Nu Skin Enterprises, Inc. (NUS) Slumps After China Update

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Nu Skin Enterprises, Inc. (NYSE:NUS) filed its 10-K filing with the Securities and Exchange Commission last night, and although Wall Street in general isn’t pleased, Deutsche Bank is just fine with what they said. Analysts there have maintained their Buy rating and $110 per share price target for Nu Skin in the wake of that filing.

Nu Skin focuses on China

One of the biggest issues Nu Skin Enterprises, Inc. (NYSE:NUS) has been dealing with is the recently announced investigation of its Chinese operations. Officials in China launched the probe after some negative reports from the People’s Daily newspaper. Of course it’s  no surprise that Nu Skin is focused on China, as it mentioned the word just 236 times in the filing.

Nu Skin Enterprises, Inc. (NYSE:NUS) said again it has temporarily suspended its business promotional meetings and acceptance of applications for new sales representatives. The company also said it extended its product refund and return policies.

Nu Skin updates impacts from China

Wall Street is likely reacting negatively because the company said all the negative press “has had a significant negative impact” on the number of Sales Leaders and Actives they have. Nu Skin Enterprises, Inc. (NYSE:NUS) expects its short term revenue to be negatively impacted by its recent actions and that if it is unable to return to “normal business operations” soon, they could see an even “more significant impact” from the China investigation.

Nu Skin Enterprises, Inc. (NYSE:NUS) also said it continues to focus on training its sales force in connection with the product promotion and business opportunity they offer in China. The company notes that it is unclear exactly what sort of impact the negative press will have on their business in China and whether the voluntary actions they took will be effective in answering the concerns of Chinese regulators.

The company also said it’s likely that it will face a fine and “potentially face some other form of sanctions from these regulators.” It named potential sanctions as “a formal suspension” of their recruitment ability or of their ability to sell products in certain markets. Nu Skin Enterprises, Inc. (NYSE:NUS) said in the most extreme case, it could lose existing licenses to operate in some Chinese jurisdictions.

DB not surprised by Nu Skin’s statement

Deutsche Bank analyst Bill Schitz Jr. and his team say they really weren’t surprised by anything Nu Skin Enterprises, Inc. (NYSE:NUS) said in its filing. They say shares are already discounting no growth in sale or EBIT from current levels. As a result, they see “significant upside” over the next 12 months as more clarity regarding the investigation emerges.

The analysts also said that even if Nu Skin Enterprises, Inc. (NYSE:NUS)’s China growth slows down, its balance sheet “stands ready for redeployment once China is better ironed out.”

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