Inflation, geopolitical uncertainty, supply chain and COVID-19 contribute to declines
The Utah-based seller of skincare and nutritional products reported first-quarter profit of nearly $39 million, down 18 percent from a year ago, but said it made sales gains in several key regions despite heightened uncertainties in the global market that are negatively affecting direct selling companies.
Nu Skin said sales for the three-month period that ended in March were roughly $605 million, a drop of 11 percent compared to the same time last year.
However, the company exceeded the high end of its revenue forecast for the quarter by $15 million, buoyed by sales increases in the U.S., Taiwan and Southeast Asia. Each of those markets were bolstered with momentum from new product launches.
CEO Ryan Napierski, in a call with analysts announcing quarterly results, said he’s pleased with the company’s first-quarter results, and added that it had “outperformed expectations.”
“We’re particularly encouraged with our results considering the continued global pandemic disruptions, including increasing lockdowns in China and the conflict in Europe and global economic challenges,” Napierski said.
But Napierski warned that much of the uncertainty affecting international markets would spill into the second quarter, namely strict COVID-19 measures in China resulting in lockdowns that are now extending to Beijing and Guangzhou. The war in Ukraine, Napierski said, is also creating “major disruptions” and impacting the company’s business across the entire region.
“We anticipate these disruptions and the loss of momentum to impact our Q2 and annual results,” he said. “While we anticipate near-term headwinds given the dynamic macro environment, we remain confident in the significant growth potential of our business.”
As other direct sellers have done, Nu Skin has resorted to raising prices to offset market disruptions. Most of the company’s global markets will see prices increase by 5 percent at the start of the second quarter, while a few will implement price changes in the early summer or later in the year.
As a result of ongoing global unpredictability, Nu Skin also announced it is changing its annual guidance, lowering its revenue forecast by about $150 million. The company expected full-year revenue to range from $2.51 billion to $2.62 billion.
● Total Profit: $38.7 million, down 18 percent
● Total Sales: $604.9 million, down 11 percent
● Americas Sales: $123 million, down 8 percent
● Southeast Asia-Pacific Sales: $90 million, up 8 percent
● Europe and Middle East Sales: $52 million, down 30 percent
● China Sales: $124.5 million, down 17 percent
As part of the company’s strategic transformation plan unveiled during an Investor Day event in February, Nu Skin planned to roll out IOT-connected (Internet of Things) devices to customers in the future. It will be a key component of the company’s product personalization strategy, Napierski said.
The devices, according to Napierski, “will enhance the consumer experience and forge even stronger connections with the company to enhance personalization of product and content curation, improving customer loyalty and lifetime value.”
Coupled with the company’s Vera app, its current personalized product experience, the devices will provide Nu Skin with valuable customer data about what products they’re buying and even how they’re using those products.
And that data is expected to be particularly granular about the customer experience. One Nu Skin executive on the call with analysts went so far to say that if the devices receive data indicating customers are spending 65 percent of the time focused on one side of their face versus the other, that it could prompt the company to better tailor the design of its next generation of products to those needs.
“I kind of liken it to almost Netflix shipping DVDs versus having persona-driven content curation. In our case, it’s persona-driven product curation,” Napierski said. “In the very early stages, it will be somewhat basic in terms of how that experience goes. But just as we’ve seen with Netflix over the last decade, the degree of personalization through persona-driven management is going to increase significantly.”
Herbalife reported declining sales in almost all of its key markets during the first quarter, as inflation, geopolitical uncertainty in Eastern Europe and a new wave of COVID-19 outbreaks contributed to the downturn.
The network-marking giant said it is projecting that sales activity for the second quarter also will be down, but expects year-over-year growth to return by the fourth quarter.
During the three-month period that ended in March, Herbalife reported total net sales of $1.3 billion, down 11 percent compared to the same time a year ago. That includes double-digit declines in China, Europe and the Americas. Sales in North America tumbled almost 10 percent from a year ago.
CEO John Agwunobi, in a conference call with analysts, said cost increases, the conflict in Ukraine and ongoing COVID-19 issues in Asia and South and Central America were key factors for why the company’s results “fell short of our expectations.”
In China, Herbalife’s business was hit particularly hard due to the pandemic, with sales falling by 38 percent. The latest series of lockdowns in China, Agwunobi said, “have added to ongoing challenges in that market.”
To offset those factors, the seller of supplements and weight-loss products will take “incremental pricing actions during the second quarter,” he added. Herbalife had already increased prices in the majority of its markets during the first quarter.
The company was also planning to implement short-term and long-term cost-control measures, with the intent of getting back to growth by the fourth quarter.
“Our teams here at corporate and around the world are laser-focused on achieving this growth,” Agwunobi said.
Herbalife updated its full-year guidance, estimating that sales will be down in the range of 4 percent to 10 percent. The company also said it expected sales to be down during the second quarter in the range of 11.5 percent to 17.5 percent.
● Total Sales: $1.3 billion, down 11 percent
● Total Profit: $98.2 million, down 33 percent
● North America Sales: $326 million, down 10 percent
● Europe and the Middle East Sales: $295 million, down 17 percent
● South and Central America Sales: $82.9 million, up by 14 percent
● Asia-Pacific Sales: $408 million, flat
● China Sales: $105.6 million, down 38 percent
Herbalife said it had zeroed-in on a group of distributors failing to meet expectations during the current sales slow down: those who joined during the pandemic. Agwunobi said the decline in business was primarily attributable to the performance of the pandemic-era group.
Meanwhile, “those that joined the business pre-pandemic continue to order at historical level,” he said.
Agwunobi added that the consistent output from distributors who joined pre-pandemic “demonstrates the continued strength of the foundation of our business.”
Return to Live Events as a Sales ‘Catalyst’
Herbalife executives also said they believed there’s a solution to getting those underperforming distributors back on track:
Most of the distributors who joined Herbalife during the pandemic have never attended an in-person event, an important collaboration tool for direct sellers to energize and teach distributors how to sell products. Several company executives on the call with analysts stressed that the reemergence of live events should help catapult sales.
“We are in the belief that our return to live events is really the key, absent any other kind of global event. So what’s happened since February, of course, is we’ve had the Russia, Ukraine event. And it’s not localized to just Russia, or Ukraine. The sentiment at the consumer and distributor level could have had an impact on our activity levels across a lot of countries,” President John DeSimone told analysts. “And so absent any new event or any worsening of that particular conflict, we think that in-person events will be a kind of catalyst, almost an inflection point for our improving activity levels.”
Tupperware’s turnaround has hit a bump.
The maker of food storage containers, kitchen goods and beauty products reported that sales fell 16 percent in the first quarter, primarily due to low recruiting and salesforce activity amid Russia’s invasion of Ukraine as well as COVID-19 lockdowns in Asia.
All four global regions where the company sells its products reported revenue drop offs, with Europe and Asia-Pacific combining for 70 percent of the total decline in sales. The lone bright spot: Mexico, which saw sales increase 7 percent year over year.
In 2020, the legacy direct seller embarked on an ambitious plan intended to reverse years of losses and negative sales growth. And, for part of 2020 and much of 2021, the story at Tupperware had been one of progress, with sales and profit soaring as more people needed to cook and store food at home during the pandemic.
But with COVID-19 restrictions easing and more people increasingly going out to eat, consumers aren’t buying Tupperware products like they were last year.
CEO Miguel Fernandez told analysts during a conference call that the company finished 2021 encouraged that its turnaround plan was on track but acknowledged that the work was not over.
“This turnaround plan is still the right one and one that we believe will ultimately be successful, but it still requires a lot more work,” said Fernandez, who noted that the first quarter of 2022 was challenging for a variety of consumer goods businesses with international footprints.
Among the factors cited for the sales downturn: the Russia and Ukraine conflict, strict COVID-19 lockdowns in China and inflationary pressures that have increased the price of resin, freight, and source product costs.
Fernandez said Tupperware was taking “immediate actions” to improve the business. That included raising prices, including 10 percent price increases effective in early May. Moving forward, Tupperware will be “closely monitoring continued cost increases, and we will be proactive to take pricing action,” Fernandez said.
The company is also planning to “rightsize” segments of the business to offset fluctuations in the market, including restructuring its organization in Europe and Asia-Pacific.
Citing its disappointing quarterly performance, Tupperware said it had decided to withdraw its full-year guidance.
“We acknowledge that we have greater uncertainty and lower visibility than previously anticipated,” Fernandez says. “I should note that we’re not taking the decision to pull guidance lightly.”
● Total Sales: $348 million, down 16 percent
● North America Sales: $102 million, down 14 percent
● Asia-Pacific Sales: $98 million, down 15 percent
● South America Sales: $58 million, down 2 percent
● Europe Sales: $91 million, down 19 percent
During the call with analysts, Fernandez also announced the hiring of a new chief financial officer for Tupperware. Mariela Matute, a finance executive who most recently served as the CFO at Calavo Growers, a fresh foods processing and distribution company, will join the company in late May.
Nature’s Sunshine reported a $3 million loss during the first quarter, as the company grappled with global supply chain issues and inflationary pressures that offset an overall sales increase.
CEO Terrence Moorehead said he was pleased with the company’s top-line performance, given the heightened uncertainty and challenges in the global market.
The Utah-based nutritional and personal-care products maker reported $110.5 million in sales during the three-month period that ended in March, a year-over-year increase of 8 percent.
Nature’s Sunshine said sales in Asia increased by about 30 percent compared to the same period a year ago, with big rises in several key markets in the region: Revenue from China increased by 46 percent; sales in Japan jumped by 33 percent; and Taiwan sales soared by about 250 percent.
Moorehead noted that the first three months of the year were “certainly more challenging than any other quarter in our past.” For example, sales in North America declined by almost 5 percent. He also pointed out that inflationary pressures “may be impacting consumer behavior, with some consumers becoming more price sensitive.”
“The lingering effects of COVID-19 and the Shanghai shutdown, the devastating war in Ukraine, an intensifying supply chain crisis and rampant inflation were a unique combination of headwinds we had to navigate in the first quarter,” he said.
That the company reported an 8 percent sales increase amid those challenges, Mooreheads said, reflected “the strength of our brand and the steps we’ve taken to build momentum in the business.”
But Moorehead warned that the near future posed “increased risk” for the business.
“Given the current headwinds, we are currently pleased to be discussing year-over-year sales growth. That said, …as the tail end of the first quarter and April played out, we saw the headwinds have a more significant impact on the business and believe there is risk—there’s increased risk associated with our full year expectations.”
Nature’s Sunshine did not provide any revenue forecasts.
● Total Sales: $110.5 million, up 8 percent
● Asia Sales: $46.1 million, up 30 percent
● Europe Sales: $21.7 million, flat
● North America Sales: $35.9 million, down 5 percent
● Latin America and Other Sales: $6.6 million, flat
Supply Chain Issues Hurt North American Sales
During the call with analysts, Moorehead stressed that sales in North America declined because the company had a difficult time sourcing key ingredients for its products. The overall impact of the supply chain crunch likely affected North American revenue by $2 million to $3 million, he said, or within the range of 5 percent to 8 percent of sales for that segment.
“Throughout 2021, our team was able to proactively mitigate port delays, raw material shortages and manufacturing constraints to meet demand while preserving our margins,” Moorehead said. “This was generally still the case in the beginning of 2022. However, as the quarter progressed, there was a sharp drop off in our ability to source a few key ingredients that make up the complex formulas in 40 to 50 top selling products. Not having these products, especially in a healthy selling environment, reduced net revenues in our North American business.”
Moorehead said the company was able to avoid supply chain issues through much of last year, allowing it to meet increased demand. But more raw ingredient shortages are becoming standard.
And in response, Nature’s Sunshine said it’s looking to shore up future supply by expanding its supplier base and building vertical farming relationships.
“Our plan to upgrade and automate our manufacturing facility, along with the expansion of our global supply chain footprint, will provide additional performance enhancements,” Moorehead said. “Our goal is to expand and diversify our capabilities while reducing costs to drive these initiatives forward and take our supply chain to the next level.”
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