps to 11%. Management expects operating margin improvement to continue throughout the year.

Regional Results (On a Constant Currency Basis)

Region-wise, revenues surged across all regions except South Korea. The highest revenue growth was witnessed in Mainland China and Southeast Asia, wherein the metric improved 12% and 5%, respectively, from the prior-year quarter. Further, revenues inched up 1% in EMEA and 2% each in Americas/Pacific and Hong Kong/Taiwan. Revenues fell 1% in South Korea.

Other Financial Details

Nu Skin ended the quarter with cash and cash equivalents of $310.3 million, long-term debt of $356.2 million and stockholders' equity of $811.2 million. The company lowered debt load by $29.5 million during the quarter.

During the quarter, the company repurchased shares worth $1 million and has remaining authorization of $470 million. Additionally, the company paid $20.5 million as dividends in the quarter.

Guidance

For 2019, management anticipates revenues in the range of $2.76-$2.81 billion, reflecting 3-5% growth. It also includes an expected negative impact of 2-3% from foreign currency fluctuations. Additionally, the company reiterated full-year earnings projection of $3.80-$4.05 per share, up from $3.52 reported in 2018. The Zacks Consensus Estimate for the full year currently stands at $3.83.

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