HERBALIFE LTD. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Distributor Rebuilding: New distributors worldwide were up 14% YoY, marking the second consecutive quarter of year-over-year distributor growth after 12 quarters of decline. Initiatives include the Mastermind program (launched in the U.S. and expanding to Asia-Pacific), Herbalife Premier League, and customer loyalty programs in China.
• Product Launches: Launched Herbalife gels in EMEA, Herbalife24 prolonged energy gel in EMEA, and made sustainability efforts like repackaging Herbalife24 products to reduce plastic usage.
• Sponsorships: Supported Olympic and Paralympic athletes, the LA Galaxy, and launched the New Her campaign to highlight support for women in sports.
• Guinness World Record: Set a Guinness World Record for the largest high-intensity interval training class across multiple venues.

Segment Performance:

• Net Sales: Quarter three net sales were $1.2 billion, down 3.2% year-over-year (YoY) on a reported basis, but flat on a constant currency basis. Regionally, Latin America had local currency net sales growth, EMEA was relatively flat, Asia-Pacific had a 1% YoY reported decline but 1% local currency growth, North America saw a 6% YoY decline but with improving trends, and China experienced a 16% YoY net sales decrease.
• Adjusted EBITDA: Quarter three adjusted EBITDA was $167 million, exceeding guidance, with an adjusted EBITDA margin of 13.4%, up 70 basis points versus Q3 2023.

Guidance:

• Full Year 2024: Net sales guidance revised to a range of down 1% to down 2% versus last year. Adjusted EBITDA expectations raised to a range of $590 million to $620 million. Capital expenditures range reduced to between $120 million to $140 million.
• Fourth Quarter 2024: Expected net sales to be in the range of up 1% to down 3% YoY. Adjusted EBITDA expected to be in the range of $105 million to $135 million. Planned capital expenditures for the fourth quarter are in the range of $25 million to $45 million, with an additional $7 million in capitalized SaaS implementation costs.

Risks:

• Macro Factors: Impact of economic conditions on demand in various regions, including potential negative effects from higher borrowing costs and inflation.
• Distributor Attrition: Potential churn among new distributors if models are not optimized for productivity and retention.
• Input Costs: Uncertainty around input cost trends and competitive responses that could affect gross margins.

Question and Answer: Q: Provide more color on sales volume in North America and turnaround in major regions.

A: Michael Johnson discussed rebuilding the distributor base, the Mastermind program, and key account management to support distributors and drive growth.

Q: Gross margin outlook and price increases.

A: John DeSimone stated most price increases for the year are already done, import costs are under control, and no meaningful changes expected in gross profit for the rest of the year or next year.

Q: Distributor trends in North America and churn.

A: Stephan Gratziani talked about rebuilding the base, model optimization, and support programs to address attrition and improve distributor productivity.

Q: China market performance.

A: Stephan Gratziani discussed the customer-centric strategy, launch of a customer loyalty program, and long-term growth potential despite short-term volume declines.

Q: Cost savings program and gross margin mix.

A: John DeSimone discussed ongoing cost savings efforts and the impact of China's lower gross margin on the overall mix.

Q: New product launches and volume turnaround.

A: John DeSimone talked about steady new product launches, focus on new distributors for volume growth, and the importance of productivity of the existing distributor fleet.

Q: Debt repayment and CapEx.

A: John DeSimone discussed debt repayment plans, including focus on 2025 notes, and plans to reduce CapEx post-2025.