Nu Skin Enterprises Inc.
Covering Analyst: Cecilia Xia
ceciliaxia89@gmail.com
Company Overview
Company Overview
› Multi-level direct seller of Antiaging personal care and
nutritional supplements
› Found by Blake Roney, Sandra
Tilltson and Steven Lund in 1984
› Headquartered in Provo, UT
The Evolution of Nu Skin
The Evolution of Nu Skin
– Phase One: Start-up (1984-1991)
› U.S. business
› Skin care focus
› Product positioning: “All of the
good, none of the bad”
› Effectively resolved regulatory
inquiries
The Evolution of Nu Skin
– Phase Two: International Expansion (19911996)
› Rapid international expansion
› Seamless compensation plan
› Additional product category
› Robust growth rates
The Evolution of Nu Skin
– Phase Three: Coming of Age (1996-2003)
› IPO – Morgan Stanley
› Pharmanex acquisition
› Consolidation of global
operations
› Additional international
expansion
The Evolution of Nu Skin
– Phase Four: Transformation (2003-2008)
› Business transformation
o Transfer of control from
founders to public
o Significant G&A restructuring
› China entry
The Evolution of Nu Skin
– Phase Five: Nu Skin 2.0 (2008-present)
› Accelerating revenue
growth
› ageLOC
› Refined product launch
process
› Performance-based
management incentives
Business Segments
Business Segments
Revenue
Segment
2011 Revenue
(in Million)
2012 First Three Types of
Quarters
Products
Revenue
(In Million)
Nu Skin
$964
(55.3%)
$816
(51.6%)
Core Systems,
Targeted Treatments,
Total Care, Cosmetic,
and Epoch.
Pharmanex
$770
(44.2%)
$759
(48.0%)
Nutritional, Antiaging, Solutions,
Weight Management,
and VitaMeal
Others
$10
(0.5%)
$6
(0.3%)
Household product
and Digital content
storage
Industry Analysis
Industry Overviews
- Cosmetic & Beauty Products Manufacturing
› Growth phase
› Industry players number
remain constant
› Revenue is expected to
grow 2.2% to $54.9 B
Industry Overviews
- Direct Selling Industry
› Gloomy in the five years
› Strong competition with department stores and big-box
stores
› Short seller David Einhorn’s bearish suggestions
› Short seller Citron Research
› China’s direct selling rules
Comparable Analysis
Comparable Companies
› Comparables chosen for Beta, Product Offering, Geographic sales,
FCF 3 year growth, Market Cap, EBITDA 3 year growth.
Herbalife Ltd. (NYSE: HLF)
› 55%
› Similar product line
› Similar distribution method
› Similar FCF 3 year growth
› Similar EBITDA 3 year growth
› Similar Sales growth
› Similar Net Income growth
Energizer Holdings Inc. (NYSE: ENR)
› 20%
› Skin care section
› Direct selling method,
distributors, wholesalers
› Similar FCF 3 year growth
The Estee Lauder Companies Inc. (NYSE:EL)
› 20%
› Large Market Cap (22 B)
› Similar EBITDA 3 year
growth
› Similar Net Income 3 year
growth
› Similar Sales 3 year growth
› Similar EBITDA 3 year
growth
Avon Products Inc. (NYSE: AVP)
› 5%
› Similar Beta
› Similar product
› Similar business approach
› Similar geographic focus
› Different at EBITA growth,
sales growth, net income
growth
Metrics
› LTM Comps(30%)
Metrics
› Forward Comp (70%)
DCF Analysis
Revenue Model
› Based on Geographic
› Five areas: North Asia, Greater China,
Americans, South Asia/Pacific and
Europe
Revenue Model
-North Asia
› Japan: (1% growth)
o Projecting 1-3% revenue growth in 2013
o Increase in sales leader activity
o New product launch
o Reason: unsuccessful product launch before
Revenue Model
-North Asia
› South Korea: (5% growth)
o Projecting 10-12% revenue growth in 2013
o New product launch
o Reason: Special government regulation
Revenue Model
-Greater China
› Projecting 15-18% growth rate
› Mainland China (25%)
o Fastest growing direct selling market
o 3rd largest direct selling market
› Taiwan (5%) and Hong Kong (5%)
o Mature market with stable growth rate
Revenue Model
-Americas( 5%)
› Projecting 12-15% growth
rate in 2013
› Latin America projected
60% revenue growth rate
› New product launch
› Reason: questioned by short
sellers, investors
confidences
Revenue Model
-South Asia/Pacific (25%)
› Expansion into Vietnam in
2012
› Projecting 5-10% revenue
in 2013
› Reason: Great experience
with new product launching;
New market entry
Revenue Model
-EMEA (5%)
› Projecting 12-15% revenue
› New project launch in 2012
› Reason: management team
projected way too high last
year
Working Capital Model & DCF Model
› Percent of revenue
› Growth margin remain at 83.5%
› Constant COGS
› SG&A increase due to upper level sales
leaders increase
› Capital expenditures increase due to build
facilities in Provo and China
› 5% intermediate growth rate was used to
smooth cash flow growth heading into
perpetuity
Final Valuation
Final Implied Price
LTM Comparable Analysis
Forward Comparable Analysis
DCF Analysis
Current Price
Implied Price
Undervalued
15% $ 59.47
35% $ 55.86
50% $ 51.49
$ 44.22
$ 54.22
18.44%
Portfolio History
›Currently holding 50 shares in Tall Firs portfolio
oCost basis of $2883.7
oMarket value of $2211.0
oUnrealized loss of 23.33%
›Currently holding 52 shares in Svigals’ portfolio
oCost basis of $2968.5
oMarket value of $2299.4
oUnrealized loss of 22.54%
Recommendation
› Due to Nu Skin’s strong potential of growing, I
recommend a hold in all portfolios
Questions
Appendix A – Issues about China Market
Year
Event
1998
Exloration phase, acquired Pharmanex and two small companies
2002
Built Shanghai manufactruing facility and established retail stores
2003
Began selling Nu Skin products through retail stores
2005
New direct selling regulations published
2006
Obtained initial direct selling license
2007-2008 Transistion period, restructuring, new management tem
2008-2012 Continued expansion of provincial DS licenses and rapid revenue growth
China
› Management team average tenure about 20 years
oUnderstand local regulatory framework
oWorks cooperatively with local regulators
oHas a track record of regulatory compliance and
successful operations
China
› Solid Infrastructure in China:
o4 Manufacturing Plants
o2 R&D Labs
o40 Stores
o15 Provincial & Municipality Licenses
Significant Market Potential For Nu Skin
Company 2011 Revenue 2011 % Growth
Amway
$4,200.00
21.4%
Perfect
$1,900.00
18.0%
Infinitus
$1,300.00
88.9%
Mary Kay
$1,000.00
32.0%
New Era
$540.00
37.2%
Tiens
$500.00
14.3%
Yofoto
$400.00
150.0%
For You
$283.00
80.0%
Apollo
$281.00
60.0%
Sunhope
$228.00
45.0%
Herbalife
$204.00
8.3%
Avon
$188.00
-20.0%
Nu Skin
$152.00
59.0%
Shaklee
$70.00
233.0%
Five Year Business Plan in China
› Increase number of direct selling licenses
› Expand number of direct sellers
› Triple number of retail stores
› Extend distribution channel by adding independent
markets
Appendix B – Sustaining Growth Method
› ageLOC: a compelling product platform
› Strong product pipeline
› Product launch process deliver strong results
› Growth in every geographic region
› Investing in Channel Innovation
› Strong balance sheet and cash flow
› Experienced management and sales leaders
Appendix C - EPS
Appendix D – Stock Repurchase Activity
Appendix E – Increasing dividend history
Appendix E – 2007-2013 Cash from
Operation
Appendix F- Sales Leaders
Areas
Sales Leaders
Americas
5800
EMEA
4500
N/ASIA
15600
Greater China
16200
South Asia/ Pacific
5900