Nu Skin (NUS) has been under fire this year from Citron Research because of its sales practices in China. Citron believes Nu Skin is operating an illegal multi-level marketing operation or “pyramid” scheme on China where such practice is illegal. In the meantime, NUS is reporting solid revenue and profit growth while the stock is down due to uncertainly.
Why China is Important
Nu Skin has been operating in China for ten years, and China is around 10% of Nu Skin’s sales. Amway is selling goods in China, and is the largest distributor of this type.
China is important to Nu Skin (and NUS investors) because China is where the growth is. Greater China Revenue rose 152% last quarter, compared to the year-ago period. The South Asia/Pacific region grew 66% and Americas rose 20%. Europe grew only 7%. China is important to Nu Skin’s growth.
Tough Comparisons
Nu Skin’s big skin care line is age LOC. ageLOC has contributed $1.4 billion in sales since launched in 2009. For comparisons, the company did a total of $1.7 billion in sales last year and is projected to do $2.1 billion this year.
This year Nu Skin launched a new line of products named age LOC Body Spa. Sales of this new line, which include the Body Shaping Gel, are brisk and the company has upped expectations due to strong demand. But, comparisons will be tough in the second half of this year because the surge in new product sales (to stock the shelves) occurred during the first half of the year.
age LOC Body Spa was launched in the Americas, Japan and Europe during the first quarter of 2012. Greater China and South Asia started selling the product during the second and third quarters of this year. So growth is now expected to slow because the big orders have already been booked. The company had sales growth of 40% last quarter, but revenue is set to climb only 11% next quarter.
Sharek’s Take
I used to own NUS stock for clients (purchased at $58 last year and sold at $43 this year). I like the company, but the uncertainty surrounding the stock is keeping it down — and keeping me out. There’s lots to digest here and issues in regards to China need to be resolved before conservative investors feel comfortable owning NUS.
