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Herbalife Nutrition Difficulty Adapting to China

Herbalife Nutrition lowered its sales during the first nine months of 2021 in China, a market where pyramid promotional schemes are banned.

In the China region, the company reported net sales of $ 154.0 million and $ 499.1 million for the three and nine months ended September 30, 2021, respectively.

Thus, net sales decreased 66.0 million, or 30.0%, and 120.3 million dollars, or 19.4%, for the three and nine months ended on that same date, respectively, compared to the same periods in 2020.

Explaining the 30.0% decrease in net sales for the three months ended September 30, 2021, Herbalife Nutrition said it was primarily due to a decrease in sales volume, as indicated by a 36.2% decrease in Volume Points, partially offset by a favorable impact of 4.6% from fluctuations in foreign currency exchange rates.

1) Contribution margin consists of net sales less cost of sales and Royalty overrides. For the China segment, contribution margin does not include service fees to China independent service providers. (2) Service fees to China independent service providers totaling $85.9 million and $124.1 million for the three months ended September 30, 2021 and 2020, respectively, and $279.1 million and $352.0 million for the nine months ended September 30, 2021 and 2020, respectively, are included in selling, general, and administrative expenses.

Meanwhile, the 19.4% decrease in net sales for the nine months ended September 30, 2021 was primarily due to a decrease in sales volume, as indicated by a 27.6% decrease in Volume Points, partially offset by a favorable impact of 6.1% from fluctuations in foreign currency exchange rates.

Herbalife Nutrition

The company believes that the volume decreases for the quarter and year-to-date period compared to the prior year periods were attributable to several factors, including the efforts it is making to ultimately strengthen the consistency and sustainability of its business in China.

In December 2020, Herbalife Nutrition increased the requirements for its sales representatives in China to be eligible to apply to become independent service providers, with further modifications during the third quarter of 2021.

In addition, the frequency and attendance of its training and sales meetings in person and of its Members, which are important for the business, since they are a central channel to attract and retain customers, provide personal and professional development to its Members and promote its products. , are below previous year levels due to the intermittent effects of the Covid-19 pandemic and the residual effects of the Chinese government’s 100-day review of the health products industry, which concluded in April 2019.

Regulations

China has issued regulations governing direct selling, prohibiting pyramid promotional schemes, regulating electronic commerce, and various related administrative methods and proclamations have been issued.

To operate under these regulations, Herbalife Nutrition created and introduced a modified business model specific to China based on its understanding of how Chinese regulators interpret and enforce these regulations, its own interpretation of and compliance with applicable regulations, and its understanding of the practices of other authorized direct selling organizations in China.

Herbalife Nutrition is a global nutrition company that sells weight management; targeted nutrition; energy, sports and fitness; and external nutrition products through a network of independent members, or members.

The Company sells its products in six geographic regions: North America; Mexico; South and Central America; EMEA, which is made up of Europe, the Middle East, and Africa; Asia Pacific (excluding China), and China.

 

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