如新 (NUS) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Nu Skin Enterprises, Inc. Enterprises earnings conference call. My name is Kim, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Scott Pond, Director of Investor Relations. Please proceed, sir.

Thank you, Kim. We appreciate everyone joining us today. Today in the room is Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer; and Joe Chang, Chief Scientific Officer. Just a reminder, during the call, comments may be made that include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during this call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP financial numbers assist management and investors in evaluating and comparing period-to-period results in a more meaningful and consistent manner. And I'll turn the time over to Truman.

Thank you, Scott. Good morning, everyone. We appreciate you joining us today. As noted in our release this morning, Nu Skin Enterprises recorded another record quarter, with revenue of $588 million. We are very pleased with our fourth-quarter results, given that we were going up against an aggressive comp, with about $90 million in sales in connection with our 2011 fourth-quarter distributor convention. And, with a strong fourth quarter, we reached a new milestone, with annual revenues surpassing $2 billion for the first time. Our annual revenue of $2.17 billion represents a 24% increase year over year, and is our fifth consecutive record year of revenue.

On the earnings front, we came in ahead of expectations with earnings per share of $0.97, which is a 27% improvement over the prior year. This increased our annual EPS to $3.52, which is a 48% increase, or a 31% when excluding charges we took in the prior year due to our Japan customs case. These results speak to the strength and momentum of our business. As noted in our press release this morning, we also remain optimistic about 2013 and have raised our guidance for the full year, which Ritch will talk more about in a minute. Suffice it to say that 2012 was a terrific year -- we ended with the strongest quarter in our 28-year history; our key metrics continue to be strong; and, overall, we are very bullish about our ability to sustain growth going forward.

As you know, there has been a lot of noise about direct selling over the past year, and some of you may have wondered if that noise has had any impact on our results. I'm pleased to say that we continue to see strong trends around the world, and we have continued confidence in the model and our expectations for growth. The energy within our sales force surrounding our products and our business opportunity is at the highest level I have seen in the 10 years that I've been CEO of this incredible business. Together with our sales leaders, our management team is staying focused on growing the business. And we're doing that in two primary ways.

First of all, our product development teams are continuing to pave the way for our compelling product pipeline. We continue to advance our understanding of the science behind the aging process. We continue to apply the science of gene expression in the formulation of our products and in the development of future anti-aging products. This is an area where we believe we are out front and ahead of others. You will recall that we introduced the ageLOC brand just four years ago. And, in 2012, the ageLOC brand generated over $1 billion in product sales, something that we are very proud of.

In 2013, we are also looking forward to the launch of our ageLOC weight-management system. This is arguably the largest product category we are focused on in many years. The products in this weight-management system are coming along nicely, and we are excited to introduce them at our Global Distributor Convention in October. The weight management will be our focus in 2013 and 2014. And then in 2015, we have two very robust products in development, one in the healthy-aging space, and another which will allow consumers to customize their personal-care product regimen. We will discuss these products in more detail as the time for launch gets closer.

The second thing that is really driving our business is the innovations that we have made on our business opportunity platform. Over our 28-year history, our innovations on this front have enabled us to successfully differentiate ourselves. And our latest innovation, which is the refinement of our product launch process, has been an important of our growth equation. Those of you who follow us or heard us talk about the limited time offers that we implement on a global and a regional basis before making a product fully available to consumers and to our sales force -- this process has added a great dynamic to our business opportunity, and our sales leaders have aligned around this process as we execute the strategy around the world. So, for example, we generated 26% growth in Japan in the fourth quarter, which resulted in about a 6% increase for the year, with a successful limited-time offer of Body Galvanic Spa in that market. That is an example of the success we are having as a result of this mechanism. And country by country, as our sales leaders continue to better align behind this LTO launch process, we continue to drive improving results.

Our business cycle, as you saw it unfold in 2011 and 2012, is the model that you will see us execute our global and regional LTOs in '13 and '14. We generate great excitement in consumer awareness through our global LTO, and then in the subsequent years, our regional LTO launches sustain the sales force and consumer-based growth. After we stabilize the consumer base for a new product, we then repeat this cycle. So we are continuing to improve our execution of the product launch process, and expect to see great results coming from this going forward.

We've increased our guidance for the second half of 2013 as a result of increasing market forecasts for the ageLOC weight-management system. The confidence of our market management teams continues to increase, as they work closely with our sales leaders to plan the LTO. And this is the reason for the increase in our expectations, which Ritch will talk a little bit more about in a moment.

Now, from a geographic perspective, as I just noted, Japan was a highlight in the fourth quarter. We're very pleased with the work of our local management team and sales leaders in Japan. 2012 results demonstrate that Japan can indeed contribute to our global growth, and we expect Japan's growth to continue in 2013. South Korea also continues to move forward in double-digit local currency growth. As you know, it's been one of our stellar markets for well over a decade, and we expect Korea will continue to be one of our top growth markets going forward. Greater China also posted very strong growth in the fourth quarter. We continue to believe that this region holds tremendous potential, and we are continuing to invest in our business there. In fact, the construction of our greater China regional headquarters outside of Shanghai continues to progress quickly, and we expect the new regional campus to be completed by the end of this year. The development plan that we outlined in the September press release is also moving forward, and a footprint of our business continues to expand at a rapid rate.

In other markets, South Asia/Pacific has been on a great run for the past several years. Our sales leaders have been focused on expanding their consumer base and reaching into new markets, including the recent addition of Vietnam in 2012. Now we have difficult comparisons this first half of 2013, given the very significant LTO sales in the prior year. Ritch will talk more about this in a moment. But we expect a solid 2013 with strong growth in the back half of the year with the launch of weight-management system, which is a product category that is already highly relevant in this region. And we expect the region overall to show revenue growth of about 10% for the year.

The US grew 18% in the fourth quarter, when taking out sales to non-US distributors in the prior-year convention. This is a very positive result, and we continue to be optimistic about continued strong growth in the United States. And, finally, the EMEA region posted strong results with double-digit revenue growth and strong growth in sales leaders and in actives. This growth happening all throughout the region. This region is now a material part of our revenue base, and we are optimistic about continued growth throughout Europe and the Middle East.

So, from a financial perspective, our strong cash flow will allow us to continue to increase dividends, continue to repurchase shares, and also be able to invest in important growth initiatives to sustain growth going forward. As we recently announced, we plan to increase our 2013 dividends by 50%, which will represent a 140% increase in dividends over the past three years. Now, in summary, we remain focused on executing our business plan and in driving our growth in our sales leaders and in our consumer base. We are very encouraged about the positive growth trends and momentum in our business, and we fully expect 2013 to be yet another record year for Nu Skin Enterprises. So with that, Ritch, take it away.

Thank you, Truman, and hello to everyone there. We are proud to report another very strong year, improving in all of our financial metrics -- revenue, profit, operating margin, and balance sheet strength and stability. And we really are excited about a terrific year coming in to 2013. So, first of all, let me address our guidance for 2013. Today we raised our guidance for both revenue and for earnings per share for the year.

There are three primary factors impacting our guidance, for which I would like to give a little bit more detail. First of all, we see growing optimism from our region and market management teams relating to the planned weight-management launch in the back half of the year. Our initial guidance for this launch was to generate somewhere around $250 million to $300 million in sales during the limited-time offering of the product, which would happen in September and October. Today, I'm increasing our expectation of the launch of this weight-management system by $50 million, now expecting limited-time offer sales to achieve $300 million to $350 million.

Second, the strength of our business in Japan, Korea, greater China, and the US during the fourth quarter, including the positive trends and the number of sales leaders in these key markets, has encouraged me to move to the high end of the range of our guidance, or slightly above the high end of the range of the guidance that we provided for each of these markets and regions back in November. This change adds another $50 million to revenue guidance. So, together with the strength of the core business and the higher expectation of the product launch, today we are raising our increasing revenue -- or increasing our revenue guidance by $100 million, or an increase of 4% to our initial guidance that was provided just three months ago.

Third, we have adjusted our assumption for three key currencies in this next year. I adjusted the yen-to-dollar rate from 80%, which is what we guided in November, to 93%, which is where I have it now for the balance of this year. This change negatively impacts our revenue by $72 million for 2013. Offsetting this, I also adjust my model for the Korean won and the euro. I now have the Korean won at 1100, previously at 1150, and the euro at 0.77 for the balance of this year compared to my previous model at 0.80. These two changes in currencies benefit our revenue by $22 million, so the net impact from currency and the changes in our guidance today is $50 million of net headwind to our revenue. And we now expect currency to be a negative 3% to negative 4% for the year from our initial guidance of 1% to 2% that we forecast back in November.

Altogether, these changes allow us to increase overall revenue guidance by $50 million -- that puts us at $2.3 billion to $2.35 billion -- and raise our earnings per share by $0.07 to our previous range, which now takes us to $3.77 to $3.92. Our constant-currency revenue growth is now expected to be 10% to 12% for the year, up from 8% to 10% that we previously guided in November.

And now, for the first time, we are providing first-quarter guidance. We are looking to achieve revenue of $500 million to $510 million, an increase of 13% in constant-currency terms. And, as you compare our guidance to our prior year, I remind you of two unique items in the prior year. First, Q1 of 2012 included $18 million -- $15 million in South Asia, and $3 million in greater China -- of sales from our Q4 2011 product LTO that were shipped and recorded as sales in Q1. And then, secondly, we booked last year a $0.04 gain from foreign currency translation reported in our earnings-per-share number of $0.74 in the prior year. If I exclude the carryover sales, our constant-currency growth rate for Q1 is expected to be in the 16% to 17% range off a very nice year last year as well.

As we come into the second year, we would note that we are comparing against prior-year LTO sales of approximately $140 million, and a reported revenue growth rate in the prior year of 40%. I am currently modeling our sales to be down around 8% to 9% in constant currency, or 10% to 12% in US dollars. And then, of course, in Q3 and Q4 this year, we will launch our weight-management system, and we would model very, very strong growth in both Q3 and Q4 of this year. As is customary for us, and for me particularly, our intent is to model the business in a way that gives us confidence that we can deliver and hopefully beat our numbers, even if unexpected issues arise, as they always will.

Operating margin for the first half of the year will be around 15%, as we invest to support expected growth in the back half of the year. Specifically, we will be spending dollars in the first half of the year in training, logistics, marketing, R&D, including clinical support for the product launch, and China development, to sustain and support the core business growth and prepare to execute a very successful product launch in the back half of the year. The operating margin in the back half of the year will be very, very strong with these product launches. And, for the year, we expect to be in the 15.8% to 16.1% range.

So, now, a quick recap to our fourth-quarter and full-year 2012 results. The Company's operating margin for the quarter was 15.1%, representing a 20-basis-point decline compared to the prior-year, primarily due to our increase in selling expenses. And for 2012, operating margin improved to 15.7% -- that is up 40 basis points over the prior year when we exclude the Japan customs charge in 2011. We have made steady improvement in operating margin each year since 2007 and expect to expand operating margin another 10 to 40 basis points in 2013.

Our gross margin for the quarter was 83.8%; that is even with the prior year. Selling expenses came in at 45% compared to 43.3% for the fourth quarter of 2011. The increase is being driven by acceleration in our revenue growth, as well as many more sales leaders qualifying for incentive trips and recognition. Selling expense will be around 44% in the first half of the year, and then increase in the back half of the year. And that increase will be dependent upon the size of the LTO and the product launch.

General and administrative expenses for the quarter, as a percent of revenue, were 23.8%, a solid 150-basis-point improvement over the same period in 2011. And on an annual basis, our G&A was 23.3%, a 170-basis-point improvement over 2011. Our tax rate for the quarter was 35.5%, compared to 34.9% in the prior year. And, going forward in 2013, we expect our tax rate to be around 35% to 35.5%. We are very proud of our cash from operations, continue to grow at about $311 million in 2012 compared to $224 million in the prior year. And, during the quarter we paid out $11.7 million in dividends. We repurchased $21.9 million of our outstanding shares, and that left our stock repurchase authorization at approximately $135 million at the end of 2012. With that detail, we will go ahead now and open up the call for questions.

(Operator Instructions)

Olivia Tong, BofA Merrill Lynch.

First question is around Japan and the FX impact. Just broadly speaking, you gave the FX impact or the update on the top line. Can you give us a sense for what impact that could have on the bottom line, including any hedges you have in place and then also the yen denominated debt? Thank you.

You bet. I have not factored in gains, by the way, for the yen denominated debt. So by the way, in the first quarter, if the yen were to remain in the 93% range, it would probably pick up about a $3 million to $4 million benefit in other income from the translation of our debt. In terms of the overall operating income impact, it will -- the $72 impact has about a 10% -- or sorry a $0.10 negative impact to earnings per share.

Got it, thank you. And then there has obviously been a lot of noise in the marketplace. And so last time you guys held a -- since the Q3 call. Has the recent noise in the market impacted any of your distributors? What are they telling you? Certainly, the Q4 distributor numbers don't look like it's impacted them, but then again, a lot of the noise really picked up late in the quarter. Thanks.

Yes, as I indicated in my remarks, Olivia, we have been very encouraged by the lack of impact on our business results as a result of the market noise. I think our distributors are seeing through the intentions of short sellers, and they are just plowing ahead. In fact, as I indicated, I've never sensed in the 10 years that I've been CEO, as much energy and enthusiasm as there is in the field right now. And that is not just in the US, it is really globally. So, we are plowing through it, and have not seen business disruption.

Tim Ramey, DA Davidson

Ritch, you mentioned that with a greater LTO in the second half, there would be higher selling expense. And I just wondered if you would bracket that or give us a sense of how that tends to work out on a percentage-of-sales basis?

You bet, you bet, Tim. Generally our core compensation plan pays right around let's say 42% or so. And then we have another 2% -- 1% or so that is associated with these trips and so forth. When we have LTOs, essentially the average volume per sales leader goes up. And so, the payout on the compensation plan also goes up. Depending on the size of the LTO and what percentage that LTO represents of our overall sales for the quarter, it will push our selling expense higher. So, if I were to run some really rough numbers, let's say, that our LTO accounts for somewhere around 30% to 40% of our fourth-quarter sales, we would expect that our payout would go somewhere from 44% to 46% -- 46% or 46.5%. As that LTO becomes a bigger percentage of our sales, it will push the selling expense up. And generally, that is just in the month or so that we have the LTO, and then it goes right back to where the core compensation plan pays out.

The other thing that has impacted us is that we are -- well two things, we have more sales leaders qualifying for trip incentives, which has pushed that number up slightly. And then as you will recall, we announced a couple years ago, or our China management team talked about I think in an investor day that we had, a special incentive that we had in greater China, that if our greater China business achieved $1 billion, there was going to be a special payout to sales leaders who qualified along the way. And we are accruing towards that as the business looks more and more likely to hit $1 billion in 2014 and possibly even sooner than that. So that is also pushing our selling expense up slightly. The idea is that we offset the vast majority of that through the efficiencies we gained in our G&A line. So generally, our overall margins should continue to improve as we go forward.

So, just to bottom-line that, it sounds like maybe there is 60 or 70 basis points in the second half that would be incremental to the selling expense.

I have our selling expense running at around 45.2% to 45.3% for the year, but again, that will be dependent somewhat upon the size of the LTO.

Okay, great. And then I'm surprised at the -- given the shape of the business and the mix of the business, the tax-rate guidance perhaps seems conservative. I've accused you of that before, but thoughts on why tax rate wouldn't go down?

Yes, I think there is some upside to it as well on that number. Generally our plans for cash this year would be pay out a higher dividend, which we have announced, buyback stock. We've got our buildings that we are putting in that we are not planning to use our balance sheet for. We are paying out of cash flow for those. So most of that cash ends up coming back to the US. If we determine to part cash offshore, which we could, particularly in China with our building there, and so forth, there is an opportunity to bring our tax rate down below the 35% rate that I put into my guidance.

Fiza Alway, Deutsche Bank.

I guess I wanted to one, just get a little bit more detail on the weight-management LTO and how it is going to be broken down between the quarters and the regions. So is it going to be a global rollout all at the same time, or should we model it? Should it be staggered across the two quarters?

It will be staggered across the two quarters, and we are still waiting for final product registration confirmation and so forth. But the way it looks today is that greater China will launch in September, possibly Southeast Asia, a couple of markets in September, some in October. But the whole world will LTO the product between September and October. And right now, I would forecast greater China in Q3 and the rest of the markets in Q4. That may adjust slightly, but that is generally the way we are looking at it.

Okay great, and then if you have any updates on capital allocation plan. I know we've talked about potentially doing an accelerated share repurchase or levering up the balance sheet a little bit. So if you have any updated thoughts on that, that would be great.

These are always questions that we work through our Board of Directors with and continue to monitor and analyze. Right now we are generating strong cash flow, so we are using cash flow, obviously, to buy back shares. We bought back $200 million of stock last year, that was 7% of our outstanding shares. We think that is a great use of our cash. We haven't, to date, been -- used our balance sheet. It's always an option that we continue to consider with our Board, but we will evaluate that as we go forward.

Scott Van Winkle, Canaccord Genuity.

Congratulations, guys. Ritch, what was the actual interest expense in that fourth quarter?

Let me look real quick. About $1.5 million, I believe. $1.4 million.

$1.4 million, and so the remainder of the other income, what was that? Was the end going your way toward the end of the quarter?

Yes, by the end of the December it had moved, certainly not to where it is at today. In fact I can pull that -- the end rate, but there is about a $3.7 million gain in FX for the quarter.

And as you go into the LTO for weight management, when do you -- when do the numbers come to you that you are going to know how big this is, either from the standpoint of executive distributors or indications? When does visibility really become clear on how big it gets?

Scott, visibility really clarifies on a daily and weekly basis. And as our management teams around the world meet with sales leaders and as they work with their groups, the feedback we get just really clarifies visibility on the launch going forward. And we continue to believe that the $300 million to $350 million projection we announced this morning is still conservative.

Okay.

I would just highlight too that we are having to build inventory starting today, Scott. We continue to get those forecasts in and updated regularly, and we are building inventory for a launch that is $0.5 billion to support that level. If it goes to that high. So, and by the way, yen ended at 87 in December.

Okay, and then last on Japan, you talked about it obviously, big, strong fourth quarter. If you exclude an LTO in Q4 and what is coming with a big product launch later this year, what is -- what do you see underlying the day-to-day business in that market?

Yes, the market is still -- we wouldn't characterize the market as being extremely healthy, but we are encouraged with underlying trends in our active numbers and in our sales leader numbers. And we are starting to see the fundamentals of the business turn positive there, which is why we are speaking optimistically about continued growth in Japan here in 2013.

Frank Camma, Sidoti.

Most of my questions have been answered, but I was wondering if you just could give us a little more detail on Europe in particular. It was obviously a very strong quarter there, and in light of the macro environment, how did you achieve that?

The macro environment where?

In Europe being weak from an economic standpoint.

Europe? We turned a corner in Europe a few years ago where we finally, after many years of hard work, frankly, reached critical mass with sales leadership in that market. It is now really establish and effective. And I really think it has been that, along with implementation of the product-launch process that we've talked about this morning, that have enabled that market to continue to grow at strong rates, despite economic turbulence in the market. And frankly, we are still small, too. We have a lot of room to run before we really reach anywhere near our potential in the market.

So, we are still small. Happy with our progress. Sales leaders maturing and aligning behind the product-launch process, all of those things add up to 20% plus growth in a market that is otherwise difficult for many consumer-product companies.

Right, can you remind us what countries are most exposed to in Europe?

In order of size, France and Germany are our largest markets. In Eastern Europe, Hungary is a significant market. We are growing nicely in Russia, which is becoming more and more meaningful, and then in Scandinavia, Denmark and Norway are both very good markets for us.

John Faucher, JPMorgan Chase & Co.

Two questions, first off, Ritch, can you talk about -- you talked about staying a little uncommitted in terms of the balance sheet opportunity. Can you talk about what you have built into the model from a share-repurchase standpoint already? And then secondly, as you look at the rollout of the weight-loss product, particularly in Asia, what is the competitive advantage that you guys have there? And how well is the market developed from a competitive standpoint? Thanks.

Yes, so on the balance sheet and use of balance sheet, I have our share count for the year at 61 million, which is reflective of where we are at at the end of the fourth quarter. So I do not have any net benefit showing up for the year in use of our balance sheet, which is always a possibility, but again something we are working with the Board on.

With respect to competitive profiling in Asia, Asia is obviously a big place and competitive profile really varies from market to market. Some markets single-level direct-selling models do better, and in other markets multilevel models do better. Generally, we compete there on the same factors we compete everywhere else. There is a healthy appetite for high-quality Western-branded consumer products. Frankly, the pushback that we get from our management teams in many of the Asian environments is that our products aren't priced high enough, in line with other premium skin care products in particular.

I think one of the things that sets us apart really throughout the whole Asia region is that we have very mature and very experienced management teams who have been with us for a long time. They are locally -- they are natives to the markets that they manage. Certainly the case in greater China, in North Asia, and Southeast Asia. They have been with us for a long time. They know who we are. They know what we are trying to do. They are aligned behind everything we've talked about this morning. And we enjoy very strong field leadership, great sales leaders who run our businesses very effectively. And it is just enabling us to really hit stride in a region that still has tremendous potential and lots of room for us to continue to grow.

When we look at our competitors' success in markets, such as mainland China and look at companies who are doing in the range of $4 billion to $5 billion a year in sales, and we compete head-to-head with them in other Asian environments such as Taiwan and Hong Kong, Singapore, other Chinese market, it's hard for us to not be enthusiastic about our potential in mainland China and in other Asian environments. We have been far more successful in Korea than many direct sellers have been. Japan is clearly a multilevel market. Single-level companies have not done well there, whereas multilevel marketing companies have done well. And all of those things add up to really give us tremendous confidence in the fact that these Asian markets are going to continue to grow.

Okay, and specifically on the weight-loss product, what is the competitive environment there? And what gives you guys the right to succeed in that category?

Well, as you know, John, we are already succeeding in the category in Southeast Asia and in Taiwan and Hong Kong too, where we have very successful weight-management offerings. The thing that is going to distinguish us from everything else in the marketplace is the fact that we are applying ageLOC science to the category. So for the first time, the science of gene expression will be built into a product formulation that we think will yield good results for consumers. And ultimately, when someone loses weight on a product and manages their weight effectively on a product, they become a walking sales aid, and they are best brochure. That is what we're seeing right now with the success of our TRA weight-management system in Southeast Asia and in and Hong Kong and Taiwan. So the addition of a new ageLOC system is just going to add fuel to that fire.

Mark Astrachan, Stifel

Just following up on the last question, how do you think about the weight-management product cannibalization broadly in terms of the overall products, I assume more on the nutrition side than on personal care side? And then specifically, within the $300 million to $350 million that you talked about in terms of contributions in September and October?

Yes, as we shine the light on a particular new product, we are always going to see the attention shift that direction a little bit, which is not at all surprising. And so we would expect to see some modest cannibalization of other products as we launch the new weight-management system. But, one of the benefits of our new approach to product launches is the fact that the LTO volume is far more incremental in nature than a normal product launch has been in the past. And so, whereas in the past, say $100 million product launch might've been 70% cannibalistic, the new approach has cut that in half. So maybe it is only 30% cannibalizing of other sales volume. And so that is part of the beauty of the LTO approach, Mark, is that it has been far more incremental than just a standard here's a product on the market forever type of launch model.

Okay. And then looking out over the next two or three years, maybe this is a question for Ritch, where do you think selling expenses as a percentage of sales end up? And maybe broader from an operating margin standpoint, how do you think about that as well over, call it, the next two to three years?

Yes, great questions, Mark. I think selling expense again will be somewhat dependent upon the percentage of our sales each year coming from the LTO sales. I would generally forecast it out to hold in the 45% range, and that would really forecast out very strong growth into our future model. If our top-line growth rate comes down a little bit, then selling expense is going to come down as well. So, the nice thing about top line continuing to be strong, even with selling expense being higher at 45% or so, we should make that up on our G&A line.

Our commitment has been to really get to this level, and then we've shifted our focus a little bit to invest back in the business in a lot of these top line growth areas that we believe will sustain high levels of growth for extended periods of time in China, investing in Latin America, some of these other concepts we are looking at. So, I think our commitment going forward is to maintain our operating margin where it is at and try and increase it by approximately 20 to 30 basis points a year. But we will make those evaluations each year as we look at the opportunities to expand the top line and continue to drive more earnings.

The bottom line is what we are really shooting for is to increase our overall earnings and cash flow into the Company. And we try and evaluate and balance that between investing in the business and just improving operating margin. So I hope that answers your question, but that is the way we think about the business.

Yes, that's helpful. And then, lastly the weight-management gross margins, how are they on a relative basis?

Mostly similar to our other nutritional supplements. It should not be a drain or a drag to our overall. The only pressure we will get from our gross margin as we look at it today is the currency impact, as we have a negative impact from currency may impact our gross margin slightly.

Thank you for joining us this morning, everyone, and we appreciate your attention on what we consider to be one of the world's great businesses. I wanted to conclude with just one thought that has been on my mind over the course of the last nine months as the spotlight has been shined on the direct-selling channels. There are skeptics out there who want to argue that direct-selling companies and the direct-selling model is less sustainable than other types of business models. I would invite those skeptics to take a look at our November investor day presentation, where we reviewed with the investment community our revenue history over the past 20 years -- or 28 years, since we started. And I would invite those skeptics to show me where it becomes apparent that our model isn't sustainable. The reality is that direct selling is still a drop in the bucket of total consumer spending. And to me, as I have dived into this channel and into this model, I would argue that direct selling is as sustainable as any other business model and even more so.

I look at, even here in our hometown, where Nu Skin started to do business in the mid-eighties, we have worked alongside highflying companies like WordPerfect or like Novell, and then along came Geneva Steel, which was a local steel mill that enjoyed a moment in the sun. And these companies enjoyed at those moments in time tremendous profile and tremendous credibility, and yet I ask myself where are they now? Well two of them are out of business completely, and one of them is essentially irrelevant, while Nu Skin continues to put up record year after record year. So, in reality, it's really difficult for any business to really project a future out beyond five years, because the world changes a lot in a 10- or 20-year period of time.

So, if -- I don't know where Nu Skin Enterprises will be 20 years from now, because it will be a different world, but I do have a high level of confidence that five years from now, we're going to continue to celebrate record years as we work to achieve our vision of becoming a $5-billion Company in that period of time. So thank you for joining us, and we look for to answering any other questions you may have off-line.

Ladies and gentlemen, this concludes the presentation, and you may now disconnect. Have a great day.