Nature's Sunshine starting to capitalize on Chinese market entry

By Hank Schultz

- Last updated on GMT

Nature's Sunshine starting to capitalize on Chinese market entry

Related tags Direct selling Revenue China

Network marketing company Nature's Sunshine posted strong revenue growth in its third quarter by starting to capitalize on its long-awaited entry into the Chinese market, and putting a software problem to bed.

Nature’s Sunshine, which markets a variety of dietary supplements, functional foods and personal care items, is based in Lehi, UT.  But like a lot of other MLMs in the nutritional products business, it is finding its greatest success abroad, especially in Asia. The company had a more difficult than expected time securing a direct-selling license in China which had depressed earnings for several quarters. Nature’s Sunshine China began to apply for the direct selling license with MOFCOM, China’s Ministry of Commerce, following the formation of a joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (Fosun Pharma), a leading, local healthcare company, in 2014. Nature’s Sunshine said the joint venture was the first of its kind between a US company and a Chinese company for direct selling products in China, representing a significant competitive differentiator in the marketplace. While it might be a differentiator, the joint venture didn’t do much to grease the regulatory wheels, with the granting of the license coming only in mid May 2017. But the company is making up for lost time.

CEO Greg Probert said in an earnings call with analysts that the number of distributors for the company’s direct selling model in China have more than doubled in the past quarter. Despite the short time the company has been approved for direct selling, there are now almost 2,000 independent distributors associated with the company, he said. The company also has a ‘retail club’ model for selling its products in China, and there are now more than 60 such outlets operating in the country.  Sales in China increased 33% over the previous quarter and were up 58% year-over-year.  The company continues to lose money on its Chinese operations, but then CFO Joe Baty said that the pace of sales in China is starting to recoup the company’s investment in getting the direct selling license.

Earnings details

Net sales in the third quarter of 2017 were $89.3 million, compared to $85.4 million in the same quarter last year. On a local currency basis, net sales increased 4.3% year-over-year. Sales declined 4.5% in North America and 8.1% in Latin America, but grew in Russia and Eastern Europe, South Korea, Japan and China.

The company has now gotten over some of the hurdles associated with its implementation of a new Oracle software suite. The switchover proved more protracted than expected and had complicated the ordering of products, which significantly depressed sales.  The company recorded a $1.2 million charge in the third quarter related to the software problems.

 Nature’s Sunshine stock was trading at $12.60 today, down from a 52-week high of $15.25 and all-time high of $23.24, which was recorded in 2005.

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