Nu Skin Enterprises Inc. (NYSE: NUS) shares surged on Monday on news that the fine in China will be far less than many investors were worried about. This is a $5 billion company, and the fine and penalties comes to a mere $540,000 for its sales and marketing practices in China.
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The long and short of the matter is that Chinese regulators in the Administration of Industry and Commerce indicated that certain Nu Skin products were permitted for retail store sales but had not been registered for direct sales. Nu Skin also faced a $16,000 fine over a lack of sufficient documentation.
If you want to know how concerning this was to investors, Nu Skin shares traded at $135 in mid-January before this issue was brought to light. The stock fell to less than $115 in a day, and then to under $80 within a few trading sessions.
The People’s Daily newspaper initially had alleged that Nu Skin was marketing its anti-aging products as a pyramid scheme. China is a huge market for Nu Skin as well — close to 43% of its nearly $3.2 billion in sales in 2013 were from China.
This is certainly a boost for multilevel marketing in China. The company went on to say that it is working to enhance sales training and supervision, and also that it will seek direction from the Chinese government over resuming normal business activities.
The company defined its fines by saying:
Nu Skin China was penalized in the amount of US $524,000 (RMB 3.26 million) for the sale of certain products by individual direct sellers that, while permitted for sale in Nu Skin China’s retail stores, were not registered for the direct selling channel. Nu Skin China was also fined US $16,000 (RMB 100,000) for product claims that were deemed to lack sufficient documentary support. The company understands that six of its sales employees have been fined for unauthorized promotional activities in an aggregate amount of US $241,000 (RMB 1.50 million). In addition, Nu Skin China was asked to enhance the education and supervision of sales representatives. The company is already taking steps to correct the issues raised in the AIC reviews, and is not aware of any other material enforcement investigations currently pending in China.
Shares of Nu Skin were up 19% at $89.30 Monday, with more than 5 million shares trading hands in the first 40 minutes of trading. Its 52-week trading range is $42.03 to $140.05.
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