Nu Skin Enterprises Inc. (NUS) is set to report third quarter 2014 results on Nov 5 before the market opens. Last quarter, it posted a negative earnings surprise of 11.72%. Let's see how things are shaping up for this announcement.
Factors to Consider This Quarter
Multi-level marketer Nu Skin gets more than a third of its total revenue from Greater China, which includes Taiwan and Hong Kong. However, China has always been suspicious about direct selling companies like Nu Skin and Herbalife Ltd. (HLF) as any kind of pyramid selling scheme is illegal in the country.
This skin-care and nutritional products retailer missed earnings and revenues last quarter due to lower-than-expected results in China as a result of lack of promotional activity and the suspension of new sales leader applications. Venezuela currency issues also hurt revenues and earnings significantly in the second quarter.
The problem started with an investigation by the Chinese government after a local newspaper People’s Daily (on Jan 15) claimed that the company was operating an illegal pyramid scheme in the country.
Two months later, the company was fined $540,000 by a Chinese regulator for illegal sales and misleading local consumers about the potential benefits of its products. The company resumed recruitments in early May, but is struggling to operate in full swing.
Third quarter sales figures are also expected to remain weak as the company struggles to overcome problems in China, its biggest market.
Earnings Whispers?
Our proven model does not conclusively show that Nu Skin is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Positive Zacks ESP: ESP for Nu Skin is +1.08% as the Zacks Consensus Estimate of 93 cents is lower than the Most Accurate estimate of 94 cents.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank and are therefore worth considering include:
L Brands Inc. (LB), with Earnings ESP of +6.25% and a Zacks Rank #2 (Buy).
The Men’s Wearhouse, Inc. (MW), with Earnings ESP of +2.30% and a Zacks Rank #3 (Hold).
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