Inflation, COVID-19 and Ukraine conflict continue to pose challenges
By: Dave Rauf
Herbalife outperformed lowered expectations during the second quarter, and the company’s CEO says economic headwinds that hurt sales through the first six months of 2022 are stabilizing.
The Los Angeles-based direct selling giant reaffirmed projections to return to growth in the fourth quarter, following two consecutive quarters of sales declines after a record-breaking 2021.
Throughout 2021, Herbalife reported its biggest ever sales year, reporting $5.8 billion in revenue. The company’s three largest regions—Asia-Pacific, North America and EMEA—each set annual net sales records last year.
But 2022 has been a different story. Inflationary pressures, continued COVID-19 disruptions in key Asian markets and geopolitical uncertainty stemming from the conflict in Ukraine have hurt business. Herbalife had cautioned that second-quarter profit would be lower than the year-ago period when the company set full-year records for sales and profit.
During the three-month period that ended in June, Herbalife reported total net sales of $1.3 billion, down 11% compared to the same time last year. That includes double-digit declines during the second quarter in every major market where the company sells its products, except for the Asia-Pacific region, where sales increased by 15%.
CEO John Agwunobi, in a conference call with analysts, said Herbalife’s “business trends and metrics appear to have stabilized” in May and June. “That said, we acknowledge that there’s still a significant amount of work to accomplish.”
Agwunobi added that the company is still projecting “a return to net sales growth in the fourth quarter.”
Price increases of 10% in most of the company’s global markets were put in place in mid-June and allowed Herbalife to partially offset inflationary increases, Agwunobi told analysts. Many distributors pre-purchased ahead of the price increases, which resulted in “sales activity being pulled forward from July into June,” he said.
Herbalife also reaffirmed its full-year guidance, estimating that sales for 2022 would be down in the range of 4% to 10%.
- Total Sales: $1.4 billion, down 10%
- Profit: $86.5 million, down 40%
- North America Sales: $343.5 million, down 16%
- Europe and the Middle East Sales: $289 million, down 21%
- South and Central America Sales: $82 million, down 6%
- Asia Pacific Sales: $451 million, up 15%
- China Sales: $103.7 million, down 41%
$400 Million Digital Investment
Agwunobi also used the earnings call to announce the launch of the company’s latest digital strategy, a roughly $400 million investment that will use AI-powered data to “supercharge distributor growth and elevate customer experiences.”
The program is called “Herbalife One,” and Agwunobi said the program would be the “cornerstone of our front-end distributor-facing technology platform.” He described the platform as the “single most significant investment in the company’s history.”
“From reimagining sign-ups, e-commerce, downline management to providing seamless payment options and other innovative capabilities to drive ongoing engagement, satisfaction and loyalty, Herbalife One will help differentiate and strengthen our leadership in the market,” Agwunobi said.
Herbalife is expected to invest a total of $400 million into the digital platform, with anticipated expenditures in the range of $200 million to $250 million over the next three years.
Affected by ongoing COVID-19 disruptions in key markets, USANA Health Sciences reported disappointing second-quarter results, as sales declined in all of the company’s biggest regions.
Overall, the company said it made a $19.2 million profit during the first six months of the year, a 50% decline from a year ago. CEO Kevin Guest said that making year-over-year comparison is tough because 2021 was a banner year for the company financially.
But he said USANA’s performance during the three-month period ending in June was poor.
“Our second quarter results were not up to our standards,” he told analysts during an earnings call.
Several key Asia markets—USANA’s most lucrative region—were negatively impacted during the second quarter by COVID-19-related restrictions, Guest said. That includes mainland China, the company’s single biggest market. In the Philippines, for example, Guest said selling was especially tough during the quarter because “they’re completely shut down.”
“When COVID restrictions are in place that has a huge negative impact, just on people receiving products, doing business and interacting,” he said. “And we see that in Malaysia and other markets in Asia where we’re really strong.”
Despite the current sales slump, Guest said he was confident the business would return to growth in the near future.
“We’re generally disappointed across most of our markets,” he said. “But I think we’re committed to going back and making structural changes that create sustainable growth traction.”
USANA has forecast sales for 2022 to be in the range of $1.12 billion to $1.22 billion.
- Total Sales: $264 million, down 21%
- Profit: 19.2 million, down 50%
- Asia Pacific Sales: $217 million, down 22%
- China Sales: $141 million, down 15%
- Americas and Europe Sales: $47 million, down 19%
The Long Game
During the earnings call with analysts, USANA executives had a key message: The company’s strategy would remain focused on long-term success, despite current market conditions driving sales downward.
And Guest said that means promotions put in place recently to stimulate sales will likely be cut back during the second half of 2022. Some of those heavy promotions, he said, are not “necessarily in the best interest of the long-term health of the company.”
“We’re coming out of unprecedented times and we’re really playing the long-term game here. And we’ve done some promotional activities to try and maintain and keep an excitement level in a marketplace where we normally can’t traditionally do our business as we would,” Guest said. “But we feel like in the second half of the year, and as we move more into a normal pace of business, continuing to pursue those promotional activities isn’t necessarily in the best interest of the long-term health of the company as we move forward. And so we’re choosing this route for the long-term betterment of the company from a strategic perspective. And so again, we’re kind of switching up our mode of business activity on purpose because of the changing environment as we look at the long-term health of the company.”
The Georgia-based financial services firm reported a double-digit dip in profit for the second quarter, as once-booming life insurance sales—driven by COVID-19 fears—declined from record levels set during the height of the pandemic and a battered stock market negatively impacted the company’s investment and savings segment.
Primerica is a direct seller that markets term insurance policies and annuities, along with other financial services.
During the most recent three-month period, the company netted $108 million profit, down 16% from a year ago.
CEO Glen Williams told analysts during an earnings call that some declines were expected this quarter. In particular, Williams said the company anticipated that the number of term life policies issued during the quarter would dip year-over-year, as pandemic fears continued to fade and sales volume normalized.
But the company did not predict such a tough environment for the stock market over the first half of the year, which substantially affected another lucrative part of the company’s business: its investment and savings segment.
Williams stressed the importance of looking beyond top-line figures “to understand and assess the health of our core business.”
And while life insurance sales are down from pandemic peaks, Primerica still issued 77,000 new term life insurance policies during the three-month period that ended in June and revenue increased 7% to almost $411 million.
Primerica anticipated its life insurance segment would grow 4% to 5% year-over-year during the second half of 2022,
“We believe third- and fourth-quarter sales will outpace our pre-pandemic results while also exceeding their prior period comparisons,” he said.
Meanwhile, Williams said Primerica’s Investment and Savings Product segment highlighted just how quickly “momentum can shift” in a product line directly correlated to equity markets. Total product sales in the segment totaled $2.7 billion, down 12% compared to a year ago.
A combination of negative factors
—high inflation, low consumer confidence, and recession fears—dominated headlines during the first half of the year, propelling a market downturn and “creating significant headwinds,” for Primerica’s ISP business, Williams said.
But Williams cautioned analysts to look “past the market noise.” The company’s investment and savings segment was still poised to post solid numbers this year, he said.
“While we expect full year sales to decline compared to last year’s record results, it’s worth noting that 2022 results are still expected to exceed pre-pandemic levels,” Williams said.
- Profit: $ 108 million, down 16%
- Sales: $668 million, up 2%
Senior Health Segment Still Underperforming
Primerica’s newest segment—senior healthcare insurance products—is still not delivering the type of results the company had hoped for upon acquiring e-TeleQuote, a provider of senior health insurance and distributor of Medicare-related insurance policies, in July 2021.
Williams acknowledged earlier this year that the “challenges are bigger than anticipated” in the segment and early financial results were weaker than expected because of fewer approved policies, an uptick in churn, and higher contract acquisition costs.
To counter that lackluster performance, Williams told analysts Primerica was adjusting its senior health business by building out a management team and investing in more robust data to identify better leads for sales agents.
However, midway through 2022 the segment still had “not performed as we originally expected,” he said. “The company has limited health agent growth and made tough decisions with respect to certain numbers of these agents who are not profitable,” Williams said.
The goal, he said, is to reduce labor expenses and costs involved in acquiring new leads to ensure “unit economics are headed in the right direction.” Moving forward, a new agent compensation model will go into effect during the third quarter in an attempt to boost agent productivity.
“We remain committed to driving a turnaround by carefully managing sales volume,” Williams said, “as we work toward a sustainable ratio of revenue to acquisition cost.”
Tupperware sales fell to $340 million during the second quarter, down 18 percent from last year, as the legacy direct selling brand continues on its path of a multi-year rebrand intended to pump new life into the company after years of revenue declines and falling stock prices.
The maker of food storage containers, kitchen goods, and beauty products reported that sales fell during the quarter that ended in June due to a variety of global events: inflation, COVID-19 lockdowns, foreign currency headwinds, and shifts in consumer behavior in Europe.
Three of the four global regions where the company sells its products reported revenue drop-offs, including a 43% sales decline in Europe. The only global market where Tupperware saw a sales increase was South America.
CEO Miguel Fernandez told analysts during a conference call that despite a second consecutive challenging quarter, he saw promising signs that the company’s turnaround plan was working.
“Overall, we are not pleased with our current financial performance,” Fernandez said. “We acknowledge the challenging journey ahead of us to transform this business, and are confident we are executing against a strategy that will ultimately enable our business to become as big as our iconic Tupperware brand.”
Tupperware began an ambitious plan intended to reverse years of losses and negative sales growth in 2021. The company’s sales and profit increased during 2020 and 2021—the height of the pandemic and a time when consumers were eating at home more.
However, recent headwinds have set that plan back, Fernandez said. What was intended to be a three-year turnaround will now take longer, he added, because of the pandemic, inflation and unfavorable foreign exchange rate fluctuations.
Similar to other direct sellers with a global footprint, Tupperware raised prices during the quarter in many markets to partially offset inflationary pressures. Those price increases also contributed to some of the sales decline in the second quarter, Fernandez said.
The company is planning to continue investing heavily to expand into new markets, open new distribution channels, make necessary upgrades, add equipment to “our systems and processes, and attract new talent that can help us successfully take the Tupperware Brand to our consumers wherever they shop.” Those investments are being made now, Fernandez said, ahead of expected growth.
Earlier this year, Tupperware decided to withdraw its full-year guidance, citing continued global uncertainty.
- Total Sales: $340 million, down 18%
- North America Sales: $104 million, down 17%
- Asia Sales: $90 million, down 24%
- South America Sales: $74.4 million, up 8%
- Europe Sales: $70.9 million, down 43%
Expanding Tupperware’s Retail Footprint
During the call with analysts, Fernandez also touched on the company’s sales strategy to get its products into the hands of more customers by adopting a multi-channel sales approach. Tupperware’s “omnichannel” expansion plans remain on track despite challenges so far this year, Fernandez said.
That includes launching what he called “small scale efforts” during the last three months at several major retailers, including Amazon, Bed Bath and Beyond, and HomeGoods. Tupperware expected to gain additional retail distribution partners in North America in the next few months, Fernandez said.
“As you’re aware, this is new territory for us. We’re testing, pricing and merchandising strategies at these retailers from a very limited number of products in order to help us assess what resonates with today’s consumers,” he said. “These steps are not yet large-scale, but instead more like partners to help us see how consumers react to the approach in these new channels. These tests are also helping us to refine our supply chain to better serve the retail channel.”
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