Nu Skin Reports Revenue Growth for Third Quarter

Provo, UT-based Nu Skin Enterprises, Inc. reported 13% year-on-year revenue growth and 53%earnings a share growth for the third quarter ended Sept. 30, 2004. Exclusing a one-time $0.04a share restructuring charge last year, earnings a share growth would have been 26%, Nu Skinexecutives said. Revenue growth was driven by a 25% increase in active distributors and a 14%increase in executive distributors. Revenue and earnings were also positively impacted by significantyear-on-year growth in Greater China, continued momentum in the U.S. and foreign currencyfluctuations.

For the quarter ended Sept. 30, 2004, Nu Skin’s revenue was $283.3 million compared to $250.2million in the third quarter of 2003. Net income was $20.9 million, and earnings a share were $0.29for the third quarter, compared to net income of $15.1 million and earnings ar share of $0.19 for thecomparable year-ago period. Third quarter 2003 results were negatively impacted by a $5.6 millionone-time restructuring charge. Revenue for the quarter was positively impacted 3% by favorableforeign currency fluctuations.

For the nine months ended Sept. 30, 2004, revenue increased 17% over prior-year results to $831.5million, while net income improved to $55.7 million compared to $44.7 million in the prior year.Earnings a share for the first nine months of 2004 increased 38% to $0.76, up from $0.55 in 2003.Excluding a one-time charge in the third quarter of 2003, earnings a share growth would have been29% for the nine-month period. Revenue in the first nine months of the year was positively impacted4% by favorable foreign currency fluctuations.

“As reported on October 4th, we posted positive year-over-year revenue growth in nearly all of ourmarkets around the world,” said Truman Hunt, chief executive officer. “Our final revenue andearnings per share for the quarter came in slightly better than expected. In the United States, thePharmanex BioPhotonic Scanner, combined with our emphasis on our subscription ordering program,delivered 26 percent core business revenue growth. As anticipated, Japan revenue declinedyear-over-year, but we remain optimistic that the launch of the BioPhotonic Scanner and otherinitiatives will generate revenue growth in this market in 2005. Third-quarter China revenue of $26.6million was an increase of 147 percent year-over-year. We anticipate new direct selling regulationswill be announced in the next few months, and we remain confident that China will become a muchlarger market for us.”

Third quarter personal care revenue for Nu Skin was $131.5 million, up 9% compared to prior-yearresults. The improvement was primarily due to year-over-year growth in Mainland China. Nutritionrevenue increased 20% compared to the prior-year period to $146.2 million for the third quarter of2004. Pharmanex revenue was positively impacted by an increased focus on retention programsas well as the rollout of the Pharmanex BioPhotonic Scanner in several international markets.Due primarily to the divestiture of unprofitable products and services in the third quarter of 2003,Big Planet revenue decreased to $5.6 million for the third quarter.

“In Japan, we believe the November convention and the new products and distributor tools to belaunched at this event will be a catalyst for growth in this market,” said Mr. Hunt. “In addition tothe much anticipated launch of the Pharmanex BioPhotonic Scanner, the market will also introducekey personal care and nutritional products. Also, in conjunction with the Scanner launch, we aremodifying elements of our compensation plan to align with previously successful modifications inthe U.S., Taiwan, Hong Kong and several other markets.

“In Mainland China, we anticipate that the new direct selling regulations will be finalized in the nextfew months. While no timeline for implementation of the regulations has been announced, we expectdirect selling licenses will begin to be issued in mid-2005. In anticipation of these events, we arecontinuing to expand our presence in China by opening retail stores in new cities and provinces.We also look forward to the upcoming launch of the Pharmanex product portfolio, as well as theBioPhotonic Scanner in the first part of 2005.

“We continue to project fourth quarter revenue of $285 to $290 million. This would yield earningsper share of $0.27 to $0.29. Fourth-quarter results include the impact of a $4 million expenseassociated with the Japan convention, an event last held in the first quarter of 2003. In 2005, overallrevenue growth is dependent on the Scanner’s success in Japan and maximizing results under thenew direct selling regulations in China during the course of the year. For modeling purposes, weanticipate top-line revenue growth of 5 to 7 percent, and earnings per share growth of 10 to 15 percent.This forecast assumes China revenue in the $130 to $140 million range, slight local currency revenuegrowth in Japan, and a yen rate of 112 to the U.S. dollar, which is a 2 percent negative currencyimpact in 2005.”