Skin Care Company Sees Promise In New Anti Aging Products
Some battles never end. The one towards aging is a really visible one.
As anti-aging warrior Truman Hunt puts it: "The population is getting older in every created country, a demographic trend that weighs in our favor." Hunt is chief executive of Nu Epidermis Enterprises (NUS), a direct seller that sells anti-aging skin-care and nourishment items in 48 markets globally. Revenue is expected to hit almost $1.three billion this year.
Most of Nu Skin's rivals within the direct-selling channel concentrate chiefly on either epidermis care or nutrition but not each, Hunt says. "For us, the battle against ageing has to be fought on both fronts, within out and outside in," he mentioned. The company's revenue is split almost evenly between skin treatment and nutrition items for example vitamins along with other supplements. "The whole organization is constructed on (the premise of) 'live much better longer,'" said analyst Douglas Lane of Jefferies & Co. Lately the Provo, Utah, firm has been emphasizing skin care. Sales of its handheld Galvanic Spa device and companion epidermis products "have been the rocket ship of our growth the last couple of years," Hunt mentioned.
About a year ago, Nu Skin launched reformulated facial gels under the ageLOC name. They help slow free-radical production at its source in the epidermis. The Galvanic Spa device helps deliver the active ingredients. The firm has clinical evidence to support claims that its spa system (with ageLOC gels) enhances skin appearance in just five minutes. (The FDA does not evaluate cosmetic and nutrition claims.) In the second quarter, just 2 1/2 years after their launch, Spa system products took in more than $65 million in sales. But total revenue of $322.6 million was up only slightly from the year-ago period, due in part to declining sales in Japan, the company's largest single market. Now Nu Skin is taking age-defying products to the next "genetic level," Hunt says, by again attacking the aging problem at its source. Nu Skin has high hopes that four new ageLOC products it plans to roll out soon will pump up the top line.
The company will announce academic partners and supporting science for the new daily-regimen skin-care products at its major sales convention in Los Angeles starting Oct. 22. The four-product lineup includes a cleanser toner, day cream, night cream and "future serum." "We believe this will be 1 of our most significant products ever in our 25-year history," Hunt said. Sales are not expected to ramp up broadly until the first quarter of 2010. "Nu Epidermis is generating a lot of buzz around ageLOC," analyst Scott Van Winkle of Canaccord Adams wrote in a client report. He expects the new ageLOC items to give Nu Epidermis "a leading presence within the anti-aging and personal skin care segments."
Except in China, Nu Skin's sales reps are independent contractors who sell company items directly to customers like Avon (AVP), Herbalife (HLF) and other direct sellers. Nu Skin's skin-care items are viewed as "high-quality, Estee Lauder (EL)-type products," said analyst Lane. Besides the ageLOC items, Nu Epidermis also sells Tru Face Essence Ultra firming serum. The new launch could also help spur sales in Japan, where more than a third of Nu Skin's sales are generated. Problems there have been long-standing. Though Japan has a large older population known to covet youth-enhancing items, Nu Epidermis has had trouble adding new sales reps because of the rising number of women joining the work force. As unemployment in the U.S. rose, Nu Epidermis signed on more sales reps. U.S. sales grew 5% within the second quarter vs. a year earlier. But the U.S. makes up only 16% of total revenue. "With Nu Skin's model, it's just as important to get people to sell the products as it is to use the products," Lane mentioned. "Japan has held back the company despite many successes it's having elsewhere, because of the sheer size of that market."
Sales in many markets have been growing in double digits. But in Japan, sales in the last quarter dropped 6% in local currency from the earlier year. Still, that was an improvement over the double-digit declines within the previous five quarters. And Japan's bottom line isn't so much a drag on profit since management restructured operations. Corporate staff in the nation was cut about 25% in the first half of 2009. On the heels of a solid first quarter, Nu Skin's second-quarter profit rose 13% from a year earlier to 36 cents a share. Analysts polled by Thomson Reuters expect full-year profit to grow 26% to $1.29 a share.
"Efforts to jump-start (Japan) is a primary concern, but it's a challenging market for everyone in direct selling," mentioned analyst Rommel Dionisio of Wedbush Morgan Securities. There's more growth potential in other markets for example the U.S., Latin America, Eastern Europe and especially China, analysts say. More than 70% of Nu Skin's business comes from Asia-Pacific. China will be "the most important growth market," Lane said. But given the tough and changing regulatory environment, China has been a struggle for Nu Skin. When Nu Epidermis first entered China several years ago, it opened retail stores because it wasn't allowed to sell directly to consumers.
But since the government loosened rules in the past few years, Nu Skin has been closing many of those stores and hiring direct sellers. Unlike elsewhere, they must be salaried employees. Sales in China slowed as stores were closed and the business model shifted, but they're growing again. In local currency, mainland China revenue rose 6% in the latest quarter vs. a year earlier. But revenue in Greater China, which also includes Hong Kong and Taiwan, dropped slightly, from $55.8 million to $52.8 million. Foreign currency fluctuations negatively affected revenue in the region by 3%.
Within the first half of the year, Nu Skin was hurt by the stronger dollar. With the dollar now falling, foreign exchange will become a benefit in the current quarter. "We don't like to cheer for the decline of the dollar, but 80% of our revenue is offshore," Hunt said. "So the decline is not a bad thing for us as we translate foreign-based income back into dollars.
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July 15 2010 | Skin Care | No Comments »