This company, primarily a developer and direct seller of color cosmetic, fragrance, and skin care products and fashion& home products, has been grouped into consumer products-direct selling industry.
It seems that, except china market, the market for direct selling products has been very mature and revenue has reached maximum in the recent years as indicated by the gradually declining sales pool and thus sales volumes in US and most of Asian markets. We have seen 2-3% decrease in sales force in those markets and companies are probably going to face increasing difficulties in offsetting the decreasing revenue by raising price.
China, while increasingly tough regulation, presents an example of a much larger market size in terms of developing sales force. This has been indicated by the fast growth of revenue (15-20% annual growth) and of sales force, stimulated by incentive and product promotions, in the past several years in China market.
We have seen a slight declining in typical companies ‘gross margin (about 70% in 2017) and the flat SG&A as percentage of sales (about 61% in 2017). Therefore, the typical operating margin went down to about 130 basis points to about 8% since 2014.
The typical average stock price/cash flow ratio is about 18 ranging from 14 to 22.
It seems that the demand of products of this company has been declining in the past several years as indicated by the continuingly decreasing sale volume. The continuing decline in demand from existing customers cannot be offset by expansion of sale force due to the limited growth in sales leaders due to size of market.
The fiscal 2017 compared with the 2016
Revenue (excluding currency) decreased 2%.
Sales leaders decreased 3% and average order increased.
Unit sold decreased 4% but price/mix increased 2%.
Fashion& home sales decreased faster than beauty products.
The fiscal 2016 compared with 2015
Revenue (excluding currency and acquisition) increased 3%.
Sales leaders decreased 2% and average order increased.
Unit sold decreased 4% but price/mix increased 6%.
Fiscal 2015 compared with 2014
Revenue (excluding currency and acquisition) increased 3%.
Sales leaders increased 1% and average order increased.
Unit sold decreased 2% but price/mix increased 4%.
Its gross margin has increased from around 60% in 2014 to about 61% of 2017 due primarily to increase in price/mix (South America market). Its operating margin thus decreased to about 5% in 2017 with a slightly higher SG&A as percentage of sales, which is 57% in 2017 up as a result of foreign currency impacts.
Stock performance
This stock currently has a stock price/cash flow ratio of 14($2.8/share). We think that its stock is being relatively fairly valued compared with its peers.
