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March 01, 2012

Canaccord Summary

March 2012 – A Brighter Outlook Early in 2012 and a Currency Revisit

by Scott Van Winkle

Source: for currencies and Direct Selling News for global sales distribution

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

Canaccord Genuity

The stock market has begun 2012 with some gusto as the S&P 500 has risen 7 percent through mid-February. There have been several catalysts for stocks’ rise, but generally better U.S. economic data and hints of optimism with Europe’s debt crisis appear to be the major topics for investors. There is rising confidence that the American consumer may be improving as well. For direct sellers, this should buoy confidence and potentially portend a better 2012. Additionally the European progress that ebbs and flows daily has been a catalyst behind a reversal trend in the U.S. dollar’s rally that began in summer 2011 and was the subject of our column several months ago. The reversal, assuming it continues, should be a meaningful positive for those direct sellers with a significant international presence.

Last year, we began tracking a global basket of currencies specific to direct selling. Our methodology for tracking currencies in the direct selling industry is that we produced a U.S. dollar index against the foreign currencies of the top 16 direct selling markets (markets with sales above $1 billion annually). We utilized 2008 sales data from the WFDSA and published in Direct Selling News. We weighed each currency by its contribution to the collective sales of the top 17 markets (the international markets plus the United States). The result is a U.S. dollar index specifically designed to track the currency trends of global direct sellers. As the chart on this page illustrates, the U.S. dollar has weakened vs. the basket of foreign currencies over the last 2 months after a strong U.S. dollar run in the back half of 2011. This should benefit the reported sales and earnings of U.S. based multinational direct sellers.

As Q4 earnings have begun to be reported in the direct selling industry, there again are pockets of strength and weakness, along with a clear negative currency impact. Avon Products reported fourth-quarter results that illustrated a challenging end to the year while Nu Skin posted the strongest quarter in the company’s history that exceeded even the most robust expectations. As the other major direct sellers report, we expect to see further examples of strength, with regional and product category inconsistencies. The improving economic data has us encouraged that 2012 trends will improve as the year progresses in the United States, and we expect a general trend of improved momentum later this year.

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.