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February 01, 2012

Canaccord Summary

February 2012 – It’s an Election Year, and Not Just for Avon

by Scott Van Winkle



Click here to order the Direct Selling News issue in which this article appeared.


Canaccord Genuity


Last year was eventful for many direct sellers, including some management shake-ups, continued economic uncertainty and a strengthening U.S. dollar that shed international sales for many. As 2012 begins, more big news certainly lies ahead. The good news is that sales should at least be 0.3 percent higher in 2012 than 2011. Pardon the leap year humor, but an extra sales day is an extra sales day, and we get an extra sales day this year. We also suspect that 2012 will be a better year than 2011 for small-capitalization stocks. The past year included numerous uncertainties and investors appeared to target the security that more liquid, larger publically traded stocks generally offer. With small-caps underperforming large-caps in 2011, we would assume, simply through mean reversion, that there could be some outperformance for the small-caps this year. If so, this trend would benefit the majority of the Canaccord Genuity Direct Selling Index we track.

The question for all direct sellers is what will the U.S. consumer do and was the early surge of Christmas purchasing an indication of strength or the result of more aggressive marketing by retailers? The holiday selling season was a success, albeit stronger early in the season than later in the season, at least vs. the prior year. Nonetheless, questions still remain. 2012 will be full of bad news blasted at the consumer on a daily basis. After all, it’s an election year and elections aren’t won by the challenger telling you good news, and the media won’t have anything to debate unless it focuses on the weaknesses vs. the strengths.

We also must still watch Europe. The saga is not over and the implications for international direct sellers are quite high. Not only is consumer spending in the Euro Zone at risk, but the strengthening U.S. dollar will have an impact. The Canaccord Genuity Direct Selling Currency Index has moved over 11 percent in the unfavorable direction since the peak in the summer of 2011. This index tracks the U.S. dollar vs. the top 20 world currencies based upon each currency’s contribution to global direct selling revenue, as reported by the World Federation of Direct Sellers. With the U.S. dollar up over 11 percent, international direct selling revenue for U.S. based companies is down roughly 11 percent and the impact to earnings is almost always higher given U.S. based sourcing and infrastructure costs. While currency speculation isn’t our specialty, the trends all point to further U.S. dollar strength given the status of the Euro Zone and the likelihood of intervention in Japan to stem further strength of its currency.

Enough with the prognosticating. Let’s dive into the big news since late 2011. The biggest news in direct selling is undoubtedly the management transition announced at Avon. Chairman and CEO Andrea Jung is vacating the CEO slot, while remaining Chair of the Board of Directors. Investors initially applauded this announcement and in the minutes following the announcement, Avon added over $300 million to its market value in late trading. The rally was short-lived, however, as the shares failed to hold all of the rally the following day. Nonetheless, the stock has trended higher since the news. Wall Street and the media appear to want more change at the top than just the CEO title and there are armchair critics galore. Whatever transpires, significant change undoubtedly lies ahead for Avon’s strategies and management team.

Early in 2012, Blyth is catching the attention of the investment community with its third investment in the rapidly growing ViSalus Sciences business. Blyth issued 320,000 shares of Blyth stock (roughly $20 million) to ViSalus’ three founders for additional equity in the operation. Blyth now reportedly owns 72 percent of ViSalus and intends on further acquisitions of ViSalus ownership. Blyth shares rose 12 percent after the announcement, adding over $50 million to Blyth’s market value. If ViSalus continues its rate of growth, its rising portion of Blyth’s total sales will lead to the weight loss segment having a meaningful impact on Blyth’s consolidated financial performance.


Scott Van WinkleScott Van Winkle is a Managing Director of Equity Research at Canaccord Genuity, the global capital markets division of Canaccord Financial. Canaccord Genuity offers institutional and corporate clients idea-driven investment banking, research, sales and trading services from 16 offices worldwide. Van Winkle, based in Boston, has followed the direct selling channel since 1997.


Disclaimer: Canaccord Genuity has published research recommendations on Herbalife, Medifast, Nu Skin Enterprises and USANA Health Sciences and makes a market in shares of Herbalife, Medifast, Nu Skin Enterprises and USANA Health Sciences. Canaccord Genuity has provided non-investment banking securities-related services to Herbalife and Nu Skin Enterprises in the last 12 months. Past performance is not indicative of future results and these comments are not a recommendation to buy or sell the specific securities discussed.