Nu Skin Enterprises, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statement amounts below are in U.S. dollars; unless stated otherwise, amounts are in millions. Nu Skin develops and sells beauty and wellness products globally. Its reporting segments comprise seven geographic Nu Skin businesses and two Rhyz investment businesses.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $417.3 | $481.5 |
| Gross profit / gross margin | $294.1 / 70.5% | $347.9 / 72.3% |
| Operating income / margin | $8.8 / 2.1% | $16.1 / 3.3% |
| Net income (loss) | $(0.5) | $11.4 |
| Diluted earnings (loss) per share | $(0.01) | $0.23 |
| Cash from operating activities | $3.3 | $(22.1) |
- Revenue declined 13.3% year over year, or 9.5% at constant currency; foreign currency reduced reported revenue by 3.8%. Gross profit fell 15.5%. Gross margin decreased 1.8 percentage points, partly because lower-margin Manufacturing revenue made up a larger share of sales; core Nu Skin gross margin improved 0.5 points to 76.9%.
- Selling expense was $153.5 million, or 36.8% of revenue, versus 39.1% a year earlier. General and administrative expense decreased to $124.6 million from $133.9 million, but rose as a share of revenue to 29.9% from 27.8%. Restructuring and impairment expense was $7.1 million, versus $9.8 million.
- Interest expense increased to $7.3 million from $4.9 million, primarily due to revolving-credit borrowings. Other expense was $0.4 million, compared with $3.4 million of other income, mainly reflecting foreign-exchange movements on intercompany balances. The tax provision was $1.6 million; the 148.4% effective rate reflected low pretax income and employee stock award vesting.
- Operating cash flow improved by $25.4 million year over year, primarily because of lower inventory purchases and reduced accounts receivable, partly offset by lower net income. Investing cash outflow was $9.3 million, including $12.3 million of capital expenditures. Financing cash outflow was $32.0 million, including $20.0 million of debt repayment and a $6.3 million contingent-consideration payment. Cash and cash equivalents fell to $212.5 million from $256.1 million.
- Cash, cash equivalents and current investments totaled $221.2 million at quarter-end. Working capital was $338.0 million. Debt facilities had $485.0 million outstanding: a $375.0 million term loan and $110.0 million drawn on the revolver. The reported balance-sheet carrying value of current and long-term debt was $483.2 million after debt issuance costs. The 30-day variable rate was 7.43%; the company was in compliance with its debt covenants.
Material changes and operating trends
- Core Nu Skin segment revenue fell 19.7% to $354.8 million; Rhyz revenue grew 57.5% to $62.5 million, partly from 2023 acquisitions and organic growth. Nu Skin revenue declined across all geographic segments. South Korea fell 41.8%, including comparison with a prior-year TRMe launch that generated approximately $19.4 million; Americas revenue fell 25.8%.
- Customers declined 19% to 875,261, Paid Affiliates declined 30% to 154,171, and Sales Leaders declined 12% to 38,609. New eligibility requirements for certain affiliate rewards reduced reported Paid Affiliates in Japan, Europe & Africa, South Korea and Hong Kong/Taiwan; management estimated reductions of approximately 14,000, 5,000, 13,000 and 3,000, respectively.
- The ageLOC WellSpa iO launch generated approximately $23.7 million in Q1 revenue, including $10.6 million in the Americas. Rhyz Manufacturing revenue increased 40.6%; the company cited new customers and automation at Wasatch Manufacturing. Acquired businesses contributed $5.3 million of revenue in the quarter.
- Restructuring and impairment expense included $7.1 million under the 2023 plan. Management estimates total charges under that plan of $20–$25 million, primarily cash severance, and expects substantial completion in the first half of 2024. The plan may expand as the company continues to evaluate its business and operations.
Outlook, risks and other notable items
- The filing does not provide a clear full-year revenue or earnings guidance figure. Management estimates 2024 capital expenditures of $40–$60 million, principally for Rhyz capacity, technology and facility projects.
- Management expects approximately $8 million of higher selling expense in Q3 2024 associated with Global Nu Skin Live! events in South Korea and the United States. The company also expected to begin the launch process for MYND360, a cognitive-health brand.
- Management cited macroeconomic pressure on consumer spending and customer acquisition, ongoing transformation-related headwinds, and foreign-currency exposure. It expects challenges in Mainland China to persist as the economy recovers. Management believes cash, operating cash flows and available credit should meet short- and long-term needs, but notes that repatriation restrictions in some markets can affect access to cash.
- A stock-price and market-capitalization decline triggered a quantitative goodwill impairment review. No impairment was recorded, but estimated fair value exceeded carrying value by only approximately 1%–7% across reporting units, leaving goodwill at risk if forecasts or assumptions worsen.
- The company had four interest-rate swaps with $200 million total notional; it estimates $9.5 million will be reclassified from accumulated other comprehensive income as a reduction to interest expense over the next 12 months. Litigation, regulatory matters and tax audits are described as ordinary-course contingencies; management does not expect current claims to materially affect consolidated results. No material changes to previously disclosed risk factors were reported.
- The board declared a $0.06-per-share quarterly dividend payable in June 2024. No shares were repurchased during Q1; $162.4 million remained available under the repurchase authorization. The company also entered a four-year consulting agreement with former Chief Scientific Officer Joseph Y. Chang, effective March 30, 2024, at $287,500 per year plus specified benefits.
Key facts investors should verify
- Whether customer, affiliate and Sales Leader trends stabilize, and whether the reported affiliate declines partly reflect compensation eligibility changes.
- Whether Nu Skin’s core business recovers and whether Rhyz growth can improve profitability, given Rhyz’s combined segment contribution was negative $4.0 million.
- Whether the company achieves its operating forecasts and avoids goodwill impairment, given the limited 1%–7% fair-value headroom.
- Progress and final costs of the 2023 restructuring plan, the $40–$60 million capital expenditure program, and the impact of the Q3 events on expenses and cash.
- Debt repayment, variable interest costs, covenant compliance, cash availability across foreign markets, and the sustainability of dividends amid weak earnings and low operating cash flow.