Health and wellness products company Herbalife (NYSE:HLF) reported results in line with analysts' expectations in Q1 CY2024, with revenue flat year on year at $1.26 billion. It made a non-GAAP profit of $0.49 per share, down from its profit of $0.54 per share in the same quarter last year.
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Herbalife (HLF) Q1 CY2024 Highlights:
- Revenue: $1.26 billion vs analyst estimates of $1.27 billion (small miss)
- EPS (non-GAAP): $0.49 vs analyst estimates of $0.37 (34.2% beat)
- Gross Margin (GAAP): 77.5%, up from 42.9% in the same quarter last year
- Free Cash Flow was -$19.1 million, down from $60.8 million in the previous quarter
- Organic Revenue was up 2.4% year on year
- Sales Volumes were down 3.6% year on year
- Market Capitalization: $863.2 million
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Personal CareWhile personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering.
Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales GrowthHerbalife is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's revenue has declined over the last three years, dropping 4.3% annually as consumers bought less of its products.
This quarter, Herbalife's revenue grew 1% year on year to $1.26 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.1% over the next 12 months, an acceleration from this quarter.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Herbalife generated its growth (or lack thereof) from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Herbalife's average quarterly volumes have shrunk by 8.1%. This isn't ideal for a consumer staples company, where demand is typically stable. In the context of its 2.5% average organic sales declines, we can see that most of the company's losses have come from fewer customers purchasing its products.
In Herbalife's Q1 2024, sales volumes dropped 3.6% year on year. This result was a step in the right direction compared to its 14.5% year-on-year decline 12 months ago.
Key Takeaways from Herbalife's Q1 Results
We were impressed by how significantly Herbalife blew past analysts' EPS expectations this quarter. On the other hand, its organic revenue unfortunately missed analysts' expectations. That didn't matter too much, however, as Herbalife's guidance was the star of the show - the company raised its adjusted EBITDA outlook and lowered its capital expenditure forecast, both of which beat analysts' estimates. It also completed a $1.6 billion refinancing on April 12th. Overall, this quarter's results were solid. The stock is up 10.2% after reporting and currently trades at $9.58 per share.