NuSkin Climbs on Minimal China Fine - Analyst Blog
March 25 2014 - 5:00PM
Zacks
Shares of Nu Skin Enterprises, Inc. (NUS)
surged 18.2% on March 24 after the company escaped a harsh judgment
from China regulators, having to pay a smaller-than-expected fine.
The move sent waves of optimism with the company believing that an
investigation into its sales practices in China could have come to
an end. Nu Skin can now normally operate in the country.
The regulatory reviews conducted by China's Administration of
Industry and Commerce in Shanghai and Beijing disclosed that Nu
Skin will be penalized only $781,000 for illegal product sales and
for misleading consumers. Nu Skin will have to pay $524,000 for the
sale of certain products by direct sellers, which were not
registered appropriately in the country, $16,000 for product claims
that lack sufficient documents, and $241,000 for unauthorized
promotional activities carried out by six Nu Skin employees.
The penalty came as a warning to all direct-selling companies
operating in China of the pitfalls of not abiding by Chinese laws.
And just adhering to these laws does not seem to be enough. It is
also important to train the staff about the correct protocol and
trade practices.
Nu Skin, on its part, said that it is taking up necessary steps
to correct the issues raised in the review and will cooperate with
the government with the investigation. The company is also working
towards enhancing training programs for its sales representatives
in order to resume normal business in China.
The investigation by the Chinese government began in Jan 2014
following claims by a local newspaper People’s Daily (on Jan 15)
that the company was operating an illegal pyramid scheme in the
country.
The news of the investigation not only affected the share price
of Nu Skin but also that of several other companies like
Herbalife Ltd. (HLF) and USANA Health
Sciences Inc. (USNA). These companies have the same
distribution model and therefore investors feared that the
investigation could extend to these direct selling companies as
well.
Multi-level marketers like Nu Skin and Herbalife have always
been under the scanner, as they employ sales representatives to
sell their products. Most recently, Herbalife has received a Civil
Investigative Demand from the U.S. Federal Trade Commission to
investigate its operations. Herbalife welcomed the inquiry and
insisted that its business model complied with anti-pyramid
regulations.
Chinahas always been suspicious about direct selling companies.
These were earlier banned by the Communist Party in 1998. Since
then, any kind of pyramid selling scheme is illegal in the country.
In 2005, the ban was lifted after multilevel-marketing companies
changed their agent payment structure.
Nu Skin holds a Zacks Rank #4 (Sell). A better-ranked company in
the cosmetics and toiletries industry is Helen of Troy
Limited (HELE), which holds a Zacks Rank #1 (Strong
Buy).
HELEN OF TROY (HELE): Free Stock Analysis Report
HERBALIFE LTD (HLF): Free Stock Analysis Report
NU SKIN ENTERP (NUS): Free Stock Analysis Report
USANA HLTH SCI (USNA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Herbalife (NYSE:HLF)
Historical Stock Chart
From Mar 2024 to Apr 2024
Herbalife (NYSE:HLF)
Historical Stock Chart
From Apr 2023 to Apr 2024