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Herbalife (HLF) Continues to Grapple With Lower Sales Volume


Herbalife Ltd. HLF has been struggling with weak sales volumes, especially in its North American and Mexico operations for a while. Unfortunately, this trend lingered in fourth-quarter 2017, as evident from the company’s recently reported preliminary volume points data.

Preliminary Volume Results

Herbalife’s preliminary regional volume metrics reveal declines of 7.3%, 8.4% and 6.6% across North American, Mexico and South & Central American regions, respectively. Preliminary results for the upcoming quarter indicate sales volume point growth of 0.2%, 9.6% and 4.5% in its Asia Pacific, China and the EMEA regions respectively. However, the upsides were inadequate to offset the declines in the aforementioned regions. As a result, the company’s overall sales volume points went down 1.8%.

Persistent Volume Declines Dent Price Performance

Notably, Herbalife has been battling soft volumes due to stringent FTC regulations in the United States, which has been marring sales in the North American region. Further, volumes have been weak in the Mexico region, stemming from the impact of earthquakes in 2017. In fact, adverse environment conditions hurt Mexican volumes by 200 bps during the third quarter. Due to such headwinds the company’s top line registered a decline of 3.3% while sales volume slid 5.6% during the third quarter. The quarter marked the fourth consecutive period of year-over-year top-line decline.

Further, management expects adverse conditions to persist in the aforementioned markets and drag overall top-line performance. Per management’s earlier view for full-year 2017, sales are anticipated to decline in the range of 1.9-0.6%, while on a currency adjusted basis the same is expected to fall 2.1% to 0.8%. Additionally, volumes in 2017 are expected to witness a drop of 4.2-2.9%.

The dismal outlook for 2017 combined with soft sales volumes trends across several key markets, have also affected investors’ optimism in the stock. Evidently, Herbalife’s shares have lost 9.1% in the past three months compared with the industry’s rally of 4.1%.

Can Strategies Help the Stock to Revive?

Herbalife continues to focus on implementing new technologies; shifting distributors’ inclination toward learning latest business methods, undertaking innovations and launching products. Additionally, this Zacks Rank #3 (Hold) company has been on track with its expense management efforts.

The company is progressing well with its strategic plans to induce growth and expects to witness improved trends in 2018.

Do Retail Stocks Grab Your Attention? Check These

A few better-ranked stocks worth considering from the same sector include Five Below Inc. FIVE, Kohl's Corporation KSS and Ross Stores Inc. ROST. While Five Below sports a Zacks Rank #1 (Strong Buy), Kohl's and Ross Stores carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Five Below delivered an average positive earnings surprise of 15.5% in the trailing four quarters. It has a long-term earnings growth rate of 29%.

Kohl's came up with an average positive earnings surprise of 12.5% in the trailing four quarters. It has a long-term earnings growth rate of 6.7%.

Ross Stores pulled off an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10%.

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