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Text: These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated.
Also, during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements.
We believe these non-GAAP financial numbers assist in comparing period-to-period results in a more consistent manner.
nuskin.com for any required reconciliation of non-GAAP numbers.
And with that, I'll turn the time over to Ritch.
We really do appreciate you joining us today.
As many of you may know, this will be my last earnings call as CEO of Nu Skin before transitioning leadership to Ryan on September 1.
We truly have an amazing Nu Skin team around the globe, and the future continues to get brighter for growth and prosperity of this business.
I'm excited about all that we've accomplished, but I'm even more positive about the future, and these are some of the reasons for my optimism.
First, we've taken deliberate actions to evolve into a more customer-obsessed enterprise that delivers world-class beauty and wellness products through a socially enabled affiliate platform.
We've also positioned our business to leverage powerful macro trends and shifts in consumer behaviors.
For example, we focused our product development on beauty device systems, and we have now been recognized by Euromonitor as the world's number one brand for beauty device systems for four consecutive years.
We formed key partnerships with Amazon Web Services and Alibaba and have revamped our tech strategy by moving our infrastructure to the cloud.
While this transition has greatly expanded our load capabilities and increased our ability to scale, I am most encouraged by the new tools and digital experiences that we plan to introduce, which will delight our customers and empower our affiliates.
We've modified our incentive structure to speed payments and increased flexibility to our affiliates and attract a younger demographic.
We purchased manufacturing assets to increase our speed and agility in bringing beauty and wellness products to market and securing our supply chain.
We established aggressive sustainability goals around people, product and planet with a focus on building a better tomorrow for our world.
This foundation will continue to drive growth and profitability going forward.
In the second quarter, we generated very strong results, which highlight our corporate focus on improving our geographic balance and operating margin.
We reported revenue growth of 15% with the western segment accounting for approximately 40% of our revenue.
We also improved our operating margin by 260 basis points to 12.1%, which contributed to our reported 42% earnings-per-share growth.
Through all my years at Nu Skin, I can truly say that we are better positioned for the future than we have ever been.
The transition of management has been going very well.
Ryan and I have worked hand in hand over the past several years in building the strategy of the company and executing our growth plans, and I am confident that he and our team will accelerate our growth into the future.
Let me now turn the time to Ryan to report on the business and give more detail around our second quarter results.
For the past nearly five years, we've been working together tirelessly to drive Nu Skin's transformation into an even more customer-obsessed global and digital-first company.
And I'm really extremely proud of the progress that we're making.
Before we describe the quarter in more detail, I'd like to discuss how we'll accelerate our vision to becoming the world's leading innovative beauty and wellness company that's powered by our dynamic affiliate opportunity platform.
We're all familiar with the emerging macro trends that are shaping the broader consumer marketplace, including product personalization and every brand's desire to know their customers on a more intimate level; digital, social and mobile connectivity of the direct-to-consumer experience; and the disruption of retail and e-commerce with social media and influencers to what is now being called social commerce.
As we look to the future, we're aligning our vision and strategy to take advantage of these emerging market forces and reposition Nu Skin as a disruptive beauty and wellness leader through three key transformational moves.
First, building on our heritage of developing innovative products and leveraging our leading position in beauty device systems, we will be introducing connected device systems as we personalize our product offerings and deepen our relationships with more than 1.4 million registered customers.
Second, we will continue to transform our business by leveraging the power of social commerce and our unique person-to-person affiliate marketing channel to build brand awareness and acquire customers at greater scale via social media platforms in a deeper and more personal manner than traditional retail or e-commerce.
And third, we will enable all of this through our enhanced digital ecosystem that improves our ability to attract, connect and nurture customers, which currently makes up more than 90% of Nu Skin's revenue.
Together, these three transformational moves will enable us to accelerate our vision to becoming the world's leading innovative beauty and wellness company.
So let me dive a little deeper into our strategy, beginning with our innovative beauty and wellness products.
We continue to focus on expanding our leadership position in beauty device systems with the launch of ageLOC Boost in several markets in the first half and the remainder of our markets in the second half.
These beauty device systems now make up approximately 30% of the company's total revenue.
Additionally, we're pleased with the first half results of Nutricentials Bioadaptives, our customizable skincare line that's targeted toward millennial and Gen Z emerging skincare enthusiasts.
For the remainder of the year, we will introduce two new product innovations.
First, we'll leverage our unique inside/outside R&D capabilities to develop our first beauty-from-within solution, beauty Focus Collagen+, which will be launched in several markets throughout the second half.
This proprietary formula is our entry into the rapidly expanding $40 billion beauty supplement market.
Second, we will be introducing in several of our markets our next significant Pharmanex product innovation, ageLOC Meta, a supplement that supports metabolic health and help shift the body's biochemistry toward a healthier mode.
Looking ahead into 2022, we will expand our device system leadership position by introducing next-generation connected devices, which will further enhance the company's ability to provide consumers with more personalized product experiences to meet their needs.
The second part of our strategy, our dynamic affiliate opportunity platform, is how we take these products to market in order to acquire and serve our customers.
Virtually every consumer brand today is looking to build lasting relationships directly with their customers, though they struggle to do so due to the constraints with their retail partners.
At Nu Skin, we are leveraging our global team of micro influencers in nearly 50 markets who utilize the power of their personal brand and relationships to provide authentic product recommendations and personalized customer engagement via social media.
This form of social commerce is now enabling us to expand our target market and reach new customer segments at greater scale, evidenced by the acceleration of our business over the past year.
Overall, we have a growing number of affiliates adopting social commerce in the West, and we are actively proliferating this model in key markets throughout the East.
Grand View Research is projecting social commerce to grow from an estimated $474 billion in 2020 to $3.3 trillion by 2028 with Asia currently accounting for 68% of the total social commerce revenue.
We believe Nu Skin is ideally positioned to take advantage of this growth opportunity as our social commerce business model evolves in those markets.
We continue to expand our digital ecosystem by incorporating new digital tools to empower our affiliates to make this shift, including Vera, our personal product recommendation app, which is currently in beta form and will be migrated to a new consumer experience app later this year; MySite, our most popular affiliate tool, which will be migrated into a more robust affiliate app with enhanced social commerce functionality; and our WeShop Tencent-powered social commerce tool set that will be introduced in China beginning in the second half.
Our dynamic affiliate opportunity platform is enabling us to accelerate our shift to a social commerce business model through the coming quarters.
So turning to our global markets.
We have been able to sustain growth in the West over the past year.
Despite ongoing COVID-related disruptions in certain markets, our trends are improving in our Eastern markets as we expand our product offering and social commerce business.
Our customers remained relatively flat due to the surge in the prior year while sales leaders grew 15% related to new product introductions and enhanced new leader qualification programs.
In the Americas Pacific region, the successful launch of Nutricentials Bioadaptives has helped sustain the gains we achieved during the past year.
We achieved strong revenue and leader growth due to promotional product cadencing and leadership alignment.
The year-over-year moderate customer decline in the region is primarily due to a slowdown in Argentina related to inflationary challenges.
As I mentioned earlier, we look forward to the Collagen+ and Boost launches in the U.S. in the second half of the year along with the digital tool enhancements that we'll begin to roll out in Q4.
Moving on to EMEA.
ageLOC Boost exceeded our expectations during the product preview in Q2, and we expect the excitement to continue into consumer launches in the second half of the year.
Social commerce continued to propel our business in the first half, though we are seeing some leveling in the summer months as personal travel increases over the prior year.
With new product launches and strong product promotions kicking into gear, we remain optimistic about the future of EMEA and our business there.
This was a busy quarter for us in Mainland China where the launches of Boost and Nutricentials contributed to the ongoing stabilization of this market.
We are strongly focused on growing this region, and we were excited to hold trainings in July with more than 10,000 sales leaders in preparation for social commerce and the rollout of our enhanced digital tool set, including WeShop personal storefronts.
We're also preparing for the introduction of Meta and Collagen+ in the second half.
In Hong Kong and Taiwan, we remained stable with solid sales of Boost and Nutricentials Bioadaptives.
We are focused on advancing social commerce training in these markets as well and expect to benefit from the introduction of ageLOC Meta in Q4.
Turning to Japan, a successful promotion of our ageLOC products, including devices, contributed to the fifth consecutive quarter of local currency growth.
Our business continues to perform well as we focus on engaging and training leaders on social commerce platforms ahead of our Meta previews in the quarters to come.
In Korea, a strong promotion of our TR90 weight management system in the quarter led to solid 6% growth in local currency.
Social commerce trainings continue in the region as well with Meta preview scheduled for the fourth quarter.
And finally, Southeast Asia.
This market has been perhaps most impacted by COVID with deepening lockdowns in various markets.
That said, we saw revenue and sales leader growth in the region, led by Indonesia, offset by continued challenges in Vietnam and Thailand that contributed to our customer decline.
We look forward to the introduction of Meta in the half.
So wrapping up, we continue to transform our business to become the world's leading innovative beauty and wellness company powered by our dynamic affiliate opportunity platform.
Our vision is on point to take advantage of the most significant beauty and wellness trends in the market.
And our social commerce go-to-market strategy is aligned to enable us to reach even more consumers through the power of our micro influencer affiliates.
We will continue to invest in our business to drive growth through innovation while improving our operational efficiencies to generate shareholder value in the near and long term.
I'm excited about what lies ahead for us at Nu Skin as we lean aggressively into this vision.
And with that, I'll turn the time over to Mark.
I'll provide a financial overview and then give Q3 and 2021 guidance.
For additional details, please visit the Investor Relations section on our website.
For the second quarter, revenue increased 15% to $704.1 million.
Quarterly revenue was positively impacted 6% due to favorable foreign currency.
Earnings per share improved 42% to $1.15 and benefited nicely by improved gross margin and overall cost containment.
Gross margin for the quarter improved 80 basis points to 75.6% due to product mix, product cost focus and supply chain efficiencies.
Gross margin for the core Nu Skin business was 78.3% compared to 77.6% in the prior year.
Moving on to selling expense, which, as a percent of revenue, was 39.5% compared to 40.6% in the prior year.
For the Nu Skin business, selling expense was 42.4% compared to 43.3%.
As a reminder, selling expenses often fluctuate quarter-to-quarter, plus or minus 1%.
General and administrative expenses as a percent of revenue were 24% compared to 24.7% year-over-year as we continue to carefully manage expenses and gain leverage as we grow revenue.
I am very pleased with our operating margin improvements during the quarter, which improved 260 basis points to 12.1% compared to 9.5% in the prior year quarter.
This is another strong step toward our stated goal of a 13% operating margin.
The other income expense line reflects a $4 million expense compared to a $1.6 million gain in the prior year.
The change was largely the result of fluctuating foreign currencies along with a loss on an asset disposal.
Cash from operations was $20 million for the quarter as we continued our strategic investment in inventory to meet customer demand for our new products, shipped more product via ocean to reduce freight charges and built some protection from global supply chain constriction in this period of uncertainty.
We believe this elevated inventory level will decrease over the next few quarters.
We paid $19 million in dividends and repurchased $10 million of our stock with $265.4 million remaining in authorization.
Our tax rate for the quarter was 27.1% compared to 29.8%.
Our tax rate continues to be benefited by increased profits in the West, specifically the U.S.
Our manufacturing partners had another strong quarter, growing 27% with steady momentum heading into the back half of the year.
These entities continue to benefit our core business by strengthening our supply chain and bringing U.S. profit that helps our overall tax rate.
Our annual revenue guidance is $2.81 billion to $2.87 billion.
And based on ongoing efficiencies we are driving in the business, we are now raising our annual earnings per share guidance by $0.20 to a range of $4.30 to $4.50.
This guidance assumes a positive foreign currency impact of 3% to 4% and a tax rate of 25% to 29%.
While our Q3 is historically slightly softer seasonally than Q2 due to summer vacations in many markets, our prior year quarter included product launch revenue and we saw less impact from travel last year.
Our third quarter revenue guidance is $700 million to $730 million, assuming a positive foreign currency impact of approximately 2% to 3%.
Q3 earnings per share guidance is $1.10 to $1.20 and assumes a tax rate of 25% to 29%.

user
compname reports 42% earnings per share growth in q2.
compname reports 42 percent earnings per share growth and 15 percent revenue growth in the second quarter.
q2 earnings per share $1.15.
q2 revenue $704.1 million versus refinitiv ibes estimate of $702.4 million.
sees 2021 revenue $2.81 billion to $2.87 billion; +9 to 11%.
sees 2021 earnings per share $4.30 to $4.50; +18 to 24%.

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