Direct Sellers Show Mixed Results in Q3

December 17, 2024

Herbalife

Herbalife demonstrated signs of stabilization in the third quarter of 2024, as improving distributor metrics helped offset ongoing market challenges. The direct selling giant’s third-quarter sales remained flat on a constant currency basis at $1.2 billion, though foreign exchange impacts led to a 3.2% decline in reported revenue.

After 12 consecutive quarters of decline, distributor recruitment showed renewed momentum, growing 14% year over year for the second straight quarter. This improvement in recruitment, combined with strong cash flows and EBITDA performance, points to strengthening fundamentals, according to CEO Michael O. Johnson during an earnings call.

Adjusted EBITDA reached $167 million, exceeding guidance and achieving a 70-basis-point margin improvement to 13.4%, compared to the previous year. Strong operating cash flow of $100 million enabled Herbalife to reduce debt by $85 million, bringing its leverage ratio down to 3.3x. The company aims to reduce total debt by $1 billion by 2028.

Regional performance varied significantly across markets. Latin America grew 9% in local currency despite a 2% decline in reported sales, while EMEA increased 2% in local currency. North America faced continued pressure with a 6% decline, and China’s sales fell 16% year over year, though preferred customer metrics showed improvement. Overall sales volume declined 5.4%, but pricing benefits of $62 million helped mitigate the impact.

To support future growth, Herbalife launched new initiatives including the Diamond Development Mastermind Program for distributor training. The company also marked a significant milestone as its first group of distributor leaders became certified lifestyle coaches for its type 2 diabetes prevention program.

Looking ahead, Herbalife adjusted its outlook, forecasting full-year 2024 net sales to decline 1% to 2% while raising adjusted EBITDA guidance to $590 million to $620 million. Fourth-quarter sales are expected to range between a 1% increase and 3% decrease year over year.

Q3 Numbers

  • Net Sales: $1.2 billion, down 3.2%
  • Foreign Currency Impact: -2.9%
  • Adjusted EBITDA: $167 million
  • Adjusted EBITDA Margin: 13.4%, up 70 basis points
  • Volume Points: Down 5.4%
  • Operating Cash Flow: $100 million
  • New Distributors: Up 14% globally
  • Debt Reduction: $85 million

Future Growth Plans

Looking to drive sustainable growth, Herbalife plans a significant expansion of its global training initiatives in 2025, beginning with the rollout of its Diamond Development Mastermind Program to Asia-Pacific markets in January. 

The recently launched diabetes prevention program opens new channels for distributors to engage with healthcare professionals, while product innovation continues with new launches like Herbalife gels in EMEA markets.

Sustainability remains a key focus, with transitions to eco-friendly packaging underway across product lines. These strategic initiatives, supported by strong cash flow and ongoing debt reduction efforts, align with CEO Michael Johnson’s vision of establishing Herbalife as “the world’s premier health and wellness company, community and platform.”

Nu Skin

Strong performance in Nu Skin’s Rhyz segment partially offset persistent challenges in its core direct selling business during the third quarter. Revenue declined to $430.1 million from $498.8 million a year ago, with foreign currency fluctuations accounting for a 3.4% negative impact of $16.7 million.

Amid market uncertainties, Nu Skin has intensified its focus on operational efficiency, implementing aggressive cost-cutting measures and portfolio optimization. Following this year’s 20% reduction in product SKUs, the company plans an additional 30% cut in 2025, aiming to improve gross margins by 150-200 basis points.

“Despite the challenging operating environment, we are making progress in several areas of our vision,” CEO Ryan Napierski told analysts on an earnings call, emphasizing increased focus on operational efficiencies.

Major markets continue to face headwinds, particularly in South Korea and China, where macroeconomic pressures have impacted consumer spending. China’s contribution to Nu Skin’s business has notably declined, dropping from 40% to 12% over the past two years.

To address these challenges, Nu Skin is rolling out a new hybrid sales model that combines affiliate marketing with traditional direct selling, launching first in North America and South Korea before expanding to other markets in 2025.

Despite the challenges, several bright spots emerged. The Latin America and Southeast Asia markets showed growth, while the Rhyz segment, encompassing manufacturing and the Mavely affiliate marketing platform, grew more than 20%. Mavely’s network now connects 1,200 brands and retailers with over 100,000 social media influencers.

For the full year, Nu Skin projects revenue between $1.70 billion and $1.73 billion, with earnings per share ranging from -$2.32 to -$2.22, or adjusted earnings of 65 cents to 75 cents. A cash restructuring charge of $15 million to $20 million is planned for the fourth quarter to better align operating costs with current revenue levels.

Q3 Numbers

  • Revenue: $430.1 million, down 13.8%
  • Foreign Currency Impact: -3.4% (-$16.7 million)
  • Earnings Per Share: 17 cents
  • Gross Margin: 70.1%
  • Operating Margin: 4.2%
  • China Sales: Down to 12% of business from 40% over two years
  • Rhyz Segment: Up over 20%

Future Growth Plans

Nu Skin is pursuing several strategic initiatives to drive future growth. The company plans to enter India’s market in late 2025, targeting a beauty-and-wellness-conscious population of 1.3 billion. It’s launching Mind 360 cognitive health products into a $9 billion global market growing at 13% annually. 

The company is also developing new nutritional supplement innovations and expanding its integration with the Mavely affiliate marketing platform. Combined with operational efficiency measures, these initiatives are expected to help improve profitability and cash flow while supporting Nu Skin’s vision of becoming what Napierski calls “the world’s leading integrated beauty, wellness and lifestyle ecosystem.”

Primerica

Primerica delivered robust third-quarter performance, fueled by expanding distribution networks and favorable equity markets. 

The financial services provider, which sells term life insurance and investment products through licensed representatives, reported a 21% increase in adjusted operating earnings, with net operating income reaching $193 million and diluted adjusted earnings per share climbing 28% to $5.68.

A successful July convention catalyzed significant growth in Primerica’s distribution network. The company recruited 142,000 individuals and licensed 14,349 new representatives during the quarter, marking a 17% increase. These additions helped push the life licensed sales force to 148,890, up 7% from the previous year, before surpassing 150,000 representatives in October—a first in company history.

In an earning’s call, CEO Glenn Williams attributed the growth to the continuing appeal of Primerica’s business model among middle-income entrepreneurs. This expanded distribution network drove increases across all major product lines, with term life insurance policies growing 5% to 93,377, providing $31 billion in new coverage. 

Investment and savings products performed exceptionally well, with sales surging 34% to $2.9 billion, bolstered by strong equity markets and enhanced product offerings. Variable annuity sales jumped 42%, while combined U.S. and Canadian mutual fund sales rose 23%.

Client asset values appreciated 26% to $111 billion, supported by positive net flows of $444 million. The company’s mortgage business gained momentum, with year-to-date volume increasing 25% to nearly $300 million.

During the quarter, Primerica strategically exited its senior health business by abandoning e-TeleQuote Inc., resulting in a $98 million tax benefit. Strong cash flows enabled significant shareholder returns, including $129 million in stock repurchases and $31 million in dividends, bringing total shareholder returns to $463 million year to date.

Looking forward, Primerica raised its growth projections, targeting a 5% increase in licensed representatives and 22%-25% growth in investment product sales for 2024.

Q3 Numbers

  • Adjusted Operating Income: $193 million, up 21%
  • Adjusted EPS: $5.68, up 28%
  • Life Licensed Sales Force: 148,890, up 7%
  • New Term Life Policies: 93,377, up 5%
  • Investment Product Sales: $2.9 billion, up 34%
  • Client Asset Values: $111 billion, up 26%
  • Share Repurchases: $129 million
  • Regular Dividends: $31 million

Future Growth Plans

Primerica remains focused on expanding its distribution network and product offerings to serve middle-income families. A new distribution agreement with Canada Life will offer segregated funds to Canadian clients beginning next year. The mortgage business continues to expand, now licensed in 33 states through more than 3,000 licensed representatives. 

These initiatives, combined with continued strength in recruiting and investment product sales, position Primerica for sustained growth in serving middle-income families’ financial needs.

Nature’s Sunshine

Nature’s Sunshine reported strong third-quarter results driven by its global growth strategies and digital transformation initiatives. The company develops, manufactures, and sells herbal supplements, vitamins, and other natural health and wellness products through its direct selling network and digital channels. 

The company reported third-quarter sales of $114.6 million, up 3% from the prior year, or 4% in local currency, representing its highest sales volume this year. 

“Our plans are clearly benefiting the business as the investments we’ve made to expand our digital capabilities, improve our consumer proposition, strengthen our brand presence and drive out costs have all combined to help drive performance,” CEO Terrence Moorehead told analysts during an earnings call. 

The company’s digital transformation in North America showed positive results, with digital sales growing 17%. The upgraded platform improved site load speeds, conversion rates, and stability. 

While overall North American sales declined 3%, management expects positive momentum as the company’s omnichannel approach builds and it invests in more tools for nutritional health practitioners and specialty retailers. 

The Asia Pacific region grew 9% in local currency, driven by strong performance in Taiwan and Japan, up 20% and 34% respectively. The growth came from introducing more consumer-friendly product packs and increased field activation efforts. 

South Korea also showed improvement with 3% growth, driven by higher customer counts and average order values. However, China’s sales decreased 23% in local currency due to challenging macroeconomic conditions affecting consumer spending. 

The company plans to strengthen its product line, upgrade branding and packaging,
and introduce a localized version of its Subscribe & Thrive auto-ship program in the market. Europe showed resilience with 5% growth (3% in local currency), with Central Europe growing 23% driven by a positive response to newly launched Power Line products and expansion in the
Baltic region. 

The company has maintained stable operations in Eastern Europe despite the ongoing conflict in Ukraine. The company’s cost-savings initiatives, targeting $5 million in annualized savings, contributed to adjusted EBITDA of $10.7 million, up 5% versus prior year. 

Gross margin decreased to 71.3% from 73.1%, primarily due to inflation and unfavorable foreign currency exchange, though management expects sequential improvement in Q4. 

Looking ahead, Nature’s Sunshine raised its full-year 2024 guidance, now expecting net sales between $443 million and $448 million and adjusted EBITDA of $40 million to
$42 million.

Q3 Numbers

  • Net Sales: $114.6 million, up 3%
  • Digital Sales Growth: 17% in North America
  • Adjusted EBITDA: $10.7 million, up 5%
  • Gross Margin: 71.3%, down from 73.1%
  • Asia Pacific Sales: Up 9% in local currency
  • European Sales: Up 5% (3% in local currency)
  • Cash and Cash Equivalents: $78.7 million
  • Inventory: $62.3 million, down $4.6 million from year-end 2023

Future Growth Plans

Nature’s Sunshine continues to focus on its omnichannel strategy and digital transformation. The company is strengthening its digital capabilities with improved mobile-first performance and enhanced tools for nutritional health practitioners and specialty retailers. 

In Asia, the company is expanding its digital live-streaming platform in China and introducing more consumer-friendly product packs in key markets. 

 

The company’s Power Line products continue to gain traction, particularly in Europe, and management plans to more aggressively market these products as a system starting in late 2025. 

 

These initiatives, combined with cost-efficiency measures and inventory optimization, aim to improve profitability and drive sustainable growth in 2025 and beyond.

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