Nu Skin Enterprises

Nu Skin Enterprises Reports Fourth-Quarter And 2018 Results And Provides 2019 Guidance

Posted in: Uncategorized

PROVO, Utah — Feb. 13, 2019 — Nu Skin Enterprises, Inc. (NYSE: NUS) today announced fourth-quarter and 2018 financial results.

Executive Summary

Q4 2018 vs. Prior-Year Quarter

Revenue:$683.3 million, +3%·         (4%) fx impact or ($26.8 M)
Earnings Per Share (EPS):($0.32), or $1.05 excluding impairment and restructuring charges, compared to $0.33, or $1.20 excluding the impact of U.S. tax reform in Q4 2017·         ($1.37) impairment and restructuring charges
Sales Leaders:73,400; (10%)·         Up 16% since the end of Q1 2018
Customers:1,244,000; +16%

2018 Annual

Revenue:$2.68 billion, +18%·         0.5% fx impact
Earnings Per Share (EPS):$2.16, or $3.52 excluding the impairment and restructuring charges, compared to $2.36, or $3.23 excluding the impact of U.S. tax reform

“We delivered another strong quarter despite a challenging comparison from the $130 million LumiSpa introduction in the prior year,” said Ritch Wood, chief executive officer. “We grew our revenue 18 percent for the year, with growth coming from virtually all of our segments. We were also encouraged that our customer acquisition strategy resulted in 16-percent growth in our customer base. And while our sales leader numbers were down year-over-year due to the LumiSpa introduction, we are pleased with 16 percent growth in sales leaders since the first quarter.”

Q4 2018 Year-Over-Year Operating Results

Revenue:$683.3 million compared to $666.2 million·         (4%) fx impact or ($26.8 M)
Gross Margin:76.3% compared to 77.7%Nu Skin business was 77.9%
Selling Expenses:39.4% of revenue compared to 39.8%·         Nu Skin business was 40.9%
G&A Expenses:23.9% of revenue compared to 23.0%
Operating Margin:2.7% or 14.1% when excluding impairment and restructuring charges, compared to 14.9%
Other Income / (Expense):($4.3) million expense compared to ($0.4) million expense
Income Tax Rate:225% or 35.9% excluding impairment and restructuring charges, compared to 81.5% or 33.1% excluding the impact of U.S. tax reform
EPS:($0.32), or $1.05 excluding impairment and restructuring charges, compared to $0.33, or $1.20 excluding the impact of U.S. tax reform·         ($1.37) impairment and restructuring charges

Stockholder Value

Dividend Payments:$20.2 million
Stock Repurchases:$21.3 million; $471 million remaining in authorization

Q1 and Full-Year 2019 Outlook

Q1 2019 Revenue:$615 to $635 million, 0 to 3% growth·         6 to 8% constant currency growth·         Approximately (5 to 6%) fx impact
Q1 2019 EPS:$0.70 to $0.77
2019 Revenue:$2.76 billion to $2.82 billion,  3 to 5% growth·         5 to 7% constant currency growth·         Approximately (2 to 3%) fx impact
2019 EPS$3.80 to $4.05

“We are entering 2019 with strong momentum and are projecting meaningful constant-currency top-line growth with continued improvement on the bottom line,” said Wood. “We believe 2019 will be a pivotal year as we transform our digital platform to better support customers, while further enabling our sales leaders to leverage the power of social selling. Our product portfolio remains strong, and we plan to build on the breakout success of our LumiSpa skin treatment and cleansing device with the launch of LumiSpa Accent, a specialized eye treatment attachment. On the program front, our Velocity enhanced sales compensation program has now been rolled out in nearly every market, providing us with ongoing flexibility to drive and reward key behaviors from our sales force. We believe we can continue to grow our business and look forward to a strong 2019,” Wood concluded.

“Coming off a strong year, we are projecting continued growth in 2019,” said Mark Lawrence, chief financial officer. “We project first-quarter revenue of $615 to $635 million, including an approximate 5 to 6 percent negative currency impact, and earnings per share of $0.70 to $0.77. For the year, we are projecting annual revenue of $2.76 to $2.82 billion with a projected 2 to 3 percent negative foreign currency impact and earnings per share of $3.80 to $4.05. We look forward to providing additional details regarding our guidance and 2019 growth initiatives at our investor day event which will be held Feb. 28 at our headquarters,” concluded Lawrence.

Conference Call

The Nu Skin management team will host a conference call with the investment community on Feb. 13, 2019, at 5 p.m. (ET). Those wishing to access the webcast, as well as the financial information presented during the call, can visit the Investor Relations page on the company’s website at ir.nuskin.com. A replay of the webcast will be available at the same URL through Feb. 27, 2019.

Important Information Regarding Forward-Looking Statements: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent the company’s current expectations and beliefs. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws and include, but are not limited to, statements of management’s expectations regarding the company’s performance, growth, product launches, strategies and initiatives; projections regarding revenue, earnings per share, foreign currency fluctuations and other financial items; statements of belief; and statements of assumptions underlying any of the foregoing. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “project,” “anticipate,” “estimate,” “intend,” “plan,” “continue,” “targets,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words.

The forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed herein. These risks and uncertainties include, but are not limited to, the following:

  • adverse publicity related to the company’s business, products, industry or any legal actions or complaints by the company’s sales force or others;
  • risk that direct selling laws and regulations in any of our markets, including the United States and Mainland China, may be modified, interpreted or enforced in a manner that results in negative changes to our business model or negatively impacts our revenue, sales force or business, including through the interruption of sales activities, loss of licenses, imposition of fines, or any other adverse actions or events;
  • any failure of current or planned initiatives or products to generate interest among the company’s sales force and customers and generate sponsoring and selling activities on a sustained basis;
  • risk of foreign currency fluctuations and the currency translation impact on the company’s business associated with these fluctuations;
  • uncertainties regarding the future financial performance of the company’s recent acquisitions;
  • risks related to accurately predicting, delivering or maintaining sufficient quantities of products to support our planned initiatives or launch strategies, and increased risk of inventory write-offs if the company over-forecasts demand for a product or changes its planned initiatives or launch strategies;
  • regulatory risks associated with the company’s products, which could require the company to modify its claims or inhibit the company’s ability to import or continue selling a product in a market if it is determined to be a medical device or if it is unable to register the product in a timely manner under applicable regulatory requirements;
  • unpredictable economic conditions and events globally;
  • uncertainties related to interpretation of, and forthcoming regulations under, the recently enacted U.S. tax reform legislation; the company’s future tax-planning initiatives; any prospective or retrospective increases in duties on the company’s products imported into the company’s markets outside of the United States; and any adverse results of tax audits or unfavorable changes to tax laws in the company’s various markets; and
  • continued competitive pressures in the company’s markets.

The company’s financial performance and the forward-looking statements contained herein are further qualified by a detailed discussion of associated risks set forth in the documents filed by the company with the Securities and Exchange Commission. The forward-looking statements set forth the company’s beliefs as of the date that such information was first provided and the company assumes no duty to update the forward-looking statements contained in this release to reflect any change except as required by law.

Non-GAAP Financial Measures: Constant-currency revenue growth is a non-GAAP financial measure that removes the impact of fluctuations in foreign-currency exchange rates, thereby facilitating period-to-period comparisons of the company’s performance. It is calculated by translating the current period’s revenue at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period’s revenue. Operating margin, income tax rate and earnings per share, each excluding impairment and restructuring charges and/or the impact of tax reform, also are non-GAAP financial measures. Impairment and restructuring charges are not part of the ongoing operations of our underlying business. The U.S. tax reform legislation was enacted in December 2017 and had a material impact on our tax rate and earnings per share. Removing the impact of these items facilitates period-to-period comparisons of the company’s performance. Please see the reconciliations of these items to our operating margin, income tax rate and earnings per share calculated under GAAP, below.

The Company’s revenue results by segment for the three-month periods ended December 31 are presented in the following table (in thousands).

 %ChangeConstant Currency% Change
 20182017
         
Mainland China$     217,040 $   222,333      (2%)       2% 
Americas/Pacific         95,175       102,335      (7%)       3% 
South Korea        102,840       103,066       —       2% 
Southeast Asia         80,500         73,920       9%      13% 
Japan         63,953        67,620      (5%)       (6%) 
Hong Kong/Taiwan          47,746         46,627      2%       4% 
EMEA        50,584        47,890      6%     10% 
Other       25,449           2,410       956%   956% 
     Total$     683,287 $   666,201      3%       7% 
          

The Company’s revenue results by segment for the year ended December 31 are presented in the following table (in thousands).

 %ChangeConstant Currency% Change
 20182017
         
Mainland China$     886,472 $     716,991     24%     21% 
Americas/Pacific       385,034       342,429     12%     20% 
South Korea        373,357       361,692       3%       1% 
Southeast Asia        316,890        268,631     18%      18% 
Japan        254,939       256,085       —       (2%) 
Hong Kong/Taiwan        185,893        166,696     12%     11% 
EMEA        182,394        160,275     14%     10% 
Other        94,029          6,300 1,393% 1,393% 
     Total$   2,679,008 $  2,279,099     18%     17% 

The company’s Customers and Sales Leaders statistics by segment for the three-month periods ended December 31 are presented in the following table.

20182017% Increase(Decrease)
CustomersSales LeadersCustomersSales LeadersCustomersSales Leaders
             
Mainland China    304,000    33,100     193,000  40,600 58% (18%)
Americas/Pacific 249,000    8,300 244,000    8,900   2%   (7%)
South Korea 182,000     7,600  173,000    8,400   5%  (10%)
Southeast Asia 153,000    8,900  122,000   8,000 25% 11%
Japan 130,000    5,900 132,000    6,600   (2%)  (11%)
Hong Kong/Taiwan   77,000    4,800   71,000     4,700   8%   2%
EMEA    149,000    4,800     135,000    4,700 10%   2%
                                   
Total   1,244,000   73,400   1,070,000   81,900 16%      (10%)

“Customers” are persons who purchased products directly from the company during the previous three months. Our Customer numbers do not include consumers who purchase products directly from members of our sales force.


“Sales Leaders” are independent distributors, and sales employees and independent marketers in China, who achieve certain qualification requirements.

NU SKIN ENTERPRISES, INC.
Consolidated Statements of Income (Unaudited)
(in thousands, except per share amounts)
Three Months EndedYears Ended
 December 31,December 31,
 2018201720182017
        
Revenue$     683,287 $     666,201 $   2,679,008 $   2,279,099
Cost of sales       161,853        148,459         634,140         502,078
        
Gross profit       521,434        517,742      2,044,868      1,777,021
        
Operating expenses:       
        Selling expenses      269,052       265,378      1,071,020         938,024
General and administrative expenses      163,265       153,244         662,302         564,514
       Restructuring and impairment expenses        70,686                —           70,686                  —
        
Total operating expenses      503,003       418,622      1,804,008      1,502,538
        
Operating income        18,431         99,120         240,860         274,483
Other income (expense), net        (4,254)            (446)         (21,194)           (8,916)
        
Income before provision for income taxes            14,177         98,674         219,666         265,567
Provision for income taxes        31,936         80,439           97,779         136,130
        
Net income$     (17,759) $      18,235 $      121,887 $      129,437
        
Net income per share:       
        Basic$         (0.32) $          0.35 $            2.21 $            2.45
        Diluted$         (0.32) $          0.33 $            2.16 $            2.36
        
Weighted-average common shares outstanding (000s):       
        Basic        55,453         52,722           55,170           52,806
        Diluted        56,341         55,053           56,476           54,852
NU SKIN ENTERPRISES, INC.
Consolidated Balance Sheets (Unaudited)
(in thousands)
    
 December 31, 2018December 31, 2017
ASSETS   
Current assets:   
        Cash and cash equivalents$                386,911 $                426,399
        Current investments                    11,346                     11,847
        Accounts receivable                    53,282                     33,196
        Inventories, net                  295,821                   253,454
       Prepaid expenses and other                    51,877                     52,893
                  799,237                   777,789
    
Property and equipment, net                  464,535                   464,587
Goodwill                  196,573                   114,954
Other intangible assets, net                    89,989                     67,647
Other assets                  144,112                   164,895
               Total assets$             1,694,446 $             1,589,872
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
        Accounts payable$             47,617      $            50,341     
        Accrued expenses                  322,583                   319,189
Current portion of long-term debt                    69,455                     77,840
       439,655              447,370           
   
Long-term debt                  361,008                   310,790
Other liabilities                  111,916                   127,116
                Total liabilities                  912,579                   885,276
    
Stockholders’ equity:   
        Class A common stock               91                      91        
       Additional paid-in capital                  552,564                   466,349
       Treasury stock, at cost              (1,326,605)              (1,304,694)
       Accumulated other comprehensive loss                   (79,934)                   (66,318)
       Retained earnings               1,635,751                1,609,168
                   781,867                   704,596
              Total liabilities and stockholders’ equity$             1,694,446 $             1,589,872
NU SKIN ENTERPRISES, INC.
Reconciliation of Earnings Per Share Excluding Impact of Restructuring and Tax Reform to GAAP Earnings Per Share
(in thousands, except per share amounts)
 Three Months EndedYears Ended
 December 31,December 31,
 2018201720182017
        
Net income$     (17,759) $      18,235 $      121,887 $     129,437
Impact of restructuring and impairment:       
        Restructuring and impairment         70,686                —           70,686                 —
    Inventory write-off           7,240                —             7,240                 —
       Income tax impact         (1,086)                —           (1,086)                 —
Impact of tax reform on provision for income taxes                           —                47,729                            —                  47,729
Adjusted net income$       59,081 $      65,964 $      198,727 $     177,166
        
Diluted earnings per share$         (0.32) $          0.33 $            2.16 $           2.36
Diluted earning per share, excluding restructuring and tax reform impact$          1.05 $          1.20 $            3.52 $           3.23
        
Weighted-average common shares outstanding (000s):                56,341                55,053                    56,476                    54,852
NU SKIN ENTERPRISES, INC.
Reconciliation of Operating Margin Excluding Impact of Restructuring to GAAP Operating Margin
(in thousands, except per share amounts)
 Three Months EndedYears Ended
 December 31,December 31,
 2018201720182017
        
Operating income$       18,431 $      99,120 $      240,860 $      274,483
Impact of restructuring and impairment:       
        Restructuring and impairment         70,686                —           70,686                  —
    Inventory write-off           7,240                —             7,240                  —
Adjusted operating income$       96,357 $      99,120 $      318,786 $      274,483
        
Operating margin               2.7%             14.9%                 9.0%               12.0%
Operating margin, excluding restructuring impact         14.1%         14.9%               11.9%            12.0%
        
Revenue$   683,287 $    666,201 $  2,679,008 $   2,279,099
NU SKIN ENTERPRISES, INC.
Reconciliation of Effective Tax Rate Excluding Impact of Restructuring and Tax Reform to GAAP Effective Tax Rate
(in thousands, except per share amounts)
 Three Months EndedYears Ended
 December 31,December 31,
 2018201720182017
        
Provision for income taxes$       31,936 $      80,439 $        97,779 $      136,130
Impact of restructuring on tax provision           1,086                   —             1,086                 —
Impact of tax reform on provision for income taxes                              —              (47,729)                                 —             (47,729)
Provision for income taxes, excluding impact of restructuring and tax reform$     33,022 $      32,710 $        98,865 $       88,401
        
Income before provision for income taxes$        14,177 $      98,674 $      219,666 $      265,567
Impact of restructuring and impairment:       
        Restructuring and impairment         70,686                —           70,686                  —
       Inventory write-off           7,240                —             7,240                  —
Income before provision for income taxes, excluding impact of restructuring and tax reform$       92,103 $      98,674 $      297,592 $      265,567
        
Effective tax rate           225.3%             81.5%               44.5%               51.3%
Effective tax rate, excluding restructuring and tax reform impact             35.9%             33.1%               33.2%               33.3%

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