Volatile business conditions in Mainland China along with an unimpressive view for 2019 are tarnishing Nu Skin Enterprises, Inc.’s (NUS - Free Report) image among investors. This zacks Rank #4 (Sell) stock lost nearly 12.1% in the past three months compared with the industry’s rise of 9.4%. Let’s take a closer look at the aspects ailing this renowned cosmetics player.
Sluggish Sales in Mainland China is a Concern
Nu Skin faced hurdles in Mainland China during the second quarter of 2019, thanks to the government’s 100-day campaign to inspect offerings of direct selling and health products industries. The campaign resulted in adversities like limited sales meetings, media scrutiny and unfavorable consumer sentiments. As a result of such moves, revenues from the Mainland China region plunged as much as 24% in the second quarter. Such headwinds took a toll on the company’s top- and-bottom line performance in the said period.
Since Mainland China contributes a major portion to Nu Skin’s revenues, persistent hurdles in the region are likely to keep exerting pressure on the company’s performance in the forthcoming periods. In fact, setbacks in Mainland China have propelled management to trim 2019 guidance and provide unimpressive view for the third quarter.
Currency Related Headwinds
A major share of Nu Skin’s revenues is sourced from international markets, which exposes the company to significant currency risks. During the second quarter of 2019, the company’s top line was hurt by nearly 4% (or approximately $31 million) due to foreign-currency fluctuations. Currency headwinds have also dented gross margin in the quarter. During the first quarter, the top line was hurt by currency headwinds of approximately 6%. Moreover, management expects foreign currency fluctuations to affect the company’s revenues in 2019 by almost 3-4% and nearly 2% in the third quarter.
Efforts to Revive Performance
We note that the company is undertaking several initiatives to accelerate growth in Mainland China. In this context, the company is planning to launch an improved version of Galvanic Spa along with the new ageLOC Nutrial hair and scalp treatment system. Management also plans to roll out new incentives system for the region to enhance productivity of sales leaders. In addition to this, Nu Skin is on track with product development strategies and customer retention programs across all key market locations. In fact, it is striving to expand its sales compensation program — Velocity.
All said, lets wait and see if these measures can help the company to achieve a turnaround in the forthcoming periods.
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