The LA-based company reported this week that five of its six geographic regions experienced year-over-year net sales growth in second quarter, with China, which the company considers a region by itself, he exception. Four of six regions exceeding 20% growth.
The results echo similar reports from other direct sellers, including USANA, which recently reported 30.1% year-on-year increases for the most recent quarter, and Nature's Sunshine, which reported Q1 net sales increases on 7% to give the company its third consecutive quarter with net sales over $100 million.
The North America region grew by 7% in Q2, which was mostly driven by the US, said the company.
“It is important to note that the single-digit growth is up against an extraordinarily high prior year comparison period,” John Agwunobi, Herbalife Chairman and CEO, told investment analysts during an earnings call (transcription via https://seekingalpha.com/). “However, the two-year stack growth rate of 47% in the U.S. accelerated compared to last quarters’ two year-stack.
“We have seen significant growth in our U.S. Nutrition Club business, as many parts of the country returned to more in-person activities. Over the first half of the year, we have had an increase of over 2000 Nutrition Club locations in the U.S. with the total club count now exceeding 11,000. While we continue to monitor pandemic conditions, we are currently planning a return to some of our in-person training activities and sales events in the second half of the year utilizing a hybrid format.”
South of the border, Mexico grew 23% in the quarter, representing the first quarter of double-digit growth since 2013, said the company. In addition, South and Central America reported 23% in the quarter, led by strong sales in Chile (over 200% growth year-on-year), Bolivia (up 58%), Guatemala (up 57%), and Peru (up 20%).
Asian momentum, except China
Agwunobi told investors that growth in the Asia Pacific region increased 38% compared to the previous year, with 93% growth in India leading the way. Other countries with strong performance included Vietnam (60%), Malaysia (45%), Taiwan (21%), and South Korea (19%).
“Herbalife Nutrition India has emerged as the number one direct selling company in that country based on a recent market research store report,” said Agwunobi.
“Recall that in Q2 2020, our business in India was disrupted by the severe public health related restrictions imposed in response to the onset of COVID-19. Over the past year, our business in India has adapted well to ongoing pandemic conditions, implementing several successful digital strategies, including a virtual nutrition club model,” he added.
The one negative in the company’s second quarter was China, which experienced net sales declines of 16%. China represented approximately 11% of global net sales and just under 6% of global volume in the second quarter, said the company.
“We’re intensely focused on two key metrics that have decreased recently in China. One, the number of new service providers joining the business and two, the activity levels of our sales representatives and service providers,” said Agwunobi.
Digging into the high performing categories, Agwunobi noted that in addition to the 45% growth in the Energy, Sports and Fitness category, the targeted nutrition category, which includes vitamins and supplements, grew by 19%, while its core weight management product category grew by 12%.
The rise of millennials and Gen-Z
Herbalife also noted that it is seeing a higher interest in the business from young adults, with millennials or Gen-Z making up approximately two-thirds of new distributors and preferred customers during the second quarter.
“The ability to run their business through digital platforms and to utilize social media to connect with consumers is appealing to this tech savvy demographic,” said Agwunobi. “As we evaluate future product launches, we have Gen Z and their consumer preferences in mind. This demographic is particularly interested in sports nutrition, clean label products, and offering such as our recently launched hemp cannabinoid products.”
The adjusted EBITDA of $262.1 million for Q2 represents the largest quarterly adjusted EBITDA result in Herbalife history, said the company.
“We are initiating full year 2021 guidance for adjusted EBITDA of $875 million - $935 million, which highlights the ongoing profitability and underpins the cash flow generation of our business,” said Agwunobi.