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How Herbalife’s Sales Could Mark an Improvement in 2018

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Challenges persist in the near term

Herbalife (HLF) has been disappointing investors with its sales performance. The company’s top line has fallen for the past four quarters, and the trend is likely to continue—at least for the next couple of quarters.

Herbalife’s sales have been negatively impacted by sluggish sales in North America, particularly in the US (SPY), following a business transition due to an FTC (US Federal Trade Commission) settlement. Meanwhile, continued weakness in South and Central America, Mexico, and China (FXI) has remained a drag in the near term.

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The graph above shows that the company’s volume points are declining across most regions. In the near term, the company’s sales are expected to fall due to the negative impact from recent earthquakes in Mexico, and the business transition impact in the US and softness in China, South America, and Central America are likely to take a toll on its top line. Tough YoY (year-over-year) comparisons for its North America and China businesses are expected to be drag through 1Q18.

Outlook

Despite the above challenges, Herbalife’s management noted that volume points are showing sequential improvements across major regions. The company expects its US business to return to growth in 2Q18.

Meanwhile, Brazil is showing signs of improvement, and sales in Mexico are anticipated to turn to growth in 2018. Herbalife’s top line is projected to gain from the acceleration of new product launches, sales-driving activities, investments in technology, and an increase in distributors.

The company expects its top line to rise 5.5%–9.5% in 2018, driven by 2.0% to 6.0% growth in volume points. Meanwhile, 4Q17 sales are also projected to improve on a YoY basis.

Analysts expect Herbalife’s top line to rise 5.8% in 2018, but they also expect sales for rivals Usana Health Sciences (USNA) and Nu Skin Enterprises (NUS) to grow YoY in 2018. Vitamin Shoppe’s (VSI) sales are expected to fall.

Herbalife’s sales are expected to have declined in 2017, given the tepid performance during the first three quarters of 2017. The company expects its top line to mark a fall of 0.6%–1.9% in 2017, reflecting a volume-point decrease of 2.9%–4.2%.

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