Why Is Nu Skin (NUS) Down 37.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Nu Skin Enterprises (NUS). Shares have lost about 37.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nu Skin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Nu Skin Q4 Earnings Meet Estimates, Down Year Over Year

Nu Skin released fourth-quarter 2019 results, wherein quarterly earnings of 72 cents a share were in line with the Zacks Consensus Estimate. However, the bottom line tumbled 31.4% from adjusted earnings of $1.05 reported in the year-ago period.

Revenues of $583.4 million fell 14.6% year over year. The Zacks Consensus Estimate was pegged at $583 million. Fourth-quarter revenues included a negative impact of 1% (or $6 million) from foreign currency fluctuations. Also, a reduced sales leader count due to declines in Mainland China hurt revenues.

Sales leaders were 54,760, down 25% year over year, with Mainland China accounting for the majority of the decline. In fact, sales leaders deteriorated in all regions, except for Japan where it was flat. Further, Nu Skin’s customer base fell 7% to 1,162,905, with declines in all regions apart from EMEA.

Gross profit was $442.8 million, down 15.1% from the year-ago quarter’s figure. Gross margin contracted 40 basis points (bps) to 75.9%. Nu Skin’s base business’s gross margin expanded 60 bps to 78.5%.

Selling expenses amounted to $228.1 million, which accounted for 39.1% of revenues compared with 39.4% in the year-ago quarter. Meanwhile, general and administrative expenses of almost $160 million accounted for 27.4% of revenues, up from 23.9% reported in the year-ago quarter. The increase resulted from higher convention costs.

Operating income more than doubled to $54.7 million and the operating margin grew from 2.7% to 9.4% in the quarter. Notably, the year-ago period’s results included impairment and restructuring charges.

Regional Results

Revenues declined across most regions, except for Japan where sales improved 2% from the prior-year quarter’s level. The highest drop was witnessed in Mainland China, where the metric declined 29%. Further, revenues fell 9% in the Americas/Pacific, 20% in South Korea, 7% in Southeast Asia, 13% in Hong Kong/Taiwan and 9% in EMEA.

Other Financial Details

Nu Skin ended the quarter with cash and cash equivalents of $335.6 million, long-term debt of $334.5 million and stockholders' equity of $875.3 million. During the quarter, Nu Skin paid out dividends of $20.6 million.

In a separate press release, the company announced a dividend hike, taking its quarterly dividend from 37 cents per share to 37.5 cents. The raised dividend is payable Mar 11, 2020, to shareholders of record as of Feb 28. This represents the company’s 19th straight year of a dividend hike, which reflects its efficient leveraging of a solid financial status.

Guidance

For 2020, Nu Skin focuses on empowering sales leaders through technological advancements and product launches. Incidentally, the company’s relaunched Galvanic Spa device was its best-selling product in the fourth quarter of 2019. Also, LumiSpa performed well. The company plans to launch a daily-use beauty device, which is expected to be a robust business driver in the second half of 2020.

However, owing to the recent outbreak of coronavirus, the company decided to put its meetings with sales force and customers on hold in Mainland China. Notably, management expects the outbreak to have a considerable impact on its business in the near term, though prospects in Mainland China are strong in the long run. For now, the company anticipates sales in Mainland China to decline 20-25% in 2020, with adverse currency impacts of 1-2%.

Management expects Nu Skin’s overall business to return to growth in the fourth quarter, backed by the planned launch of the daily-use beauty device. It expects revenues of $2.17-$2.30 billion for 2020, including currency headwinds of 1-2%. In 2019, Nu Skin’s revenues amounted to $2.42 billion. Further, 2020 earnings are projected to be $2.00-$2.40 per share, indicating a decline from $3.10 reported in the prior year. The Zacks Consensus Estimate for earnings is currently pegged at $3.30 per share.

For the first quarter, the company projects revenues of $480-$510 million, including adverse currency impacts of 2-3%. Earnings are anticipated between 22 cents and 33 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -65.09% due to these changes.

VGM Scores

At this time, Nu Skin has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Nu Skin has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.