Nu Skin Enterprises, Inc. (NYSE:NUS) Q3 2023 Earnings Call Transcript

Nu Skin Enterprises, Inc. (NYSE:NUS) Q3 2023 Earnings Call Transcript November 1, 2023

Nu Skin Enterprises, Inc. misses on earnings expectations. Reported EPS is $-0.74 EPS, expectations were $0.65.

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Nu Skin Enterprises’ Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today’s conference may be recorded. I will now hand the conference over to your speaker host, Mr. Scott Pond, Vice President of Investor Relations. Please go ahead.

Scott Pond: Thanks, Olivia, and good afternoon, everyone. Today on the call with me are Ryan Napierski, President and CEO; and James Thomas, CFO. On today’s call, comments will be made that include some forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today’s earnings release and our SEC filings for a complete discussion of these risks. Also, during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website for any required reconciliation of non-GAAP numbers. And with that, I’ll turn the call over to Ryan.

Ryan Napierski: Thanks, Scott. Hello, everyone. Thanks for joining us today. These are very important times for our company as we continue to navigate our enterprise transformation amidst the macro-environmental headwinds impacting consumers around the globe and pivot our business accordingly. Our third quarter performance was mixed with notable progress on strategic initiatives overshadowed by escalating pressures in key markets of our Nu Skin core business, particularly evident during the last half of this past quarter. This led to sales below our expectation and non-GAAP earnings per share to the low end of our guide. In the third quarter, our revenue was $499 million with Q3 non-GAAP earnings per share of $0.56 when excluding a strategic inventory write-down.

The primary factor leading to our underperformance was Mainland China. We had projected the growth for China in the second half of the year based on improving trends in the first half and even in the early Q3, but a significant slowdown in consumer spending across the broader economy reversed those early trends. In the Americas, prolonged inflation has constrained incomes and led to a more cautious and price-sensitive consumer. However, growth in our regions and other regions partially offset these challenges. Japan, Hong Kong, Taiwan, and Europe all experienced notable gains with the introduction of ageLOC WellSpa iO. We also generated sequential growth in our Southeast Asia Pacific and South Korea segments. It’s important to call out our Rhyz segments that performed well above expectations, which I’ll discuss more in just a moment.

While our strategic initiatives associated with our Nu Skin core business transformation have generated some positive lift in key areas over the past [indiscernible] quarters, the pace of improvement has been slower than expected, primarily due to macro factors that I just discussed. Consequently, we’ll continue refining our tactics to sync with market dynamics and maximize our investments across three strategic imperatives, EmpowerMe personalization, social commerce and our digital ecosystem. During the quarter, we continued to advance our EmpowerMe strategy through the Mainland China and Korea rollouts of ageLOC TRMe personalized weight management system and the introduction of our second connected device system, ageLOC WellSpa iO into many of our markets.

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Q&A Session

We remain focused on enhancing our personalization journey with our connected device roadmap with iO device systems currently contributing 14% of revenue in the third quarter. This aligns with our near-term goal of 15% and our long-term target of 30% by 2025. To date, we have logged more than 9 million connected device treatments and collected over 100 million unique data insights, which will play an increasingly meaningful role as we lean further into our personalization, beauty, and wellness journey. Next, we continue to make modifications to our affiliate powered business model to better support new business builders, which are yielding some promising outcomes in recent trials across multiple markets, most notably in Japan and parts of Latin America.

We will continue to lean further into this new affiliate journey as an increasing portion of today’s workforce – workforce seeks more flexible ways of working in the gig and more economy. As a reminder, our affiliate numbers were impacted by adjustments made to the eligibility requirements for affiliate rewards in some markets beginning in Q2 and continuing through 2024. For our digital ecosystem, we are continuously enhancing the features and capabilities of our Vera and Stella apps to strengthen connections with our customers and affiliates. Following recent tests of new promotional features of Vera in Europe, we were very encouraged by the revenue that was generated and the potential for coordinated app-based global promotions in 2024.

Our monthly active user ratio increased to 18% of monthly active customers for Vera, which is tracking behind our target of 30% mostly due to slower adoption in Asia. For Stella, we have more than doubled our annual target of monthly active users this year with 68% of average monthly paid affiliates on the app. We will be focusing on 2024 upon driving deeper connections with our customers and affiliates through these apps to expand engagement and conversion resulting in improved lifetime value. Given the robustness of Rhyz, it’s important for us to dive deeper into these business segments as we lean further into our broader enterprise strategy. Rhyz consists of several dynamic businesses including Mavely, a leading affiliate marketing and technology platform, which connects nearly 800 retailers and brands to more than 45,000 Mavely affiliates and helps power our Vera app.

Wasatch and Elevate Manufacturing, which currently service more than 120 customers including Nu Skin, BeautyBio, our most recent clean beauty omnichannel acquisition, which continues to expand its retail and digital channels, and LifeDNA, a DNA recommendation which holds significant future potential for our broader personalization strategy. Rhyz now accounts for 12% of our business and we anticipate it growing to 20% to 25% of revenue over the next two years. This segment delivered more than 40% growth year-over-year in the quarter underscoring the robustness of these businesses. Moreover, it advances our enterprise strategy of evolving Rhyz into a synergistic ecosystem of consumer, technology and manufacturing companies that not only enhance our core business, but all facilitate our broader beauty and wellness ecosystem enterprise transformation.

While we have not yet talked indepthly about our Rhyz strategy, I’m personally very excited about sharing our broader enterprise vision with you early next year. Before wrapping up, I’d like to share some insights on our approach to managing the business in the near term as we navigate the macro environmental uncertainties. Striking a balance between executing our long-term strategy while upholding our commitment to delivering value to our shareholders. The continued headwinds around the globe remain exceedingly dynamic and visibility is constrained as conditions can evolve swiftly. At the same time, we have ambitious plans in place for 2024 to accelerate growth in our Nu Skin core business as well as the enterprise including the introduction of an entirely new mental wellness category, which will incorporate several strategic investments made over the past few years.