Q2 2021 Herbalife Nutrition Ltd Earnings Call
[music].
Good afternoon, and thank you for joining the second quarter 2021 earnings Conference call for Herbalife Nutrition Ltd on today's call and talk to try the Auckland Navi and the company's chairman and CEO, John Desimone, The company's President Alex a mezz kept day, the company's Chief financial Officer and era.
And then wrote the company's senior director of Investor Relations.
And I would like to turn the call over to Eric and morale Street, the company's Safe Harbor language.
Okay.
And the meaning of the federal Securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties.
That could cause actual results to differ materially from those discussed oriented supported for a complete discussion of risks associated with these forward looking statements and our business. We encourage you to refer to today's earnings release, and our SEC filings, including our most recent quarterly report on form 10-Q.
And our forward looking statements are based upon information currently available to US we do not undertake any obligation to update or release any revisions to any forward looking statement or to report any future events or circumstances or to reflect the occurrence of unanticipated events. In addition, during this call certain financial performance.
The measures maybe you discussed the differ from comparable measures contained and our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors and evaluating our performance.
And preparing period to period results of operations, and a more meaningful and consistent manner as discussed in greater detail and the supplemental schedules to our earnings release, a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the S. E C. These.
And together with additional supplemental information are available at the Investor Relations section of our website Herbalife Dot com. Additionally, when management makes reference to volumes. During this conference call. They are referring to volume points I will now turn the call over to our chairman and CEO, John Agua Adobe and good afternoon.
The 1.
Thank you for joining us on the call today.
During the second quarter, we delivered worldwide reported net sales of $1.6 billion.
Growth of 15% compared to the prior year.
Net sales grew by double digits for the fourth straight quarter.
All 3 of our core product categories grew double digits.
Led by the energy sports and fitness category, which increased 45% compared to the prior year.
All of our regions, except China experienced net sales growth and the quarter.
With 4 of our 6 regions, increasing by more than 20 per cent.
We will discuss China and detail towards the end of my remarks.
The underlying fundamentals of our business remains strong.
For the third quarter, we are guiding reported net sales to be and the range of down 1% to up 5%.
For the full year, we expect net sales growth to be within a range of 8.5% to 12.5 per cent compared to the prior year.
In addition to our net sales and EPS guidance. This quarter, we have initiated guidance for adjusted EBITDA.
For the full year 2021 we expect to generate between $875 million and $935 million of adjusted EBITDA.
Which highlights the ongoing profitability and underpins the cash flow generation of our business.
Alex will provide detail on our new guidance and why we believe this incremental metric is valuable for investors as they analyze our business.
Now, let me get into our Q2 performance and more detail.
The North America region grew by 7% and the quarter, primarily driven by continued strong momentum and the U S.
It is important to note that the single digit growth is up against and extraordinarily high prior year comparison period. However, the 2 year stacked growth rate of 47% and the U S accelerated compared to last quarter's 2 year stack.
We have seen significant growth in our U S Nutrition club business as many parts of the country returned to more in person and activities.
Over the first half of the year, we have had an increase of over 2000 nutrition club locations and the U S. With the total club count now exceeding 11000.
While we continue to monitor pandemic conditions. We are currently planning of return to some of our in person training activities and sales events in the second half of the year utilizing a hybrid format.
The Asia Pacific region.
Had another quarter of powerful growth up 38 per cent compared to the prior year.
The region had notable strength in Vietnam, which grew 60%.
Malaysia, which was up 45%.
Taiwan, which increased 21% and South Korea, which returned to growth with a 19% increase of.
The life Nutrition, India has emerged as the number 1 direct selling company in that country based on a recent market research store report.
Our Indian business grew 93% this quarter compared to Q2 of 2020.
Recall that in Q2, 2020, our business and India was disrupted by the severe public health related restrictions imposed in response to the onset of COVID-19.
Over the past year, our business and India has adapted well to ongoing pandemic conditions implementing several successful digital strategies, including a virtual nutrition club model.
Virtual nutrition clubs incorporate many elements of traditional in person nutrition clubs, but are conducted through virtual platforms, such as zoom or Facebook live.
Virtual clubs establish a sense of community and of personal sense of connection elements that proved incredibly important during the pandemic.
The virtual club strategy is now being shared as a model of success with other regions around the world.
The EMEA region set a second straight quarterly net sales record.
And with year over year growth of 22%.
The strong performances continued to be seen in markets, such as Turkey, which was up 63%, Italy, which grew 38%, Belgium, which was up 25% and Spain, which increased 21% and the quarter.
The United Kingdom delivered 24% growth, which was on top of of a challenging comparison of 73% growth experienced in Q2 of 2020.
Although combined new distributor and preferred customer numbers are lower than the peak of Q2, 2020, we had significant growth of 56% compared to the more normalized 2019 comparison period.
We have also seen a 27% year over year increase and the number of active supervisors, which reflects the continued strength of the EMEA of business over the past 18 months and helped drive the record performance.
Mexico grew 23% in the quarter.
It's first quarter of double digit growth since 2013.
Net sales growth was aided by a currency tailwind in the quarter.
Our members and Mexico are beginning to adopt the preferred customer program, which was implemented in March.
We'll talk more about preferred customers and a moment.
Additionally, the south and Central American region grew 23% in the quarter.
And the region was led by Chile, which grew over 200%, Bolivia, which was up 58%, Guatemala, which increased 57% and Peru, which was up 20% compared to the prior year.
The region also benefited from the implementation of the preferred customer program, which is now live in 8 of that region's markets.
Let me go a little deeper on the preferred customer program, which is 1 of our key strategic elements.
Mentation, which for us means bifurcated, our member base into 2 groups.
Distributors, who intend to sell product and preferred customers or as they're known and the U S preferred members, who are only product consumers.
The preferred customer program is now live in 25 markets around the world.
These markets represent approximately 70% of our total net sales.
The ability to identify and distinguish preferred customers from distributors provides us with a powerful dataset on each group.
We believe this primary customer data will be incredibly valuable.
We will talk more about our preferred customer program and segmentation in our upcoming Investor day.
We're also seeing more interest and a business from young adults as approximately 2 thirds of new distributors and preferred customers, who joined Herbalife nutrition during the second quarter, where millennials or Gen Z.
The ability to run their business through digital platforms and to utilize social media to connect with consumers is appealing to this tech savvy demographic.
As we evaluate future product launches, we have gen Z and their consumer preferences in mind.
This demographic is particularly interested in sports nutrition clean label products and offerings, such as our recently launched hemp cannabinoid products.
Now returning to China.
In China net sales declined 16% compared to the second quarter of 2020.
This year over year decline for the quarter was below our expectations.
We'd like to speak about China, and more detail to give you a sense of what we're seeing and more importantly, what we're doing about it.
China represented approximately 11% of global net sales and just under 6% of global volume in the second quarter.
We are intensely focused on 2 key metrics that have decreased recently and China.
1 of the number of new service providers, joining the business and to the activity levels of our sales representatives and service providers.
We're taking a number of actions and the market to adapt our business and to turn these 2 metrics around.
We are continuing to invest in our digital platform.
We recognized in 2019 that a powerful digital platform was going to be a crucial component of our efforts for the China market.
Since we began our digital transformation, we have formed partnerships with Tencent and Alibaba to help support our efforts.
We are just now beginning to see the initial results through the increased usage of our tools.
Through the first half of the year approximately 50% of our business was transacted through our recently launched digital platforms.
Second and many of our service providers are shifting their focus to of newer nutrition club model, which includes a smaller scale more rural location with an increase and daily customer interactions. This type of nutrition club more closely resembles the very successful and nutrition club businesses, we have and many other parts.
Of the world such as our U S market.
Third with the goal of improving the activity and quality of our service providers in China, we elected to modify our qualification requirements.
Historically and our business, we found that strategic changes to qualification methods often creates short term disruption, but eventually lead to long term positive results.
Fourth beginning this month, we believe we've secured the ability to expedite the business licensing processes for our new service providers, where they can obtain their license significantly faster than getting their license on their own.
We anticipate this accelerated business licensing timeline will lead to incremental new entrants.
Overall, we believe these initiatives will improve the number of new entrants joining the business and create a more active base of service providers in the long term.
While below our expectations China's volume has been more stable sequentially from month to months of this year the.
The China comparisons continued to be difficult for Q3, but they actually get much easier towards the end of 2021 and into early 2022, and we expect China to be additive to the total company growth within the next year.
Lastly.
Let me add that although at its current level, China is a relatively small part of our overall business. We believe it offers significant growth opportunity long term and we remain firmly committed to the market.
So we've set a date for our virtual Investor day, which will take place on September 14th at 8 a M. Pacific time, we look forward to sharing of deep dive on our company on our strategy and on many of the initiatives that we have underway.
To drive continued growth.
I will now turn the call over to Alex to review the financials. Thank.
Thank you John second quarter net sales of 1.6 billion represents an increase of 15% on a reported basis compared to the second quarter and 'twenty 'twenty.
This was the largest quarterly net sales result in company history. The growth was broad based as over 50 of our markets grew by double digits or more we had net sales growth and 4 of our 5 largest markets consisting of the U S, which grew 6%, China, which was down 16%, India up 93% Mexico.
And up 23% and Vietnam up 60%.
Currency was a tailwind to net sales in the quarter, representing a benefit of approximately 520 basis points excluding Venezuela.
Reported gross margin for the second quarter of 79.2% decreased by approximately 60 basis points compared to the prior year period. The decrease was largely driven by unfavorable country mix, primarily from China, representing a smaller portion of our overall company sales.
Second quarter, 'twenty, 'twenty, 1 reported and adjusted SG&A as a percentage of net sales were 32.6% and 32, 9% respectively.
Excluding China member payments adjusted SG&A as a percentage of net sales was 26.6% approximately 30 basis points unfavorable compared to the second quarter 2020.
This was largely due to a return to more normal levels of advertising promotion and sales event spending which was significantly disrupted during the second quarter 2020 for the second quarter. We reported net income of approximately 144.2 million or a dollar of 31 per diluted share of adjusted earnings.
<unk> per share of the dollar 52 was a beat of 15 cents above the top end of our Q2 guidance our expected year over year currency benefit for the second quarter should have been approximately 10 cents lower than originally projected which translates to our actual currency adjusted EPS exceeding the top end of.
Our guidance range by <unk> 17 cents.
This resulted in the largest quarterly adjusted EBITDA result in company history for the second quarter and a row with adjusted EBITDA of approximately $262 million combined with the prior record and Q1, we have generated over $500 million of adjusted EBITDA. During the first half of the year we.
We are issuing guidance for the third quarter 2021 as well as updating our full year 2021guidance.
For the third quarter, we estimate net sales to be and the range of down 1% to up 5%, which includes an approximate 200 basis points currency tailwind and the third quarter 'twenty 'twenty..1 represents the most challenging comparison period of the year as we are comping, 22% growth and Q3 of 'twenty 'twenty.
Looking back over the past 4 quarters. The 2 year stack is range of between approximately 19% and 28%.
This quarter's guidance implies a 2 year stack of 21% to 27% growth third quarter adjusted diluted EPS is expected to be and a range of of dollar 5 to $1.25 of <unk>.
Adjusted diluted EPS includes the projected currency benefit of 6 cents compared to the third quarter of 2020.
John described earlier the strategic initiatives, we have in place to return China to growth with that said our expectations for China have come down in 2020..1. This is reflected in our updated net sales guidance of 8.5% to 12.5% growth on a reported basis. Despite the reduction from China the mid.
Point of our guidance still implies double digit net sales growth for the year.
Currency remains of tailwind and we now project and approximate 220 basis point tailwind due to currency for the full year compared to the expected 200 basis points benefit from a quarter ago.
We are updating full year 2021 guidance for adjusted EPS to a range of $4.70 to $5.10. Despite the reduction to the midpoint of our sales guidance the midpoint of our adjusted EPS range is increasing by approximately 5 cents.
This range to the midpoint of our adjusted EPS guidance is primarily driven by the Q2 be partially offset by lower sales expectations and China for the remainder of the year for the full year. Our guidance includes the projected currency tailwind of approximately 15 cents per diluted share, which is 3 cents higher than the currency.
<unk> included in our prior guidance.
Incrementally we are initiating adjusted EBITDA guidance for the third quarter and full year 2021 of 205 million to $235 million and 875 million to $935 million, respectively. We believe this incremental metric will be helpful to investors as the analyze the <unk>.
<unk> ability and cash flow generation potential of our business.
Now, we will turn to our cash position capital structure and our share repurchase activity.
Through the first half of the year, we have generated $287 million of operating cash flow. This was lower than our cash flow generation and the prior year period. However for the full year. We continue to anticipate cash flow will be stronger than the $629 million, we generate in 2020.
And at the end of the second quarter, we had $838 million of cash on hand.
During the second quarter, we completed approximately 98 million and share repurchases. Our expectation is that we will complete approximately 200 million of share repurchases over the remainder of the year, resulting in over $900 million of share repurchases for the full year 2021during the quarter, we completed a 600 million offering of 'twenty.
29, senior notes at a rate of 4.87 and 5%.
We used a portion of the net proceeds from the offering to redeem all outstanding 400 million 2020.6 senior notes that paid a coupon of 7.25 per cent.
Given the favorable REIT differential of approximately 240 basis points, we were able to raise nearly 200 million more debt at effectively the same interest payment and this transaction resulted in a charge of approximately $25 million from the loss on the extinguishment of the 2020.6 notes this onetime charge was excluded.
And from our adjusted results also just last Friday, we announced a repricing and upsizing of our term loan a and revolver credit facilities the <unk>.
Borrowing margins of both facilities were reduced by at least 25 basis points, and a new pricing grid to 2.25% or lower.
The revolver was increased by approximately 48 million to 330 million with the term loan a increasing by approximately 41 million to 286 million.
The amendment and incremental commitment from our bank group demonstrates their confidence and our current and future business outlook. We also incorporated into the term loan a and revolver facilities, a sustainability linked pricing grid relative to certain ESG kpis. These.
And these kpis include our use of Virgin plastic materials reductions in greenhouse gas emissions and female diversity and our senior management ranks Herbalife nutrition is proud to demonstrate our commitment to and ESG strategy that is measurable through financial incentives.
This concludes our prepared remarks, operator, please open the line for questions.
Thank you if you have a question at this time. Please press Star then the number 1 on you touched on telephone and your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our first question comes from the line of Wendy Nicholson with Citi. Your line is open. Please go ahead.
Hi, good afternoon, Mike.
And my question first is with regard to the revised outlook for sales.
<unk> comes down just a little bit relative to your prior guidance, which is not a big deal, but I'm. Just wondering is that sort of exclusively a result of the change and the China growth expectation or is that a little bit of function of the Americas business or which reach and would you say is the biggest delta in terms of your prior expectation.
And leading to that negative revision.
Hi, Wendy good question and I'll take that 1.
The guidance adjustment is exclusively due to our revised forecast in 2020.1 from China. The rest of the portfolio in the aggregate as report performing right, where we thought it would 3 months ago and the change and that top line is related strictly to China.
Got it fair enough and I guess, just and you know.
The related sort of as a follow on I mean, China just seems to be you know a very stubborn market and kind of hard to predict and and and hard for a lot of the direct sellers to get their arms around I guess the question is kind of what gives you confidence that the actions you're taking in that market. Today are the right actions I know you've said you've just recently put in from change.
But are you starting even here early in the third quarter to see any traction from those initiatives. The rates, it's really going to be sort of of 'twenty 'twenty 2 of recovery story for China.
John I'll I'll answer that 1 so I'll put it in a couple of buckets. So first Chinese walls down and consistently down now for a few quarters.
The sequential nominal volume point, it's about flat so they've showed consistency so whatever happened it now feels like it on New Foundation.
And so I view that as positive.
The 1 of the tough Q3 comp as the.
And John said in his opening comments, but we just annualize that and in Q4 really even China dropped volume by 18% so.
Things get easier and China will be less of a drag.
By way of context, I wanted to mentioned net and the initiatives, we're putting in place our initiatives that we've seen work in other markets as you try to build sustainable businesses 1 of them being these nutrition clubs that of daily visit.
<unk>, which is different and how China has done clubs in the past.
And they've done like 7 day programs 30 day programs 90 day programs and now the opening and more rural communities. There's a lot of energy behind it. So I don't I don't want it and I don't want to overstate, where they are and the development of this these clubs, but I can tell you our service providers and our.
Management team has a lot of energy put behind this and there's a lot of excitement around it all of the figures arent there yet.
But we do know if we can find the right formula for these rural nutrition clubs.
And based on the history of things we've seen elsewhere that this could be of strong growth engine for us.
So that's 1.2 digital cost is something that.
It's really just an important.
The strategy not just in China, but globally, but even more important and China, which is the very digitally oriented.
Society. So I think those of the right things, we have not yet seen the uptick from these initiatives.
And like I said, we've seen some stabilization and I say that cautiously, but we've seen some stabilization and now off of that stabilized base. We think these initiatives will work.
Sure.
Perfect. Thank you very much I'll pass it on.
Thank you and our next question cash from the line of Steph Wissink with Jefferies. Your line is open. Please go ahead.
Thank you. Good afternoon, everyone. My first question is just a follow up to Wendy's question on China and wondering if we can just unpack a couple of the things that you mentioned I think it was a decrease and the number of service providers and then also the activity of your existing providers.
1 of the Kpis that you're going to be watching for over the next several weeks that suggest the turn in those measures are there other measures that youre going to be monitoring and that would help give you. Some indication that these initiatives are taking hold.
Well, we look at a lot of measures but of course, the 2 that we spoke to and the opening which is 1 is how many new of we've seen people coming in who are coming in for the business is an important metric because it increases the reach and equally important what's the activity level and how often of these.
New home service providers or even sales reps, which is the step below service providers, how often are the ordering in a given month, how many months of the ordering that.
And how is your how active they are which is the predictor of how retain and they are so those are the ones that.
We will have the most visibility there won't be the only ones. We look at but those are the ones we'd look at.
And probably update you on.
The Investor day.
Okay, and then Alex just as a follow up and connect it to China, just help us think true the balance of margin and SG&A and gross margin trying to make sure that we recognize the China being down that theres, probably going to stop it from gross margin headwind, but you've had some nice SG&A offset so how should we think about the balance and the back half, yes, I mean, you nailed it right.
And when China changes disproportionately as a percentage of net sales either on your year over year comps are sequentially youre going to see a gross profit headwind that gets made up in other parts of the P&L. So net net from an OE perspective.
It'll net out, but yes, as a percentage you'll see you'll see some headwind and that's.
Effectively what you saw on Q2. So you saw if you look at the year over year gross profit coming down from where we were in 2020, that's largely because of mix and.
Currency and pricing sort of offset each other and that percentage came down because of the China mix overall from a profitability standpoint, if you look at our ally you see of why increasing by about 40% to 50 basis points over year over year. So overall the profitability doesn't change from the net sales mix, but.
And of why perspective, but from a gross margin perspective. It is so I think you've kind of nailed it.
But there is that is.
That is an important distinction to make.
Okay last 1 other quick 1 just on pricing and we're hearing from a lot of companies that commodity shipping costs are creating some inflationary conditions and passing through some pricing can you talk a little bit about your pricing strategy for the next maybe even 612 to 24 months.
Sure so pricing for us.
And sort of the rule of thumb for us is around the world. We increased prices about on annual basis, sometimes twice a year consistent with the local inflation of that market. So whether it's in the U S or somewhere outside of the you know whatever whatever local CPI is in that market and we have the pricing power to match.
The price increases and that market. So presumably if this continues and I.
I know that there are some competing views from the from the fed and otherwise the.
And whether or not the local wage inflation in raw inflation is transitory or more permanent share.
Would it be more permanent youll see that and inflation and.
And if that does happen and inflation and we should be able to take advantage of that.
Through price increases so we're keeping an eye on it.
From a from a near term perspective, we have long dated contracts on our major raws. So we don't see that volatility from week to week or quarter to quarter, we have a little bit more visibility into what that looks like.
We will continue to monitor it but I don't anticipate any sudden spikes on our input costs and there may be some areas of pressure from some of our more.
Packaging that type of thing, but in terms of the large share of our input costs. We have we have longer term visibility into those changes.
Thank you.
Thank you and our next question comes from the line of Doug Lane with Lane Research. Your line is open. Please go ahead.
Yes, hi, everybody.
First question, Alex and Europe, adjusted EBITDA number does that include stock based comp.
It.
Yes, yes, it does.
Okay.
And then secondly, just debt.
Other words are on other words the stock based comp is not taking out of the number it is considered and expense in ads and.
And the P&L.
Okay.
Okay. So the okay that is different from what I've heard so thank you for clarifying okay. So the adjusted EBITDA.
Does does not adjusted for stock based comp.
That's right it's loaded it's loaded with the expense.
That makes sense.
And then second.
And secondly, just stepping back and I'm looking at.
On a metric that I keep an eye on the average sales leaders with volume points, which has now been up double digits for 4 straight quarters, and I honestly can't remember a run where that number has been that strong and it seems like it would be a pretty powerful leading indicator for your business going forward. So if you could just maybe if I could get your perspective.
Of on how you read that number and what's driving the strength and and what's your viewpoint on the sustainability of that strength.
Hey, Doug This is John D I'll take that question so.
It's.
In terms of its impact and knit and near term.
The performance, it's 1 of the more important and nonfinancial metric because it talks about how many active salespeople we have and.
And obviously, that's important and predicting the next 3.6 maybe even 9 months.
On leading indicator of active sales leaders is how many new people are coming in which is the pipeline to becoming a sales leader. So it all flows into our model that we use of actually multiple models that we use but if you were to look at 1 of the more correlating non financial metrics near term performance. It would be average active sales leaders now having said.
Debt.
So on a high correlation, but it's 1 of the more correlated nonfinancial metrics.
And what do you think's been driving that and does this have to do with.
All of the macro environment.
And being what it is or does it have to the play off your recent segmentation strategy I mean, what do you think is driving that and particularly strong period for that number.
Hey, Doug it's John a here so I think a couple of things some might be more obvious to the listeners and others.
First of all I think our underlying business, which is kind of.
Over the last 3 years, especially has been driven bias of strategy of <unk>.
Expanding our product portfolio.
Building out and in each of our regions and each of our markets. The strength of our distributor channel and then things like nutrition clubs here and the U S and beyond that served as a great is of great base now going into the pandemic I think what then was layered on top was and acceleration of the uptake of.
Social.
Media and other digital strategies by.
Channel by by our sales force and then of course the increases in demand that we saw from from the consumers now I do think that as you then take all of those things those ingredients because I've, just described and translate them out into the future you're going to find that we have.
On a distributor base that is much more linked to its consumers using digital technology, and social media and so forth and.
Our consumer that continues to be much more in.
Aligned with the need for healthy nutrition, and the kinds of products that we sell.
And then and then lastly of course.
I think.
And appreciation across both the distributor workforce and the consumers debt.
<unk> health is controllable debt. It is it is driven by behavior. So having said that I think technology increased demand.
And our strategy that is working.
Okay. Thank you that's very helpful.
Thank you and our next question comes from the line of Paul Holden with Barclays. Your line is open. Please go ahead.
Hi, Thanks for taking the call I had 2 questions. The first 1 is you made a comment and the script that the new Gen Z and millennial.
Distributors were.
And for more help more interested and the sports nutrition and I was wondering if you're seeing a definitive shifts and what they were selling of versus maybe some of your more tenured distributors.
And.
Yes. This is John day, I'll take it so I think.
It's kind of of circle, So I think sports help attract.
Younger distributor and younger consumer base into our franchise.
And that was the driver of and once you bring in somebody who is interested and sports that's the products. They decided to sell so yes. We are in fact, seeing obviously higher growth and our sports nutrition products and energy products. It grew 45%.
And the quarter almost.
4 times the growth rate of our weight management category and the quarter. So that is driven by the <unk>.
The demographics of our distributor base and our customer base.
Great.
And the second question is you also mentioned that you were going to start or start restart I guess.
Hybrid.
The meetings.
The.
The question is would we is that enough to.
The C and SG&A and the back half of pick up or.
Not really.
Yes. The intention is that there is some expense and Q2 debt.
Debt that is delayed to the back half. So the intention is to continue to pick up that spend overall there was more spend in Q2.2021 over 2020.
The expectation, though COVID-19 is impacting various markets.
Still in a way that the.
And.
And has made planning difficult and so some of that spend in Q2 of this year that we intended to spend did get delayed to later in the year. So we can kind of deal with those adjustments, but the intention is to pick that spend up and the back half of the year.
Great and look forward and the Investor day and thank you.
Thank you and again, ladies and gentlemen, if you other question at this time. Please press Star then 1 our next question comes from the line of Jeff Johnson.
And Darren with B Riley. Your line is open. Please go ahead.
Yes, Hi, just a follow up to that on the.
On the in person meetings.
Maybe you can just touch on on the digital engagement trends and how the.
Those are evolving during the opening.
Our people and distributors, just shifting to do more and person or I guess, how much of the digital engagement way of operating do you think will stick.
Well I think.
I'll start with that 1 Jeff thanks for joining the call. So I think that the tools that the distributors of learned over the past year debt.
They're not going to necessarily just abandoned and there is real benefits of reach there is real benefits of scale, there's real benefits of productivity there.
And will endure.
Undoubtedly and dirt.
The opportunity to now use where in some markets.
And this is and everywhere yet.
But to use their bread and butter skills and in person, obviously from a mix shift standpoint, as they go back to some of their in person.
And there'll be.
It's like squeeze and air and of Blu Ray sales, though so naturally of percentage of their time. They spent digitally will be spent and person with that said the benefit of being able to do both is that they can use whichever tool is the most effective whatever they are trying to accomplish so the way we see it is that our distributors are now armed with more tools to.
And depending on where they need to spend their time, whether there is and in person need to develop that stickiness that long term customer relationship or theirs and ability to use digital tools to help with productivity scale those types of tools and that's how we see things going forward.
Okay, and then I haven't heard a lot of talk about China.
The more weight control oriented part of the business.
It seems like peak COVID-19 restrictions tended to drive weight gain and some parts of the world and believe including the U S.
Any more color you can give us on trends, you're seeing around weight control with reopening and I guess your outlook for that segment of the business going forward.
Yes.
I don't.
With respect to the correlation to weight gain and the interest from of weight gain perspective.
We haven't seen that in.
If we look at basket sort of as you look at product information.
We don't we don't really see we don't really see that and sort of the ordering behavior. Now clearly there are consumer trends pointing to the fact that and this can be validated by third parties not just us.
That generally populations are looking for opportunities to be more healthy and.
And to and to put.
Nutrient dense products in their body.
Going forward. So we're obviously a company that benefits from that consumer trend and so going forward, we look to look to continue to.
To capitalize on the consumer trend.
Okay, great. Thanks for taking my questions and best of luck. Thanks, Jeff.
Thank you and our next question comes from the line of Carla Casella with Jpmorgan. Your line is open. Please go ahead.
Hi, and I may have missed it but did you give a leverage target.
Our leverage target has been the same leverage target that we've had for the quarters if not years, it's the 3 times gross.
Obviously over the past couple of quarters, we're a little bit under that even even on a pro forma basis with the recent debt financing refinancings et cetera.
Which is really more of a function of our denominator EBITDA growth has just been so significant.
So we're a little bit under that target.
We've always said there'll be ebbs and flows.
And we may be under it and we may be over it depending on maturities and depending on EBITDA growth, but we feel really good about our capital structure right now.
And we will continue to moderate for look for opportunities to always hover around that 3 times.
And 3 times growth. So that we are managing overall, our company has in investment grade debt company.
And your ratings.
We reflect the investment grade yet and they're split between there will be and single B on the bond had you of a sense for what the agencies want to see and if you're you know as you get is the size and diversification and enough first there's something else there waiting and.
She'd kill the truck central upgrade.
So 100%. So we're hopeful we're on that path to investment grade we are managing this company. So that we can achieve that obviously, we know it takes time for the rate and G rating agencies, the sort of catch up to where we where we think we belong.
From a financial point of view I don't think Theres a ton of disagreement that our financial metrics are representative of of that and I think they'll continue to look for assurance and the business model.
And we go forward and sort of just continue to execute.
Execute and continue to be consistent and can continue to show.
How we're differentiated overall from a from a direct selling perspective and in terms of our risk profile.
Okay, great. Thanks first of my questions have been answered.
Thanks Carla.
Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to China, Arnold and Ob for any further remarks.
Thank you.
Well, let me start by thanking all of you for joining US. We appreciate the opportunity to explain where we are and more importantly, where we're going with that comment and mind I am going to put a shameless plug here, we have our investor day or Investor day coming up it's going to be on September 14 at 8 a M.
<unk> Pacific Coast time go to the IR website.
The Herbalife nutrition IR website, it's brand new it's we're very proud of all of it and we're going to be making it better with time, but the details will be available to you there on how to log on how to it's going to be of virtual investor day, obviously.
Beyond that I would just say, we're very proud of our distributors.
Round the world for their work.
They've done an amazing job helped us deliver this fourth straight quarter of double digit net sales growth and we're all very excited about the future. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
The.
Okay.
Gross.
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