Sales and volume growth drop
The previous part of this series noted that Herbalife’s (HLF) shares dropped in November due to disappointing 3Q14 results and guidance. The company stated that its lackluster performance was due to the “short-term effect of structural changes” to its business model and to the impact from foreign currency fluctuations. While Herbalife’s sales and volume points increased in 3Q14 year-over-year, growth has been slowing down. In this series, we’ll discuss the performance of the company’s main segments.
Herbalife’s sales growth mainly driven by China and EMEA
North American sales fell 2.2% to $223.6 million. The company said the United States saw a short-term negative impact relating to the ongoing shift toward sales leader qualification via purchases of 5,000 volume points over 12 months. Volume points fell 4%. Reports noted that the negative publicity surrounding the company has also brought down sales in the United States.
Sales in Mexico grew 1.9% to $143.9 million. Volume points were flat with the company noting on the earnings call that “volume in the quarter was impacted by the early stage implementation of some of the business enhancements.” The company has expanded in the region with an increase in sales centers and number of local retailers.
EMEA (Europe, the Middle East and Africa) sales grew 12.5% to $204.4 million with volume points up 15%. The growth was driven by Italy, Spain, Russia, and the United Kingdom, with members successfully developing tailored versions of business methods such as fitness clubs, weight loss challenges, and nutrition clubs.
The Asia Pacific region (excluding China) saw sales growth of 4.9% to $297.8 million. Volume points grew 3%. The growth was driven mainly by increases in South Korea, Taiwan, Philippines, Australia, and India, and partially offset by declines in Malaysia and Indonesia.
China’s net sales surged $44.6 million, or 33%, to $181.3 million for 3Q14. Volume points grew 24% year-over-year. It said it saw “continued adoption and acculturation of daily consumption DMO or Distributor Methods of Operation in the China market.” This was supported by the acceptance of a Preferred Customer program that Herbalife launched in 2013. Management said on the earnings call that the company has more than 350,000 registered preferred customers in China and is beginning to see a good number of those convert to service providers. Herbalife has also implemented online ordering in China.
Direct selling in China
Herbalife and its peers have restrictions on direct selling in China. Earlier this year, multilevel marketing (or MLM) peer Nu Skin (NUS), which sells skin care products, saw shares fall amid allegations of being a pyramid scheme, a claim the company denied. After an investigation in China, Herbalife was fined over the illegal sale of certain products and for making product claims that couldn’t be verified. Recently, Avon Products, Inc., (AVP) paid a fine over bribery charges in China. Other peers in the MLM space include Usana Health Sciences, Inc. (USNA), Mannatech, Inc. (MTEX), and Amway.
Sales declined 15% to $205.2 million in South and Central America mainly due to the currency translation issues in Venezuela and due to Ecuador and Argentina. More details can be found in the next part of this series.