China orders investigation of Nu Skin case (franchising implications?)

BEIJING, Jan 16 (Reuters) - China's State Administration for Industry and Commerce (SAIC) on Thursday ordered local authorities to investigate media reports that allege skincare products company NU Skin Enterprises Inc distributes false information and conducts illegal business in China, state news agency Xinhua said.

Xinhua quoted an SAIC spokesman as saying the administration would take legal measures against any legal violations if investigation results showed the media reports were factual.

The People's Daily, the Communist Party mouthpiece, said on Wednesday that NU Skin had been exaggerating its influence and creditworthiness in company brochures by passing advertisements for news reports, and organising "brainwashing" gatherings.

On Thursday, the newspaper said the company was suspected of conducting illegal multi-level marketing activities.

NU Skin said on Thursday that the article published the previous day contained "inaccuracies and exaggerations that are not representative of NU Skin's business in China". It did not believe, it said, "that the article was the result of any particular government inquiry".

State media took many foreign firms to task last year over pricing, poor quality and shoddy customer service. They include Starbucks, Apple, Samsung Electronics , the KFC restaurants of Yum Brands Inc and British drugmaker GlaxoSmithKline PLC

Company response:

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Nu Skin Response To People's Daily Article

PROVO, Utah, Jan. 15, 2014 /PRNewswire/ -- Nu Skin Enterprises, Inc. (NYSE: NUS) statement on the People's Daily article: "The article that appeared in today's People's Daily contains inaccuracies and exaggerations that are not representative of Nu Skin's business in China.  The reporters did not attempt to verify any information with Nu Skin. We do not believe that the article was the result of any particular government inquiry. "We are dedicated to operating in full compliance with applicable regulations as interpreted and enforced by the government of China. Nu Skin has an 11-year history of doing business in China under these regulations. Our business activities are regularly monitored by the government in this rapidly growing marketplace. As is our practice, we will communicate openly with regulators to address questions arising from this article. "Nu Skin has government-approved direct selling licenses to operate in a majority of provinces in China. The most recent government licensure in July further expanded our direct selling footprint to include 19 of the country's 32 provinces. "We actively educate our sales force to follow all regulations as well as company policies and procedures, and any member of our sales force not operating in accordance with local law or with our company policies is subject to discipline." About Nu Skin Enterprises, Inc. Nu Skin Enterprises, Inc. demonstrates its tradition of innovation through its comprehensive anti-aging product portfolio, independent business opportunity and corporate social responsibility initiatives. The company's scientific leadership in both skin care and nutrition has established Nu Skin as a premier anti-aging company. The company's anti-aging products feature the new ageLOC suite of products including the ageLOC® TR90™ weight management and body shaping system, ageLOC® R2 nutritional supplement, and ageLOC® Transformation daily skin care system. A global direct selling company, Nu Skin operates in 53 markets worldwide and is traded on the New York Stock Exchange under the symbol 'NUS'. More information is available at http://www.nuskin.com. Please Note: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended that represent the company's current expectations and beliefs. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws and include, but are not limited to, statements relating to the company's compliance and government relations efforts and the company's initiatives and plans in Mainland China; statements of belief; and statements of assumptions underlying any of the foregoing. In some cases, you can identify these statements by forward-looking words such as "believe," "expect," "project," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will," "would," "could," "may," "might," the negative of these words and other similar words. The forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed herein. These risks and uncertainties include, but are not limited to, the following: risk of regulatory scrutiny and investigations in Mainland China, which have from time to time in the past, and could in the future, negatively impact the company's business, including the interruption of sales activities in stores, loss of licenses, and the imposition of fines; and risks associated with rapid growth in Mainland China, which could strain our ability to effectively manage our operations, and result in, among other things, product delays or shortages, operating mistakes and errors, inadequate customer service, inappropriate claims or promotions by our sales force, and governmental inquires and investigations, all of which could harm our revenue and ability to generate sustained growth and result in unanticipated expenses. The company's financial performance and the forward-looking statements contained herein are further qualified by a detailed discussion of associated risks set forth in the documents filed by the company with the Securities and Exchange Commission. The forward-looking statements set forth the company's beliefs as of the date that such information was first provided and the company assumes no duty to update the forward-looking statements contained in this release to reflect any change except as required by law. CONTACTS: Investors — Scott Pond (801) 345-2657, spond@nuskin.com Media — Kara Schneck (801) 345-2116, kschneck@nuskin.com SOURCE Nu Skin Enterprises, Inc.