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Nu Skin Unfazed By Allegations Of China Violations, Projects More Growth

This article was originally published in The Rose Sheet

Executive Summary

Following allegations from short seller Citron Research that it operates an illegal “pyramid compensation scheme” in China, Nu Skin gives investors a peek into its business model. The firm recorded sales growth of 40% in its second quarter, driven by a 152% jump in China, and “the best is yet to come,” Nu Skin says.

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China Probe Finds Issues With Nu Skin Compliance, Not Business Model

Nu Skin’s direct-selling model in China, the legality of which some investors have questioned, was not cited in fines levied on the company totaling $540,000. Firm says it “is not aware of any other material enforcement investigations currently pending” in the country, which accounted for nearly half of Nu Skin’s fiscal 2013 fourth-quarter sales.

Nu Skin Under Investigation In China For Pyramid-Scheme Allegations

Chinese officials are investigating allegations that Nu Skin has perpetrated “illegal multi-level marketing activities” in the country. Nu Skin is conducting its own review, having already identified policy infractions among its sales representatives during the firm’s recent period of rapid growth in China, and is putting its recruitment efforts on hold to cooperate with regulatory authorities and improve its training programs.

Avon’s Search For Growth Goes On While Direct Selling Booms Elsewhere

While other direct sellers including Nu Skin and Mary Kay report accelerating sales, Avon’s battle to stabilize its business continues, with revenue down 2% on a reported basis in the firm’s second quarter. Execs highlight positive results in Latin America and EMEA, but weakness in the firm’s North America and Asia-Pacific businesses continues to hinder topline growth.

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