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Nu Skin Enterprises is cutting staff at its Provo headquarters and closing 67 stores in China in an effort to restructure and trim costs.
The share price of the direct seller of personal-care products and nutritional supplements was down by as much as 17 percent Monday morning after it announced its third-quarter results but moderated somewhat by the close of the market and finished down 8 percent.
Declines in revenue in Japan and China as well as a $6.8 million spent for its international convention in Salt Lake City dragged down earnings below market expectations, the company said.
In a filing Friday with the Securities and Exchange Commission, Nu Skin said its board of directors had approved a plan to increase profits in 2008 that included layoffs at the company's headquarters in Provo and in China.
Kara Schneck, senior director of corporate communications, said she had no figures on the number of employees to be laid off among the 1,200 in Utah but said it "would be a very small number."
Nu Skin also is closing 67 of its 115 retail stores in China, where it had received a government license for selling directly to consumers in July 2006. Nu Skin had opened the small stores as it was attempting to ramp up its direct selling operations and, said Schneck, the closing of those stores represented a shift in strategy.
The company will instead open five "flagship stores" in Shanghai, Beijing and Guangzhou.
Scott Van Winkle, managing director of equity research at Canaccord Adams Inc., said while the Nu Skin third-quarter results had some positive numbers, investors concentrated on the decline of 7 percent of revenues in Japan and China, two of the company's key markets, and the projections of lower to flat earnings there in 2008.
"Those two regions happened to be the greatest regions of investor attention," Van Winkle said. "Both of them were [forecast] for revenue below street expectations."
Investors also were caught off guard by the $10 million to $14 million restructuring charge the company plans to take in the fourth quarter for the layoffs and store closings.
Additionally, Van Winkle said, the Nu Skin stock was driven down early in trading by a report by Barry Minkow alleging Herbalife, a California-based nutritional supplements company, was violating Chinese law with its operations there.
"I think that was early concerns around the whole direct selling model, given this report," Van Winkle said.
Minkow, a former felon who served a prison sentence for securities fraud, now runs an operation aimed at rooting out corporate fraud. He recently published a similar report about USANA Health Science Inc., the Utah supplements company, which he also had criticized for hiding unfavorable numbers about its multilevel marketing. Multilevel marketing organizations like Nu Skin and USANA Health Sciences recruit a network of distributors whose compensation depends on how many others they can recruit to the business.
Investors also were surprised by the company's expenditures for its international convention in September in Salt Lake City. The company reported the $6.8 million it spent on the showy conference lowered its third-quarter earnings by 5 cents a share.
The company did report higher overall net income of $13.5 million for the quarter, up from $13.2 million in the same period of 2006. Earnings per share were 21 cents per share compared to 19 cents in the previous year.
D.A. Davidson, a Montana-based brokerage, reiterated its "buy" rating after Nu Skin announced the third-quarter results.
The company also said Monday it was buying back an additional $100 million of its stock. It forecast $1.18 billion to $1.2 billion in revenue in 2008, with earnings per share at $1.15 to $1.22.
"We really believe we can grow the bottom line at a faster rate than we ever have in the past," Truman Hunt, president and CEO, told an investor conference Monday in New York.
Nu Skin said the poor performance in Japan and China was offset by improved revenue in the United States in the third quarter, up 17 percent, and in Europe, up 26 percent.