With the year-end reports in hand, two weeks ago I published my review on giants’ (i.e. Avon, Natura, Nu Skin, Oriflame, Tupperware plus Amway) 2014 performances. As Herbalife had announced it would report later on, I chose not to wait for it. And now we have Herbalife’s figures, so let’s take a glance how it did last year.
During recent years, Herbalife has been one of the shining stars in the direct selling industry. As you see on the below tables, since 2009 its sales has increased by more than twice, operating income by 73%, and net income by 52%.
Herbalife has on the other hand, had to deal with an issue in the last two years many would not ever think would arise. Yes, a hedge-fund manager by the name of Bill Ackman ignited the whole thing by giving a presentation in December 2012. What he said in essence were:
1) Herbalife was nothing but a pyramid scheme,
2) Its business was not sustainable, and
3) Herbalife’s share value would soon be “zero”.
He added to say he had “short-sold” Herbalife shares. Later, he also said he had put in this bet an amount between $400-500 million.
In 2013 and 2014, Bill Ackman continued its attacks through various presentations, conferences and statements. And in April 2014, U.S. Federal Trade Commission (FTC) said it opened an investigation. Soon, news leaked about an FBI investigation this time. FTC later on denied any links between Bill Ackman’s accusations and FTC’s initiative.
All these put together, running this business should not be an easy task. So far neither of these investigations reached any conclusions, nor Herbalife’s value has gone down to “zero” as Ackman had predicted. However, it is obvious that Herbalife’s business was hurt in 2014 after all these. Some also add to this, Herbalife’s restrictive measures it took after Bill Ackman’s accusations as a factor in this slow-down, too.
In 2014, Herbalife’s sales growth was 3% as compared to previous year. Region-wise, the company managed to grow in China (41%), in EMEA (15%), in North America (2%), and in Mexico (1%). Negative performances came from South & Central America (-15%) and Asia-Pacific (-4%).
The last quarter on the other hand, was not as bright as the whole year. Only two regions (China and EMEA) posted growths, and company’s global sales performance in the quarter was -11%.
Despite the geneal slow-down, Herbalife CEO Michael O. Johnson was happy saying, “2014 saw record-breaking retention rates for our sales leaders. We achieved what we believe is an industry leading and impressive retention rate of 54.2%, that’s up from 51.8% in 2013. We are continuing to grow our customer base and have more customers in 2014 than any time in our 35-year history, and we reported record net sales for the year of $5 billion. While 2014 was a record year in many respects we certainly face unique challenges.” Apparently, Herbalife’s challenges last year were more on the profitability side rather than sales growth. Investors were quite unhappy with Herbalife’s results so its stock price went down by 11% the day after these announcements.
For 2015, Herbalife said it expected its revenue to decrease between 6-9% as compared to 2014.
Coming back to FTC’s investigation, we don’t know what will come out at the end. If the worst happens and FTC decides Herbalife is a pyramid scheme, I think the next step should be to close FTC’s related department down. Otherwise, it would be difficult for FTC to explain for not being aware of a fraudulent scheme that has been operating since 1980, has become the third largest direct selling company in the world and whose shares have been freely traded on the New York Stock Exchange for many years.