Nu Skin (NUS) Q4 Earnings Surpass Estimates, Decrease Y/Y

Nu Skin Enterprises, Inc. (NYSE:NUS) reported impressive fourth-quarter 2018 results, wherein earnings and revenues outpaced the Zacks Consensus Estimate. The top line also improved year over year buoyed by solid performances across most regional segments. The quarter too witnessed sustained growth in customer count.

However, the bottom line declined year over year, after four straight quarters of increase. Moreover, the quarter witnessed negative currency impacts, weak gross margin and higher SG&A expenses. Also, adverse currency fluctuations are expected to persist during 2019. These aspects seem to have hurt the investors’ sentiment.

Markedly, shares of the company decreased 2.2% in after-hours trading on Feb 13. Additionally, this Provo, UT-based company has lost approximately 15% against the industry’s 9.2% growth in the past six months.

Q4 Highlights

In the reported quarter, Nu Skin’s adjusted earnings of $1.05 per share decreased 12.5% from the year-ago tally but exceeded the Zacks Consensus Estimate of $1.03.

Revenues amounted to $683.3 million, which surpassed the Zacks Consensus Estimate of $673.3 million and increased 2.6% from the prior-year quarter. The upside was supported by a 7% rise in core Nu Skin revenues on a constant-currency (cc) basis. The company reported top-line growth despite a challenging comparison from the previous-year quarter. However, the metric includes a 4% negative impact from foreign currency changes.

Nu Skin Enterprises, Inc. Price, Consensus and EPS Surprise

Sales leaders tumbled 10% to 73,400. In the third, second and first quarters of 2018, sales leader increased by 14%, 21% and 16%, respectively. Meanwhile, the quarter gained from 16% increase in Nu Skin’s customer base to a total strength of 1,244,000.

Coming to gross profit, the company witnessed a 0.7% rise to $512.4 million. Gross margin declined 140 basis points (bps) to 76.3%. Nevertheless, core Nu Skin gross margin improved 20 bps to 77.9%

SG&A expenses, which accounted 63% of total sales, increased 3.3% to $432.3 million. While operating income declined significantly to $18.4 million compared with $99.1 million in the previous-year quarter, operating margin came in at 2.7% compared with 14.9% in the year-ago quarter. This downside was due to one-time impairment and restructuring charges of $70.7 million in the quarter under review.

Regional Results

Region-wise, revenues surged across all regions except Japan. The highest revenue growth was witnessed in Mainland China and Southeast Asia, wherein the metric improved 24% and 18% from the prior-year quarter to a respective $886.5 million and $316.9 million. Further, revenues increased 14% to $182.4 million in EMEA, 12% each to $385 million and $185.9 million in Americas/Pacific and Hong Kong/Taiwan, respectively. While revenues grew by 3% to $373.4 million in South Korea, the same in Japan came in at $254.9 million compared with $256.1 million in the prior-year quarter.

Revenues also increased significantly to $94 million in other regions compared with $6.3 million in the same period year ago.

Other Financial Details

Nu Skin ended the quarter with cash and cash equivalents of $386.9 million and total liabilities and stockholders' equity of $1,694.4 million.

During the fourth quarter, the company repurchased shares worth $21.3 million with an outstanding authorization of $471 million.

Additionally, the company paid $20.2 million as dividends in the quarter. Concurrent to the earnings release, management increased quarterly dividend to 37 cents from 36.5 cents. The new dividend is payable Mar 13, 2019, to its shareholders of record as on Feb 25, 2019.

Guidance

Management is impressed with continued growth in the customer count. Moreover, most regions of the company have been performing exceedingly well. After solid results in 2018, management expects revenues to grow in 2019 as well. For 2019, management anticipates revenues in the range of $2.76-$2.82 billion (reflecting 3-5% growth) with 2-3% negative impact of foreign currency fluctuations. This guidance is higher than the Zacks Consensus Estimate of $2.74 billion.

Additionally, earnings are projected in the band of $3.80-$4.05 per share. The Zacks Consensus Estimate stands at $3.90.

For first-quarter 2019, management anticipates revenues of $615-$635 million (reflecting 0-3% increase), including a 5-6% negative currency impact. Further, it expects earnings per share in the band of 70-77 cents.

Nu Skin’s focus on transforming its digital platform to better support customers is commendable as well. Also, the Zacks Rank #1 (Strong Buy) company projects LumiSpa to remain a key growth brand in 2019. In the meantime, management is on track with the rollout of a sales compensation program — Velocity.

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