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Why Shares of Nu Skin Enterprises, Inc. Dropped

By Jeremy Bowman - Mar 3, 2014 at 6:46PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nu Skin Enterprises ( NUS 0.41% ) were cracking up today, falling as much as 13% and finishing down 11% after providing a disappointing outlook in its fourth-quarter report.

So what: The beauty and nutritional-products maker saw shares fall off a cliff in January after the Chinese government's official newspaper accused it of being a pyramid scheme. While Nu Skin has insisted that it's operating within all Chinese laws, it is currently auditing its business in that country to verify compliance, and has taken to steps to keep a lower profile in China by temporarily suspending all business promotional meetings and all applications for new sales representatives. As a result, Nu Skin now expects top-line growth in the current quarter of 20%-24% to $650 million to $670 million, and EPS of $0.90-$0.94. Analysts had expected sales to come in at $732.2 million on 33% growth, and per-share profit of $1.20. 

Now what: The key word in Nu Skin's outlook seems to be "temporary." CFO Ritch Wood explained: "We are early in the process of understanding the impact of recent events in China on our business, so it is difficult to project how reflective anticipated first quarter results will be of results for the remainder of the year. We believe we will be in a better position to provide specific updated annual guidance in conjunction with our first-quarter earnings release." Despite the uncertainty, Nu Skin is still growing strongly. Unless the audit committee finds something particularly egregious, I'd expect shares to bounce back eventually. 

 

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