The multi level marketing giant, the world’s largest MLM devoted solely to the sale of nutritional products and the second largest overall after Amway, reported that sales of sports nutrition products were up 25% in its fiscal 2020. In its other two broad product categories, targeted nutrition sales were up 20% and weight management sales grew by 10%.
This marks a shift for the company, whose distributors used to be identifiable by their “I lost weight, ask me how” lapel buttons. In recent years Herbalife has moved consciously into sports nutrition with high profile athlete endorsements such as those from global soccer star Cristiano Ronaldo.
Herbalife’s fourth quarter revenue came in a $1.4 billion representing a year-over-year rise of 16%. The year end figure sales figure represented a 13.6% rise over what the company achieved in 2019.
North American sales lead the way
Sales were up strongly in North America, which reversed a trend of gradual decline that had been observed in the previous decade. Sales jumped 33.9% year over year in the region.
Another big growth area for the company was India, where net sales topped $100 million for the first time. That represented 21% year over year growth.
Sales were down in mainland China, declining by about 8% year over year. Herbalife management attributed this decline to new requirements put into place for how distributors could advance within the company’s compensation system. These new standards require a certain amount of sales be made directly to end users, rather than product being sold on to downline distributors.
Compensation shift accounts for China sales fall
The requirements are similar to what the company was forced to put into place to settle a complaint brought by the United States Federal Trade Commission, which had alleged that the company was operating an illegal pyramid scheme. While not admitting wrongdoing, Herbalife agreed to make the changes in its compensation structure and also agreed to pay a $200 million fine.
Herbalife president John DeSimone said some of the decline in China was attributable to the new requirements and said a similar depression of sales occurred in the United States after the requirements were put into place in that market. DeSimone said the US market took six to nine months to adjust to the changes and he expected the Chinese market would react similarly.
DeSimone also said that Herbalife is partnering with Alibaba to provide a more robust technology for online streaming events in China. Past experience had shown that the events were so popular that the company’s back end systems could not handle the order volume that came in during the events.
Sales don’t meet market expectations
Good as the financial report was, it didn’t meet consensus market projections. Herbalife’s share price declined more than 3% after the results were reported, and remains depressed today at $46 a share. The company’s all time share price high came of more than $60 a share came more than two years ago in early February 2019.