UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
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April 21, 2004 Date of Report (Date of earliest event reported) |
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NU SKIN ENTERPRISES, INC. (Exact name of registrant as specified in its charter) |
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Delaware (State or other jurisdiction of incorporation) |
001-12421 (Commission File Number) |
87-0565309 (IRS Employer Identification Number) |
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75 West Center Street Provo, UT 84601 (Address of principal executive offices and zip code) (801) 345-1000 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) |
Item 12. Results of Operations and Financial Condition.
On April 21, 2004, Nu Skin Enterprises issued a press release announcing its financial results for the first quarter ended March 31, 2004, and certain other information. A copy of Nu Skin Enterprises’ press release is attached as Exhibit 99.1 to this report and incorporated by reference.
The information furnished in this report and the exhibit hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
| Exhibit No. | Exhibit Description | ||
|---|---|---|---|
| 99.1 | Nu Skin Enterprises’ Press Release dated April 21, 2004, regarding financial results for the first quarter ended March 31, 2004. | ||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NU SKIN ENTERPRISES, INC. (Registrant) /s/ Ritch N. Wood Ritch N. Wood Chief Financial Officer |
Date: April 21, 2004
EXHIBIT INDEX
| Exhibit No. | Exhibit Description | ||
|---|---|---|---|
| 99.1 | Nu Skin Enterprises’ Press Release dated April 21, 2004, regarding financial results for the first quarter ended March 31, 2004. | ||
FOR IMMEDIATE RELEASE
CONTACTS:
Nu Skin Enterprises
Charles Allen (investors)
(801) 345-6110, callen@nuskin.com
Kara Schneck (media)
(801) 345-2116, kschneck@nuskin.com
NU SKIN ENTERPRISES
REPORTS RECORD FIRST QUARTER
REVENUE FOR 2004
Company increases 2004 guidance
PROVO, Utah — April 21, 2004 — Nu Skin Enterprises, Inc. (NYSE: NUS) today reported record first quarter revenue of $264.0 million, an increase of 20 percent over last year. Earnings per share grew 25 percent for the same period. Momentum in Mainland China, growth in the U.S. nutrition business, continued stability in Japan, and beneficial foreign currency fluctuations helped the company exceed previous financial guidance.
Financial Results
For the quarter ended March 31, 2004, Nu Skin Enterprises’ revenue and earnings per share increased to $264.0 million and $0.20, respectively, compared to $219.6 million and $0.16 for the same period in 2003. Revenue during the quarter was positively impacted 6 percent by favorable foreign currency fluctuations.
“We are encouraged with our record first quarter revenue,” said Truman Hunt, president and chief executive officer. “Mainland China continued to excel, posting revenue of $23 million in
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April 21, 2004
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the quarter compared to $18 million in the fourth quarter of 2003. Japan reported 1 percent year-over-year local currency revenue growth. Revenue in the United States was up 16 percent, benefiting from sales at our February global distributor convention and growth in our nutrition business.
“The number of active distributors and preferred customers increased 23 percent compared to the prior year. In addition, global monthly product subscription orders continued to climb, reaching a 55 percent increase over the first quarter of last year. We are very encouraged by this growth and believe that our focus on improving retention through product subscriptions and other mechanisms will positively impact our business in the future.”
Regional Results
North Asia. Revenue in North Asia increased 12 percent to $150.1 million during the first quarter compared to the same period in 2003, primarily due to the strengthening of the Japanese yen and growth in South Korea. In addition, the company effectively managed through the BSE issues during the quarter by transitioning to non-bovine based capsules and caplets for use in Japan, minimizing stock-out situations of Pharmanex products. South Korea continued its turnaround in the quarter, posting local currency revenue growth of 15 percent. The executive distributor count decreased 2 percent, while the active distributor count in the region improved 3 percent compared to prior year results.
Greater China. Revenue in Greater China increased 78 percent to $47.6 million during the first quarter compared to prior year results. Mainland China continued to post strong results with revenue of $22.8 million for the quarter. Hong Kong reached record sales with revenue up 38 percent for the period, while Taiwan sales declined 7 percent in local currency. The executive and active distributor counts in the region grew 112 percent and 105 percent, respectively, due primarily to growth in Mainland China.
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North America. Revenue in North America increased 15 percent to $37.6 million during the first quarter compared to prior year results. In the United States, revenue climbed to $35.1 million, benefiting from $5.8 million of sales to international distributors attending the U.S. convention. Revenue in the first quarter of 2003 included approximately $5.0 million of sales from Big Planet products and services that were eliminated in the third quarter of 2003. Pharmanex sales in the United States, excluding convention sales to international distributors, increased 40 percent. Sales of LifePak®, Pharmanex’s flagship product, increased 119 percent in the United States year-over-year. The executive and active distributor counts in the region increased 10 percent and 9 percent, respectively, compared to prior year results.
South Asia/Pacific. First quarter revenue in the South Asia/Pacific region increased 10 percent to $19.7 million over the first quarter in 2003. Thailand continued strong growth, with local currency revenue up 39 percent during the quarter. A decline in Singapore and Malaysia continued to ease, with combined revenue decreasing 7 percent in the quarter verses the prior year. The executive count was down 18 percent due to the decline in Singapore and Malaysia. The active distributor count in the region increased 12 percent compared with prior year results.
Other Markets. Revenue from the company’s other markets was up 12 percent to $9.1 million during the first quarter.
Division Results
Nu Skin. First quarter personal care revenue increased 26 percent to $132.4 million. The increase was due to strong sales in Mainland China, the launch of several new products and favorable currency fluctuations.
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Pharmanex. Pharmanex posted first quarter revenue of $125.9 million, a 23 percent gain over the first quarter of 2003. These results were primarily due to strong sales of LifePak® globally, which were up 24 percent over the first quarter of 2003, as well as a continued emphasis on the monthly product subscription program and the Pharmanex® BioPhotonic Scanner.
Big Planet. As anticipated, Big Planet revenue decreased 51 percent compared to the prior year to $5.7 million. This was a result of the elimination of low margin products and services in the third quarter of 2003, which accounted for approximately $5.0 million of revenue in the first quarter of 2003.
Operational Performance
The company’s gross margin improved 230 basis points to 83.4 percent in the first quarter compared to prior year results. This improvement was due primarily to the discontinuation of low margin Big Planet products and services, strong gross margins in Mainland China resulting from in-house manufacturing, as well as favorable foreign currency exchange rates. Selling expenses as a percent of revenue were 42.7 percent, an increase of 260 basis points compared to the prior year. The increase in selling expenses, as a percent of sales, was caused by the sale of the professional employer organization (PEO) and higher costs associated with employed sales representatives in China.
General and administrative expenses, as a percent of revenue, improved 30 basis points over prior year results to 31.7 percent. This improvement was generated despite expenses of approximately $6.0 million associated with the distributor convention in the first quarter verses expenses of approximately $4.0 million related to a Japan convention in the first quarter of 2003. The improvement reflects operational efficiencies from higher revenue and a continued effort to control overhead expenses. The first quarter operating margin was 9.0 percent, level with first quarter of 2003.
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During the quarter, the company posted a $0.9 million loss in other income compared to a $0.6 million gain in the first quarter of 2003. Net income rose to $14.5 million compared to $12.8 million for the first quarter of 2003. Earnings per share were positively impacted by the repurchase of 10.8 million shares of Class A Common Stock, which occurred in October of 2003. The company generated $17.4 million in cash flow from operations and paid dividends of $5.8 million during the first quarter of 2004.
As a result of the company’s business model in China, which offers a “preferred customer” status to retail customers in that market, as well as an increasing emphasis on preferred customer incentives for non-distributor purchasers in other markets, the company has changed the way it determines and reports “active distributors.” The company began including its China preferred customers in its active distributor count last year. With the number of preferred customers growing in other markets and because of the importance of these customers to the revenue base, the company is including preferred customers from all markets who purchase products directly from the company during the quarter in its active distributor count beginning with first quarter 2004 results. Prior year numbers will also include these preferred customers for more accurate comparative references.
Outlook
“Japan, the United States and Mainland China remain our key geographic priorities,” Hunt said. “We are preparing for a fourth quarter 2004 launch of the Pharmanex BioPhotonic Scanner in Japan. In the United States, the Pharmanex Scanner and customer retention initiatives will continue to be the primary revenue growth drivers. Our immediate objective in Mainland China is to train our growing sales force, enabling us to build a strong foundation for what has become an important market for us.”
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“We continue to expect 2004 local currency revenue in Japan to hold relatively even with prior year results,” said Ritch Wood, chief financial officer. “We project 20 percent growth in combined Pharmanex and Nu Skin revenue in the United States. And given China’s first quarter results, we are increasing our guidance on China revenue to the $100 to $110 million range for the year. Therefore, we increase our 2004 revenue guidance to $1.10 to $1.12 billion, assuming a yen rate of approximately 110 for the year. We also expect to improve our operating margin for the year to 12 percent. Based on these expectations, we anticipate earnings per share to be in the $1.10 to $1.14 range, up five percent from our previous guidance of $1.05 to $1.08.
“We expect second quarter revenue of $270 to $275 million, a 12 to 14 percent increase over $241 million in the second quarter of 2003, assuming a yen rate of approximately 110. We anticipate earnings per share to increase 30 to 40 percent over the prior year to $0.26 to $0.28,” Wood concluded.
Management’s overview of the first quarter will be available today, Wednesday, April 21, beginning at 9 a.m. (EST) on the Investor portion of the company’s Web site at www.nuskinenterprises.com. A replay of management’s overview will be available on the company’s Web site through May 7, 2004.
The Company
Nu Skin Enterprises, Inc. is a global direct selling company operating in more than 30 markets throughout Asia, the Americas and Europe. The company markets premium quality personal care products under the Nu Skin® brand, science-based nutritional supplements under the Pharmanex® brand, and technology based products and services under the Big Planet® brand. Nu Skin Enterprises is traded on the New York Stock Exchange under the symbol “NUS.”
Nu Skin Enterprises’ press releases are available online at www.nuskinenterprises.com.
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Please note: This press release, particularly the “Outlook” section, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the company’s current expectations and beliefs, including, among other things:(i) our belief that customer retention initiatives and the Pharmanex® BioPhotonic Scanner will be our primary revenue growth drivers;(ii) our plans to launch the Pharmanex® BioPhotonic Scanner in Japan in the fourth quarter of 2004;and (iii) financial projections for the second quarter and the year 2004. The forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed herein. These risks and uncertainties include, but are not limited to: (a) continued regulatory scrutiny in China, which has from time to time in the past, and could in the future, negatively impact our business, including the suspension of sales activities in stores and the imposition of fines; (b) any inability of the company to effectively manage rapid growth in China, including training and management of a large employed sales force, and regulatory risks associated with any failure of such sales force to comply with applicable company policies and government regulations; (c) regulatory risks associated with the Pharmanex® BioPhotonic Scanner, which could delay or inhibit our use of the scanner if it is determined to be a medical device in any market; (d) risks that could adversely impact the company’s operations or financial results in its markets, including our largest market, Japan, such as any continuation or increase in the impact of negative market conditions on the company’s business, material decreases in executive level and active distributors, adverse changes in exchange rates, or the company’s failure to execute effective initiatives in these markets; (e) any failure of planned initiatives or products to generate interest among distributors and customers and generate sponsoring and selling activities on a sustained basis; (f) adverse publicity related to the company’s business, products or industry; and (g) continued competitive pressures in the company’s markets. The company’s financial performance and the forward-looking statements contained herein are further qualified by a detailed discussion of associated risks set forth in the documents filed by the company with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K. The forward-looking statements set forth the company’s beliefs as of the date of this release, and the company assumes no duty to update the forward-looking statements contained in this release to reflect any change.
(Financial Tables to follow)
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Nu Skin Enterprises,
Inc.
Consolidated Statements of Income
For
the First Quarters Ended March 31, 2004 and 2003
(in thousands, except per share
amounts)
| 2004 | 2003 | ||||
|---|---|---|---|---|---|
| Revenue: | |||||
| North Asia | $ 150,055 | $ 134,095 | |||
| Greater China | 47,575 | 26,712 | |||
| North America | 37,562 | 32,802 | |||
| South Asia/Pacific | 19,677 | 17,902 | |||
| Other Markets | 9,119 | 8,121 | |||
| Total revenue | 263,988 | 219,632 | |||
| Cost of sales | 43,923 | 41,609 | |||
| Gross profit | 220,065 | 178,023 | |||
| Operating expenses: | |||||
| Selling expenses | 112,582 | 88,036 | |||
| General and administrative expenses | 83,634 | 70,273 | |||
| Total operating expenses | 196,216 | 158,309 | |||
| Operating income | 23,849 | 19,714 | |||
| Other income (expense), net | (865 | ) | 576 | ||
| Income before provision for income taxes | 22,984 | 20,290 | |||
| Provision for income taxes | 8,504 | 7,507 | |||
| Net income | $ 14,480 | $ 12,783 | |||
| Net income per share: | |||||
| Basic | $ 0.20 | $ 0.16 | |||
| Diluted | $ 0.20 | $ 0.16 | |||
| Weighted average number of shares outstanding: | |||||
| Basic | 70,691 | 80,790 | |||
| Diluted | 72,467 | 82,207 | |||
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Nu Skin Enterprises,
Inc.
Consolidated Balance Sheets
(in thousands)
| March 31, 2004 | December 31, 2003 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ 135,363 | $ 122,568 | |||
| Accounts receivable | 18,123 | 15,054 | |||
| Inventories, net | 93,862 | 83,338 | |||
| Prepaid expenses and other | 51,151 | 55,777 | |||
| 298,499 | 276,737 | ||||
| Property and equipment, net | 61,870 | 60,528 | |||
| Goodwill | 118,768 | 118,768 | |||
| Other intangible assets, net | 66,568 | 67,572 | |||
| Other assets | 58,170 | 100,142 | |||
| Total assets | $ 603,875 | $ 623,747 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | $ 17,676 | $ 18,816 | |||
| Accrued expenses | 91,682 | 96,438 | |||
| Current portion of long-term debt | 18,287 | 17,915 | |||
| 127,645 | 133,169 | ||||
| Long-term debt | 149,723 | 147,488 | |||
| Other liabilities | 21,202 | 52,842 | |||
| Total liabilities | 298,570 | 333,499 | |||
| Stockholders' equity: | |||||
| Class A common stock | 71 | 71 | |||
| Additional paid-in capital | (61,411 | ) | (68,191 | ) | |
| Accumulated other comprehensive loss | (71,492 | ) | (70,849 | ) | |
| Retained earnings | 440,341 | 431,615 | |||
| Deferred compensation | (2,204 | ) | (2,398 | ) | |
| 305,305 | 290,248 | ||||
| Total liabilities and stockholders' equity | $ 603,875 | $ 623,747 | |||
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Nu Skin Enterprises, Inc.
Distributor/Preferred Customer
Growth by Market
| As of March 31, 2004 | As of March 31, 2003 | % Increase (Decrease) |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Active* | Executive | Active* | Executive | Active* | Executive | ||||||||
| North Asia | 307,000 | 16,355 | 297,000 | 16,601 | 3.4% | (1.5% | ) | ||||||
| Greater China** | 205,000 | 7,117 | 100,000 | 3,358 | 105.0% | 111.9% | |||||||
| North America | 119,000 | 2,920 | 109,000 | 2,662 | 9.2% | 9.7% | |||||||
| South Asia/Pacific | 67,000 | 2,038 | 60,000 | 2,492 | 11.7% | (18.2% | ) | ||||||
| Other Markets | 34,000 | 1,109 | 31,000 | 1,063 | 9.7% | 4.3% | |||||||
| Total | 732,000 | 29,539 | 597,000 | 26,176 | 22.6% | 12.8% | |||||||
| * | Active distributors include preferred customers and distributors purchasing products directly from the company during the quarter. |
| ** | Following the opening of the company's retail business in Mainland China during 2003, active distributors include 138,000 and 31,000 preferred customers in China and executive distributors include 4,329 and 416 employed, full-time sales representatives for the quarters ended March 31, 2004 and 2003, respectively. |
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