It has been about a month since the last earnings report for Nu Skin Enterprises (NUS). Shares have lost about 25.1% 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 Beats on Q1 Earnings & Revenues, Q2 View Soft
Nu Skin posted first-quarter 2019 quarterly earnings of 77 cents a share that surpassed the Zacks Consensus Estimate of 71 cents and surged 20% from the year-ago period. The bottom line benefited from margin expansion, in spite of adverse currency fluctuations.
Revenues amounted to $623.6 million, which surpassed the Zacks Consensus Estimate of $615.4 million and increased 1% from the prior-year quarter. However, the metric includes a negative impact of 6% from foreign currency fluctuations.
On a constant-currency basis, the top line increased 7%. Notably, the top line gained from decent performance across Mainland China and Southeast Asia regions. We also note that sales leaders remained almost flat year over year at 63,248 while Nu Skin’s customer base increased 10% to 1,193,206.
Gross profit came in at $477 million, up about 1.5% from the year-ago period. Gross margin expanded 20 bps to 76.5%. Core Nu Skin gross margin improved 80 bps to 78.7% due to positive product mix, cost containment efforts and benefit arising from product sourced from owned manufacturing entities.
Selling expenses, which accounted for 40% of revenues, fell 3.1% to $249.7 million. Meanwhile, general and administrative expenses, which accounted for 25.4% of revenues, increased 3.5% to $158.6 million.
Operating income improved 16.4% to $68.7 million on account of higher revenues and lower selling expenses. Notably, operating margin increased 140 bps to 11%. Management expects operating margin improvement to continue throughout the year.
Regional Results (On a Constant-Currency Basis)
Region-wise, revenues surged across all regions except for South Korea. The highest revenue growth was witnessed in Mainland China and Southeast Asia, wherein the metric improved 12% and 5%, respectively, from the prior-year quarter. Further, revenues inched up 1% in EMEA and 2% each the in Americas/Pacific and Hong Kong/Taiwan. Revenues fell 1% in South Korea.
Other Financial Details
Nu Skin ended the quarter with cash and cash equivalents of $310.3 million, long-term debt of $356.2 million, and stockholders' equity of $811.2 million. The company lowered debt load by $29.5 million during the quarter.
The company repurchased shares worth $1 million in the quarter. It has remaining authorization of $470 million. Additionally, the company paid $20.5 million as dividends in the quarter.
For 2019, management anticipates revenues of $2.76-$2.81 billion, reflecting 3-5% growth. It also includes an expected negative impact of 2-3% from foreign currency fluctuations. Additionally, the company reiterated full-year earnings projection of $3.80-$4.05 per share, up from $3.52 reported in 2018.
Further, the company expects second-quarter earnings per share to be 91-98 cents.. In the prior-year period, it reported earnings of 90 cents, including foreign currency translation loss of 13 cents and purchase accounting charge of 5 cents. Adjusted earnings for second-quarter 2018 were $1.08 per share.
The company highlighted that the prior-year quarter gained from the introduction of LumiSpa in Mainland China, which generated approximately $95 million in sales, consequently making the year-over-year comparison a bit challenging. Moreover, management pointed out that major product initiatives for this year are slated for the second half.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Nu Skin has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nu Skin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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