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Management Series: Herbalife (HLF)

Herbalife (HLF; $11.32; $1.1B Market Cap) participated in WTR’s Consumer Products Virtual Investor Conference on June 6, 2024. Representing the company were President Stephan Gratziani and CFO John DeSimone. This report contains a transcript of the conversation, which can be accessed on demand. Link accessible in our full report. After 32 years building an Herbalife business as an independent contractor, Gratziani moved into the senior management ranks at Herbalife corporate last summer, giving up his distributorship. At that time, he was the #2 distributor in the world, with his organization generating annual sales in the nine figures. With that background, he brings a wealth of street-level experience and a unique knowledge base into the management ranks, and obviously a track record of successful execution. We note that Herbalife now has a different CEO, President, CFO, COO, and Chief Commercial Officer than it did less than two years ago. The new distributor numbers that the company showcased in its 1Q earnings release could be a sign of an inflection point in re-accelerating sales growth following the post-pandemic hangover. It is top-of-the-funnel marketing in the direct-selling world, so those distributors will have to move up the ranks into becoming sales leaders and building out their organizations; it’s still early days. However, the company recently brought on board a renowned expert in network marketing and direct sales who seems to already be having an impact on motivating its sales leaders, and this could be a byproduct of that. The Nutrition Club model, which is unique to Herbalife among direct sellers that we are aware of, has become a large contributor to overall sales. The company has 67,000 clubs around the world, and it plans to expand those numbers. For example, there are virtual clubs in India, which the company thinks is an incredible model, but it has yet to take that concept elsewhere around the world. In the US, 4.4 million people walked into the ~10,000 Nutrition Clubs there and conducted 55 million transactions that accounted for $910 million of retail sales. However, the company had not been leveraging all that transaction data, but that should soon change. The company is undertaking a large technology project called Herbalife One in order to upgrade all its technology, infrastructure, the integration component and, most importantly, the tools that consumers and distributors will see. The foundation, the database work, and the integration layer are done, and now it is launching the tools. The company believes it has built an amazing technology platform, and it is only now beginning to learn how to leverage it. The company continues to have a goal of getting its leverage ratio down to 3:1 by the end of next year. Even beyond 2025, the company will prefer to pay down debt, given its high cost, and is talking of potentially moving as much as $1 billion from debt holders to equity holders, which alone would virtually double the stock price. However, the company does have a history of paying a dividend and making large share repurchases, so the thinking could change by the time we get to 2026. WTR held its inaugural Consumer Products Virtual Investor Conference on June 5 and 6. Presentations are available on demand via a link in our full report and 1x1 requests can be sent to .