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Nu Skin Plunges in 6 Months, Mainland China Woes Persist

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Nu Skin Enterprises, Inc. NUS is on losing grounds, due to headwinds in Mainland China and adverse currency impacts on gross margin. Consequently, Nu Skin has been witnessing weakness in the top and the bottom line for a while. These headwinds persisted in the company’s third-quarter 2019 results, wherein management lowered sales and earnings guidance for 2019.

Clearly, the dismal performance and outlook has made analysts less constructive of the stock’s performance. This is evident from a 4.6% decline in the Zacks Consensus Estimate for 2019 earnings, which has moved to $3.11 in the past 30 days. Moreover, Nu Skin’s shares have declined 17.3% since earnings release. In fact, persistent lackluster performance has been exerting pressure on investors’ sentiment for long. Evidently, this Zacks Rank #4 (Sell) stock has declined 22.9% in the past six months against the industry’s growth of 10.9%.

Let’s discuss if the company’s efforts can offer any respite.

Hurdles for Nu Skin

Nu Skin has been witnessing tough regulatory environment in mainland China for a while now, primarily due to restriction imposed by the government on meetings. The recently-completed 100-day government campaign in the region to inspect offerings of nutrition and direct sales led to limited sales meetings, media scrutiny and unfavorable consumer sentiments. As a result, revenues from the Mainland China region plunged nearly 23% in third-quarter 2019. Moreover, sluggishness in this region led to 16% year-over-year decline in overall sales leaders.

Also, revenues from other regions such as Americas/Pacific, South Korea, Southeast Asia, Hong Kong/Taiwan and EMEA also depicted declines in the said quarter.

Nu Skin’s prominent presence in the international market exposes it to significant currency risk. Adverse currency impact continued to strain the company’s top line and margins in the third quarter. Moreover, management expects foreign currency fluctuations to affect the company’s revenues in 2019 by almost 4%.

During third-quarter earnings call, management provided an unimpressive guidance for 2019, thanks to headwinds in Mainland China. For the full year, the company envisions revenues in the range of $2.41-$2.43 billion, including currency headwinds of nearly 4%. Earlier, management anticipated revenues in the band of $2.48-$2.52 billion for the said period, including adverse currency impact of around 4-5%. Earnings are now projected in the range of $3.07-$3.14 per share, versus the previously provided guidance of $3.2-$3.35.

Scope for Revival

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 age Nutrial hair and scalp treatment system. Recently, the company rolled out a new customer referral program in Mainland China, which is gaining pace.

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.

While the company is undertaking several initiatives, we are yet to see if these can completely offset the aforementioned hurdles. Until then, investors can count on the following picks.

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