We are adding Nu Skin (NUS) to the Hedgeye Consumer Staples Best Ideas list as a SHORT.
Nu Skin Enterprises (NUS) is one of the largest multi-level marketing firms in the world. The company sells three core products, skin care & nutritional supplements as well as a food supplement that fights worldwide hunger. Like many companies in the direct selling industry, Nu Skin has come under significant scrutiny for many elements of their business practices.
Following the 3Q15 earnings call, there appears to be a new controversy brewing that could have significant implications for the company. The new controversy centers around its business and sales practices surrounding the company’s food supplement charity, meant to fight worldwide hunger, VitaMeal. To be clear, this call has nothing to do with the plight of starving children around the world, it’s about the process, ethics and execution of getting the needy children the food.
Working against shareholders in the current environment is the company’s precarious financial position. NUS ended 3Q15 with the balance sheet and cash flow statement showing significant signs of stress. Excessive growth, scandals and a challenging business model, have the balance sheet showing significant inventory issues, and the company does not generate meaningful free cash flow. It’s clear; another scandal/investigation could pose a very serious threat to the financial stability of the company.
We will be hosting a call on Wednesday, November 11, 2015 at 11:00am ET to discuss our thesis on the company.
Our call will cover the following topics:
- What is VitaMeal?
- How material is VitaMeal to the company?
- How NUS and its global charity partners work together.
- Can VitaMeal and the selling process bring about increased regulatory risks?
- Is VitaMeal actually a tax deductible charitable contribution?
- The NUS financial problems.
- What a new scandal means for future profitability.
Details for the call will be provided next week.
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
