Nu Skin Supplies the Staycation

Jun.16.09 | About: Nu Skin (NUS)

In a sector that's enduring dwindling sales to match diving discretionary income, Nu Skin (NYSE:NUS) has positioned itself globally well enough to gain market share on the strength of their Spa substitute and innovative ageLOC line. Through strong branding and a committed base of direct distributors who have a built in 30% commission into the retail price, Nu Skin is positioned well within the cosmetics sector to build market share and brand awareness during this worldwide economic malaise.

The ageLOC purposed competitive advantage has to do with age-related NADH oxidase (arNOX) which produces free radicals and leads to skin aging. By lowering the arNOX levels, fine lines, wrinkles, crow's feet, and all of the skin aging bedfellows are decelerated, and subjects appeared 7 years younger for the 55-year-old study group, according to a Nu Skin study conducted by Stanford University. The serums, creams, and ageLOC products work to keep arNOX levels low, allowing one to maintain a youthful appearance.

The success of 2008 numbers were build upon the 180% YOY growth of the Galvanic Spa, bringing $150 galvanic spa treatments to one's home for about twice the price. The Spa system focuses on increasing circulation associated with one's complexion, scalp, and body through electricity to stimulate skin firmness, typically producing visible results after 24-hours, and scalp health, presumably leading to more healthy, radiant hair.

While comparative regional sales have been flat between 2001 and 2008 - with an 18% drop in American and a drop from 57% to 35% in Japan, developing nations and previously untapped regions have been increasing sales dramatically, with China going from 8% to 17% of sales, Korea 5% to 12%, and Europe 3% to 9%. Last quarter saw a few million associated with a restructuring in Japan to limit their headcount, consistent with management's eye on revenue-per-employee numbers, which has jumped from $60,000 in Q1 07 to $100,000 by Q2 08. Management also enjoys strong stock ownership with 22% held by insiders, seeing to it that the dividend remains healthy, as it has at 3.2%.

During the most recent stock market recovery from March 9th to the present, the stock has catapulted from 8 to its present 13.84, driven by a strong dividend at a time when cash is king, and strong ROE numbers inspire confidence that capital resources are being put to good use. The downgrade by Wedbush Morgan on April 23rd tempered the upward climb but there appears still to be room to grow with increased earnings and a strong stakehold in countries with traditionally higher savings rates, affording such vanity luxuries irrespective of market cycles. While analysts see this year at a wash with sales growth at -0.1%, 2010 has the possibility of 3.4% growth as things start to recover at an encouraging clip. Lest we also forget, Q1 numbers beat the Street by 16.7% with a 0.28 EPS, a sign of resilience that promises to extend into the future post 2009.

Disclosure: No positions