Grace Leong

Shares of Nu Skin fell as much as 18 percent on Monday after the direct seller of personal care products forecast in an earnings report it could incur between $10 million and $14 million in restructuring charges for the fourth quarter. The restructuring move includes cutting jobs at its Provo corporate office and in China, and closing 67 retail stores in the Asian country.

Kara Schneck, Nu Skin's spokeswoman, could not immediately specify how many of its 1,200 Provo workers would be laid off and which departments will be affected.

It's also not clear how many of its 4,500 workers companywide, primarily those in China, will be affected by the planned layoffs. These layoffs are aimed at reducing general and administrative expenses and improving profitability, she said.

"We're still evaluating it. We're trying to have minimal impact on the corporate office. We're looking to see how we can make the international market more profitable," she said.

This round of planned layoffs comes on the heels of a $13 million restructuring effort the company completed in May 2006, a move that resulted in the layoffs of 226 Provo executives and employees.

Shares of Nu Skin closed at $15.06, down 8.02 percent or $1.36 in Monday's trading session. In after-hours trading, the stock dropped another 10.51 percent or $1.64 to $13.96.

The company, in SEC filings Monday, said it expects to incur between $7.75 million and $10.5 million in employee severance and other compensation charges, and between $2.25 million and $3.5 million in lease termination costs for the fourth quarter. About $2 million of the restructuring costs will be non-cash charges.

To trim overhead in China, the company plans to close 67 of its 115 retail outlets and branch offices in smaller cities, and focus instead on opening five flagship stores in the key provinces of Shanghai, Beijing and Guangzhou. At one point, the company had as many as 160 retail stores in China.

"We believe we can operate more effectively and more efficiently by focusing our business around our larger flagship stores, complemented with small, satellite retail counters or kiosks in key markets," the company said in its SEC filing.

The Provo company has been operating as a storefront-based retailer in China since 2002 while waiting to be approved as a direct seller. But even after receiving its long-awaited direct selling license in July 2006, Nu Skin still faces a challenging regulatory environment in China. As a result, the company's executive distributor count in the area is flat in the third quarter from a year ago, while the number of active distributors dropped 7 percent.

"There's a lot of potential in China because of the large population there. But it's also a very new market for direct selling," Schneck said. China is now slowly relaxing a ban on direct selling it had implemented in 1998 to crack down on large-scale pyramid schemes after it discovered that such schemes were flourishing along with legitimate marketers such as Amway Corp. and Avon Products Inc.

Nu Skin, in its third-quarter earnings report released Monday, said revenues in greater China were flat at $51.9 million from a year ago, with sales gains in Taiwan and Hong Kong offsetting a 7 percent drop in revenues from mainland China.

Revenues in Japan, which account for nearly half of the company's earnings, were also hit by unfavorable foreign currency fluctuations, which impacted revenues by 7 percent on a year-on-year basis.

Truman Hunt, the company's president and chief executive officer, said new Japanese and Chinese management teams are implementing plans to boost business in those markets.

"At the end of the third quarter in Japan, we began launching aggressive sales initiatives focused on distributor recruitment.

The enhancements to our China operations are scheduled to be fully implemented by the second quarter of 2008," he said.

The Provo company saw its third quarter net profit edge up to $13.5 million, or 21 cents per share, from $13.2 million, or 19 cents per share, a year ago. Total revenues were up 5 percent to $290.7 million from a year ago.

"In the fourth quarter, we will execute additional operational modifications that we expect to improve our operating margin to 10.5 percent for 2008, significantly increasing our earnings per share," Hunt said.

For the fourth quarter, Nu Skin predicts revenue of $295 million to $300 million, while analysts expect a profit of $302.4 million, according to a poll by Thomson Financial.

For fiscal 2008, the company expects earnings per share of between $1.15 and $1.22 on revenue of $1.18 billion to $1.2 billion. Analysts polled by Thomson Financial expect net income of $1.12 per share on revenue of $1.22 billion.

The company also announced Monday it is investing $100 million to buy back shares on the open market and in private transactions. The $100 million share repurchase adds to the $14 million remaining from the prior repurchase.