Q4 2021 Herbalife Nutrition Ltd Earnings Call
Good afternoon, and thank you for joining the fourth quarter and full year 2021 earnings conference call for Herbalife Nutrition Ltd.
On the call today is Dr. John <unk>, the company's chairman and CEO .
John Desimone, the company's president.
Alex I'll Mosquito, the company's Chief Financial Officer, and Eric Monroe, The company's senior director of Investor Relations.
I would now like to turn the call over to Eric.
The company's Safe Harbor language.
Before we begin as a reminder, during this conference call. We may make forward looking statements within 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 in our business. We encourage you to refer to today's earnings release, and our SEC filings.
Including our most recent annual report on Form 10-K .
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 performer.
Its measures maybe you discussed that differ from comparable measures contained in 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 in evaluating our performance.
And preparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in 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. D. C. These.
Actions together with additional supplemental information are available at the Investor Relations section of our website Herbalife Dotcom. 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 <unk> Good afternoon.
Thank you for joining us on the call today.
2021 was another record year for Herbalife nutrition.
Even during this period of continued global uncertainty due to the pandemic.
Our entrepreneurial direct sales channel helped consumers around the world pursue their nutrition and wellness goals by giving them access to our high quality nutrition products.
For the full year demand for our nutrition products resulted in net sales of $5.8 billion, an increase of 5% compared to the prior year and an annual record for the company.
Our three largest regions Asia Pacific North America, and EMEA, along with 37 individual markets set annual net sales records.
Full year 2021 reported diluted earnings per share of $4.13 and.
Diluted earnings per share of $4.79 was an increase of 49% and 29% respectively compared to the full year 2020.
Full year 2021 reported net income of $447 million and adjusted EBITDA of $874 million were both annual records for the company.
Okay.
For the full year, we averaged over 500000 active sales leaders per months are.
A record for the company and an increase of 9% compared to 2020.
We brought in 2.9 million, new distributors and preferred customers, which was down just 1% compared to 2020 and actually up 31% compared to the more normalized 2019 year.
We continued to broaden our reach and attract new audiences in 2021 with two thirds of our new distributor and preferred customers identifying as millennials or Gen Z.
This younger demographic drives a high level of business activity by engaging with the business in new ways, including innovative nutrition club models and increased utilization of social media and digital tools.
Today, We also announced sales leader retention results for the last 12 month Requalify Kaisha period, ending in January of 2022 .
This year a record 68, 9% of our sales leaders were retained up from last year's prior record of 67.9%.
We believe this result reflects the ongoing sustainability of our business and the attractive opportunity that we offer to our distributors.
Okay.
Turning to the fourth quarter.
Our net sales of $1.3 billion decreased 7% compared to the fourth quarter of 'twenty 'twenty.
The Q4 year over year trend was impacted by a challenging comparison period.
On a two year stack basis, we saw growth of 8% compared to the fourth quarter of 2019.
As I now go a little deeper into our regional performance I shall touch on a few forward looking key initiatives that we expect will contribute to a return to year over year growth in the back half of 2022 .
The Asia Pacific region had another quarter of growth up 5% compared to the prior year.
The region was led by continued strength in India, which grew 33%.
India is supported by strong underlying metrics, including 35% year over year growth in new distributors and in preferred members as well as a 32% increase in active sales leaders.
We're making investments in India to further support the market with a newly opened 150000 plus square foot state of the Art center in a suburb of Bangalore.
The new facility will allow us to accommodate planned growth in India. As we go from the current level of 900 jobs to approximately 1500 employees over the next five years.
This space will be home to a new local product research and development facility designed to accelerate new product launches.
It will also contain a state of the art quality control lab, a distributor meeting facilities and a global business services Center.
Looking at North America, we saw a decline in net sales of 3% in the quarter.
This decline is up against a challenging prior year comparison period. However, the two year stacked growth rate in the region increased by approximately 29% compared to Q4 of 2019.
One area of continued strength in North America is our U S Nutrition club business.
We ended the year with over 12000 nutrition club locations, an increase of more than 30% compared to the end of 'twenty 'twenty.
We're excited to see our sales force is energized by the return of in person distributor events across the North America region, which began in October and continued with 36 separate in person events. So far in 2022 .
Although several Q4 events were disrupted by the Omicron variant attendance has been high for these events and we believe the interactive discussions the face to face team building and the social elements that are characteristic of our in person events are all an important source of ideation motivate.
<unk> and inspiration for our distributors.
Additionally, in North America, we're pleased to share that we recently acquired intellectual property that will serve as the basis of our first ever vegan product line in the region.
It is expected to launch in early 2023.
We believe this line will allow us to reach a brand new market of savvy deegan consumers, who are looking for certified vegan and organic nutrition products and dietary supplements.
EMEA experienced a challenging year over year comparison, resulting in a 7% decline. However in the region, we actually saw a 9% year over year increase in the number of active sales leaders, which reflects the continued strength in the solid foundation of the EMEA business.
Looking at the two year stack in the region EMEA grew 21% compared to the fourth quarter of 2019.
Although the combined new distributor and preferred customer numbers are lower than Q4 of 'twenty 'twenty, we saw growth of 23% compared to the more normalized 2019 comparison period.
We're in the early stages of a new project in the region designed to re architect our distributors E retail and ordering platform.
The goal of this initiative is ultimately to completely overhaul our modernized all our current ordering platforms with growth in mind and we're currently in the vendor selection phase for this project and expect a new platform will be available for our distributors in the region in 'twenty twenty-three.
The softness in our China business continued in Q4 as net sales declined 31% compared to the fourth quarter of 'twenty 'twenty.
Pandemic related disruption contributed to challenges in attracting training and retaining new entrants in the market.
We remain confident that our strategic initiatives aimed at enhancing digital capabilities and daily consumption that nutrition clubs is going to end up benefiting our sales performance overtime.
In Mexico sales declined 5% in the quarter following three quarters of growth as the market was adversely impacted by intermittent pandemic related disruption.
Although our business wasn't directly impacted by any government pandemic related restrictions, we do believe that our high case number during the quarter impacted attendance at our nutrition clubs.
Beginning this year in Mexico, we initiated a new weekly commission payment system that enables distributors to receive their commissions on a weekly basis instead of a monthly basis. This is a first of its kind payment system forever life nutrition, and it's an exciting opportunity for our sales.
For us to receive their earnings more frequently and expedite their cash flow patterns.
We will be analyzing this program's success, including its impact on distributor metrics and evaluate the possibility of extending it to additional markets in the future.
For the South and Central American region, the fourth quarter declined 14% year over year.
The region was negatively impacted in markets, such as Brazil, and Colombia, where government restrictions related to COVID-19 persisted throughout the quarter and impacted our nutrition club activity.
More broadly in the region. The pandemic has contributed to macroeconomic challenges, which have impacted consumer spending.
Turning to our 2022 outlook, we're initiating net sales guidance to be in the range of flat to 6% growth for the year.
We expect the progression of year over year comparisons in 2022 will shape, the cadence of our quarter to quarter performance.
We estimate first quarter net sales to decline in the range of down 10% to down 4%. However, we anticipate that the decline will improve in the second quarter and as previously stated we expect to return to year over year growth in the back half of the year.
Like many other companies, we expect the bottom line in 2022 to be impacted by unique inflationary pressures being felt across many markets.
We are currently observing higher than usual cost increases in our supply chain with respect to raw materials shipping costs and labor at our manufacturing facilities.
This pressure as well as cost increases expected due to a return to normalized levels of in person distributor events and activities are resulting in expected declines for adjusted earnings per share and adjusted EBITDA versus 2021 .
We anticipate however that we can partially offset cost increases in our supply chain by executing on our pricing strategy, which is to increase prices in a way that keeps up with local CPI in each of our markets.
In 2022, we don't expect pricing will fully offset all cost increases, which will result in a net headwind to gross profit of approximately 100 basis points for the full year.
Our efforts to improve margins through productivity and efficiency improvements within our business operations are also anticipated to help offset the near term margin pressure that we face.
One specific opportunity to achieve this is through our transformation program first referenced on last quarter's call. This program is a structural realignment of both the front and back office with the goal of ensuring our infrastructure processes and organizations are efficient and scalable to support our business growth.
Once fully executed we expect the first phase of our transformation program will result in ongoing incremental savings in SG&A of $10 million to $15 million per year.
We're also assessing a second phase of the program, which we are preliminarily planning for 2023 and anticipate that it will result in annualized savings in the same magnitude as phase one.
Alex will provide more details on our transformation program as well as our annual and Q1 guidance in just a moment.
We continue to execute on our long term growth strategy, including product innovation.
And in 2021 regional product launches contributed to over 400, new skus in the company's portfolio.
Approximately 100 of these new Skus have been part of our fast growing energy sports and fitness category, which continued to lead our core product categories with an increase of 26% for the full year.
Our commitment to product is one of the factors that led us to be recently named by Euromonitor as the number one brand in active and lifestyle nutrition.
As well as the world's number one health shake.
The success of our company is rooted in the work and the dedication of not only our distributors, but also our employees.
And I'm honored that Herbalife nutrition was selected as one of America's best midsize employers and one of the top 10 employers in our industry in the 2022 Forbes rankings.
Each member of the Herbalife nutrition team is valued and their contributions are helping us expand access to good nutrition and economic opportunities all around the world.
I'm confident that these positive impacts will only continue to grow in 2022 and beyond.
I'll now turn the call over to Alex.
Thank you John as John mentioned 2021 was a record year for herbalife nutrition across a number of metrics net sales net income adjusted EBITDA active sales leaders and the global retention of sales leaders are a few of the record set in 2021 however.
However, we exited the fourth quarter with a net sales decrease of 7% compared to the fourth quarter in 2020.
This was in line with our expectations for the quarter as we continued to comp Twenty-twenty results that benefited from the surge in demand for our nutrition products. However, comparing to the fourth quarter of 2019 prior to the pandemic. It represented an 8% increase on a two year stack currency was a headwind to net sales in the quarter.
<unk>, representing a drag of approximately 110 basis points.
Normalizing for currency there was sequential improvement in the fourth quarter growth with local currency net sales declining 5.5% versus 7.6% year over year decline in the third quarter.
This was driven by sequential improvement in volume growth of 5.7% year over year decline in the fourth quarter versus the eight 3% year over year decline in the third quarter.
And on a two year stack basis local currency net sales grew by 10.3% versus Q4 of 2019 reported gross margin for the fourth quarter of 77.5% decreased by approximately 60 basis points compared to the prior year.
The decrease was largely driven by increased costs in our supply chain as well as unfavorable impact of country mix. The decreases were partially offset by the impact of price increases.
Fourth quarter, 'twenty, 'twenty, one reported and adjusted SG&A as a percentage of net sales were 38.9% and 37.5% respectively.
Excluding China member payments adjusted SG&A as a percentage of net sales was 32.1% approximately 290 basis points unfavorable compared to the fourth quarter 2021 .
During the fourth quarter of 2021 prior to the impact of Omicron. There was a significant increase in sales events and promotion cost versus the same period in 2020, as we began to return to an in person events.
This increase in nominal spend against lower net sales largely explains the variance in adjusted SG&A ex China member payments for the fourth quarter of 2021 for.
For the fourth quarter, we reported net income of approximately $38 2 million or 37 cents per diluted share at.
Adjusted earnings per share of 57 cents and adjusted EBITDA of $132 million were both within our expectations for the quarter.
Currency was a tailwind of two cents in the quarter versus the prior year.
Our adjusted diluted EPS and EBITDA figures continue to exclude items, we consider to be outside of normal company operations. This quarter. You will notice we have a 12.5 million carve out accrual related to the Rogers lawsuit.
As the two parties have agreed on principal terms of a settlement.
These refer to our disclosure in our 10-K for additional information.
Now briefly touching on the full year 'twenty 'twenty. One results reported net sales of 5.8 billion increased approximately 5% on a reported basis currency was an approximately 190 basis points tailwind for the full year, excluding Venezuela.
2021 reported diluted EPS of $4.13 and adjusted diluted EPS of $4.79. Both benefited by approximately nine cents per share from foreign currency fluctuation.
On a constant currency basis adjusted earnings per share grew approximately 26% compared to full year 2020.
Our full year adjusted tax rate of 19.4% improved approximately 330 basis points from our 'twenty 'twenty adjusted tax rate of 22.7%, primarily due to geographic mix of income.
Turning to our guidance for the full year and first quarter 'twenty 'twenty. Two we expect the current trend of sequential top line improvement observed in the fourth quarter of 2021 to continue as we progress through 2020 to.
The first quarter of 2022 topline comparison is anticipated to be more challenging than the fourth quarter of 2021 given the modest reacceleration in the first quarter of 2021 of the pandemic surge that began in mid 2020.
We expect to return to growth in the second half of 2022 resulting in projected net sales of flat to 6% growth for the full year on a reported basis, which includes an approximate 160 basis points headwind due to currency.
Our gross profit and adjusted EBITDA margins for 2022 are expected to be pressured from currency negative manufacturing variances and the ongoing cost of the shift to home delivery experience at the onset of the pandemic.
Further we have seen significant increases in input costs consistent with the news headlines related to raw materials labor and freight costs.
To partially offset these margin pressures in the near term, we will continue to leverage our pricing power.
We are also actively engaged and productivity improvement programs for both our front and back office operations through the transformation program John referenced earlier.
This program involves the realignment of infrastructure to more effectively leverage our global shared service centers investment in new technologies to increase efficiencies internally as well as better support distributors and customers and repositioning of certain strategic functions closer to the regions and markets they serve too.
<unk> affect local initiatives.
We expect the first phase of this initiative will incur total pretax charges in SG&A in the range of $25 million to $30 million.
We carved out approximately $13 million of these charges in 2021 with most remaining expenses to be incurred throughout 2022.
We expect this first phase will result in annual incremental savings in the range of $10 million to $15 million with some savings beginning in 2022 increasing through 'twenty 'twenty three with the full impact of the savings expected to begin in 2024.
We are also assessing our second phase of the program to begin in 'twenty 'twenty three with expected ongoing annualized savings in the same magnitude as phase one.
As a result for the full year, we are projecting our adjusted diluted EPS to be in the range of $4 25 to $4.75. This includes an approximate 17 scent currency headwind we are also.
Also providing full year adjusted EBITDA guidance in the range of $785 million to $845 million, which includes an approximate 21 million headwind due to currency.
Our 2022 guidance includes the assumption of $50 million and share repurchase per quarter, which reflects the minimum buyback amount. We anticipate completing on a quarterly basis. We continue to project reliable cash flow from our business model. We believe there is value in guiding for a base level of consistent share repurchase.
While leaving room for potential incremental opportunistic share repurchases to take place over the course of the year.
We have demonstrated this pattern of consistency during 2021 by repurchasing approximately $100 million $160 million and $100 million in the second third and fourth quarter respectively.
We anticipate this pattern of consistency to continue in 2022 .
Until the first quarter of 2021.
[noise] adjusted EBITDA is expected to be in the range of 165 to 185 million.
Turning to cash flow capital structure in our share repurchase activity.
Our business continues to generate substantial cash flow operating cash flow of $460 million for full year 2021 was down from 2020, primarily due to the impact of several unfavorable accounts related to year over year net sales declines for 20 twenty-two we expect this to turn around.
And in the second half of the year when the business returns to growth.
After completing just under 1 billion in share repurchases during the year at the end of 2021, we had just over 600 million of cash on hand, as I mentioned earlier, we have included a minimum of $50 million in share repurchases per quarter in our guidance for the year, which will cut into the approximately 1.1 bill.
<unk> remaining on our three year share repurchase authorization.
This concludes our prepared remarks, operator, please open up the line for questions.
Thank you, ladies and gentlemen, as a reminder to ask the question you need to press Dodd and one on your telephone to withdraw your question press the pound key again, that's star one to ask the question. Please stand back while we compiled the Q&A roster.
Our first question comes from Atlanta, Wendy Nicholson what city your line is open.
Hi, Good afternoon, I had a couple of questions first Alex which for guard Q, including the buyback and the earnings guidance I think that's new and different for you and I think it's actually great, but just with regard to the $50 million worth of repurchased says each quarter.
You kind of committing to doing 50, each corridor or there's a <unk>. There's a chance you would do all $200 million in the first quarter and then none for the rest of the year. So is it is it an annual number or is it literally a per quarter guide.
Hi, Wendy Thanks for the question.
The consistency is really the key here, so $50 million a quarter is sort of how we see it profiling out now obviously to the extent that we don't have a use of cash for any other initiatives and we have that cash on the balance sheet, we can opportunities economic genista glee be greater than 50 million. It could be 100 million like we've been doing at least every quarter.
<unk> two three and four of 2021 so.
We're just trying to create some level of baseline in our guidance projection given that we know that we're committed to the share repurchase program and this really we hope gives investors and folks a assign a commitment to our share repurchase program beyond the words that we have historically provided.
Okay, That's fair well understood and then I have two other questions. If that's okay. The first one is just with regard to price I mean, obviously you know every company we cover talks about how unprecedented and and really unusual this cost environment is and I'm. Just wondering number one just does that.
Lead you to think about doing anything differently with regard to your pricing mechanisms I know you've historically had these annual price increases scattered throughout the year tied to C. P. I, but but is there is there anything in the current environment, where you say why are we may be needed the second round of pricing or we need to do it more aggressively or or anything on.
That front door still no strategy with regard to pricing is unchanged yep that's.
That's a great question at present, we are sticking to our historical pricing strategies, which is very consistent with taking.
Taking price consistent with each market's local.
CPI.
With that said like you said, we are at unprecedented times there are unprecedented input costs on freight on raw materials, just up and down labor. So we are evaluating is there is there more we can do but obviously, we have to take the impact of that and how that might affect demand on those respective markets.
And so balancing those two.
Balancing those two objectives.
Preserving margin without hurting demand that is something that we're going to have to take another strategic look at but at present, we are just sticking to our historical practices got it got it and then.
Don't mean to hog the Q&A, but just one more question because I thought it was an interesting comment John that you made with regard to the Mexico I think it was Mexico, where you said you're testing a potential change in the frequency of the payments of the commission.
I thought it was very interesting, but I I just wondered are there any.
Incremental costs to that does it does it.
Change the cadence of the business are there any are there any risks are or thinks I'm not thinking of yet because that's that's something new and different that I hadn't heard of before and and do you know if any of the other direct sellers are are doing something similar.
Yeah. So this is John decent and I'll take that question. So let me see if I can get it.
Each of them so.
There are no material risks that we believe the cost is negligible to do it.
Really.
Doesn't impact the cadence of the business what it really does is allow.
Allow new distributors to get money in their pocket sooner right. So so.
Basically if I was getting commission before I have to wait till the end of the month and even that'd be two weeks before I get the check by time everything processed and now we have visibility into the transaction much.
Earlier, we can get People's money in their pocket sooner and yes. There is a competitive reason to do it too because competitors do offer quicker commission payments and we have historically, so it's being tested in Mexico.
Successful.
We believe it will be then as possibilities we take it elsewhere. When I'll just this is John a.
Many of our distributors in Mexico very excited by this I mean, they they recognize that.
Makes it easier and markets like Mexico, and that's going to be true I think around the world to be able to have more money in your pocket quicker for cash flow purposes to kind of engage those new distributors early on and get them seeing cash coming in it commits them at an early point in their in their journey.
Got it sounds great terrific. Thanks, so much.
Thank you.
Our next question comes from a lot of stuff with it with Jeffries. Your line is open.
[noise]. Thank you good afternoon, everyone I wanted to ask a follow up question on guidance. If you could just talk a little bit about the flat assumption versus the 6% and what are the key attributes.
And by market, if you're willing to give us some sense of that variance.
Particularly at that upper end does that assume that China, and flex or that you see persistence in the west as you've seen over the last couple of years.
Yeah.
I mean, we don't really guide market by market I think generally speaking.
The guidance zero to 6% of what that reflects is of the normal range that we provide at this time of year I don't think it I don't think there is a different set of circumstances on the six that aren't any different than.
The midpoint of the guidance, where we expect it.
An exceptional inflection point in China et cetera.
That profiling out of the year.
Is really probably the more I would say a unique thing about 22 versus prior years and how we're starting this year still comping that surge in demand that was present in the first quarter and the first half of 21.
And then as that surge in demand sort of normalize to some degree in 2021.
We expect to grow off of that more normalised, both based in the back half of the year. So the guidance really is just more reflective of how we see the business progressing past the surge of demand that we saw on the onset of the pandemic.
Okay. That's helpful. And then my follow up question to Wendy's earlier, one on pricing I'm. Just curious if you can give us maybe a slightly.
Different lens into the supply chain and how much of the costs basket, you hedge or control versus how much of the costs, you're buying kind of on a spot basis, where you're seeing the volatility in some of the casting.
Yeah. So there's there's a number of buckets in that question. So.
Some of our biggest ingredients like soy protein isolate.
I guess you could use the word hedging, but we lock in that price ahead of time, so our 2022 price on that major raw ingredient depth locked in for the full year 22.
At relatively attracted prices versus versus CPI and burst a lot of the.
Input prices that you might see it's in the low single digits of of cost increased 22 over 21, that's probably one of the brighter spots of our of our input costs.
However, many of the others.
Are commodity type present prices, whether it's off dairy or or resins or those types of things and those.
Are typically spot market buys for us.
Further.
A big piece of our input costs is free and whether it's freight in or frayed out those costs have significantly escalated as well from all the demand issues that we're all familiar with so again not something that you can really hedge or really lock in.
Material.
Prices, you're really subject spot prices on all of that so we're.
We're doing the best to sort of manage.
Some of how to manage those input costs, particularly around the home delivery aspect.
But that's going to be a little bit of a longer term solution that we're going to look to see if we can have some productivity improvements on that and 22.
Okay. Great. My last question for you is just to on the cash on hand in inventory levels are you feeling like you need to run your business with a bit higher inventory as a bit of a adjusting case protection are you seeing some improvement in the fluidity of your supply where you think you can start to see working capital efficient.
As he come back into the balance sheet.
Generally speaking the.
The inventory level has run a little bit above.
Where we would have liked it.
In some markets that strategic and it makes sense, but generally as a company.
We experienced in 21 as you might recall, we took guidance up all of our forecasts came up our manufacturing plants ran hot and produced a lot of inventory that what turned out to be into the back half of 21 then created.
Excess inventory so we're still working off of that inventory if you look on our balance sheet.
The levels of inventory are significantly higher than where they were a year ago.
And we will be continuing to work those off as we get into 2022.
Obviously that has Ah.
A sort of a.
Duplicate effect too on our manufacturing variances, which is a little bit of if you look at our gross profit margin.
Implied for 22.
There's a little bit of a hit there.
We're working off that inventory, we're going to have negative negative manufacturing variances at least through the first half of 2022.
Alright very helpful. Thank you.
Thank you.
Our next question comes from the line of Jeff Van syndrome with be rally your line is open.
Hi, everyone I just wanted to touch on I guess I would call it sort of the performance product umbrella.
Under that umbrella that line is really helped you attract a younger demographic and has been a relatively fast growing segment can you give us a sense of how you are enhancing that product line going forward. I know you said I think at 400, new skews last year.
Maybe touch on growth expectations around that performance line for 22, and ultimately what level of concentration as part of your whole business seems feasible for.
For the performance line over the longer term.
Yeah, I might get you too. This is John am I might get you to repeat the second part of your question. Let me answer the first part first.
It wasn't actually 400, new excuse in that category. It was 100 and.
In that category 400 overall around the world Yeah, We're really excited about our sports nutrition business. It's energy. It's protein is hydration and it's actually it's it's done very well on a number of fronts, one new skews as we've indicated we're we're expanding into.
We have a few flavors that very core to the business the flu.
Flavors, you would expect but we're not only adding flavors were also going deeper in terms of the the science and the types of products things like B C. A a is and and different kinds of more specialized product and in addition to our core product. We've also expanded our energy line with.
Then within that space.
Quite dramatically actually and a number of countries as well new flavors, new formulations, new packet sizes as well.
Gone from tablets to powders and and so forth. So there's a lot of excitement and yes. It does drive a younger demographic into the business.
When we launch our vegan line I have no doubt will start to then go even further by taking vegan and organic into the sports line as well for the full year just to remind you or sports business is up 26% and I think we had similar growth in prior years. There was a time, we would have added the cat.
Coming off a small base, but it's actually been going quite well known for a number of years and becoming increasingly and I think this goes to the second part of your question. It is increasingly becoming an important part of our overall mix.
Now I will just add one last thing it's a central part of our five year long term strategy going forward. Our goal is candidly to become one of the top brands in sports nutrition around the world and we have internal targets.
We're gearing towards and the number of a big markets and indeed, we have a global target that we're trying to push for as well I'll stop there and listen to my colleague John D wants to add anything he's shaking his head so I'll leave it there unless I left one of your questions unanswered.
No no that was that was great.
And then just as a follow up to that you mentioned, the vegan line and that I guess being integrated at least partially having some vegan products in the sports performance line.
The vegan mind I guess.
Guessing also would be you'd have products and other perhaps in the weight control line or what have you that are also vegan and I think you have some vegan products now if I'm not mistaken.
Yeah, So we have.
A few individuals vegan skews within broader lines, especially in the European market.
But this is different this is about us trying to develop a branded.
Full and and to end line of products that are used for.
Weight management.
Sports performance and a number of other kind of.
And uses his inside that category. So we're trying to develop a full line under its own brand within the Herbalife nutrition family of brands.
Our goal being initially to launch here in the U S.
Early 2023 is our target and then and then to take it further afield around the world from there.
And then if I could just squeeze in one more just generally speaking what do you think are the most important digital initiatives that you're hoping to I guess complete or or make considerable headway on this year that can impact your business towards driving myself yeah.
Yeah I think.
First of all the whole digital kind of space in our strategy involved.
Better supporting the way our distributors interact with their customers and so there's a number of different kind of for one of a better word buckets.
Of activity there it'll could include things like efficiency plays for our distributors productivity plays for our distributors.
The one that the distributors have pushed us to move the fastest on them. It's underway is.
Overall enhancement of their ability to a retail to their customers and starting in Europe , but then quickly I think spreading around the world. We're going to do just that I think the goal is not just to kind of launch something but also to have a partnership with specialists specialty vendors in the space that allows us to.
Keep up with the times so to speak in other words, the vendor will be responsible for enhancing the functions of the of the retail side over time.
But it is principally focused on the work that our distributors do.
Okay, great. Thanks for taking my questions and best of luck.
Thank you.
Our next question comes from the line of Wham Radha with Bank of America. Your line is open.
Hi, This is Marianne for bell. Thanks for taking a question can you touch on where you are seeing the most significant inflation between raw materials straightened labor and its availability of any raw materials have been a challenge or if it's more just that the costs are higher.
Yeah, it's more on just the pricing and the pricing of variances.
<unk> from from prior year.
The basket of goods I wouldn't say that are disproportionate in one or the other I mentioned earlier on the call on some of our roars, we're doing quite well on.
But the overall basket has significantly increase.
[noise] got it thanks very much.
Thank you.
Our next question comes from the lineup doubling with research your line is open.
Yes, hi, everybody.
Can you you mentioned Colby several times and your comments, which is understandable given.
Given where we are but could you drill down a little bit more room in particular.
<unk> around in particular toby's impacting your ability to go to market as it is in the supply chain is it big events is nutrition club attendance I mean, just where exactly is COVID-19 impacting your business. These days.
So Doug.
Obviously, because we're 94 countries where in all of the big regions around the world the answers.
Is it depends on which region you are talking about right. So, but I'll try to give you a little more color. So clearly I think in many of our markets that are nutrition.
Based markets like Mexico and to a lesser degree the U S. We've found that during the peak of Covid Uhm customers didn't want to go to the nutrition club and in some cases.
Some cases.
Governments actually prevented us from opening nutrition clubs I I remember nutrition clubs in India for a while there was shut down however for most of those markets today that surge in Covid has passed by and the nutrition clubs are rapidly reopening customers are showing back up their favorite many can.
Immunity the nutrition club on the corner and things are beginning to get back to normal. So that's one area the.
The second I am talking about there were some positives, obviously, but last week to the negatives here a little bit because I think that's what your question was about the secondary obviously was I think as you point out supply chain and the supply chain impacts of Covid I think it's safe to say because the entire industry is facing them.
On the front end in other words inbound but.
But also on the outbound side has been impacted I think in ways that are going to take a little longer.
Bounce back things like shipping.
Containers phrase in N out the cost of freight.
Those kinds of things I think you're going to take a little longer to heal.
Get back to normal even though for the most part I think the impact of Covid in the west has diminished significantly there's still a lot of COVID-19 .
On the east side of those of those those supply chains. If you look at what's happening in Hong Kong to a lesser degree now, but who knows what will happen in the future in China.
I am beyond in Asia, There's some pretty I don't think omicron has peaked yet and many of those markets. The good thing about <unk> is if you if the if the east was anything sorry, the west is anything to go by it should pass fairly quickly.
Two months three months four months for the peak to pass.
So that would be the secondary the last thing I would just say is on meetings in person meetings. They are the lifeblood of our of our business relationship business, we rely heavily on people teaching others inspiring others.
Nurturing others, whether it be the customer who's trying to lose weight she needs her coach and she needs her coach right. There with her as she is working out as she is walking setting up our plans or on the business opportunity side, where you have young entrepreneurialism to build a business and they need to learn from the more experienced distributors that have gone before them. They do.
All of that in these events and we are so excited and one of the biggest positives that we we sense as a company is the fact that.
As a company in general we are reopening in person events are happening again, we have a schedule of events through the rest of the year that show dramatic acceleration I'm going to attend many of them as well many of our executives all around the world. So we're feeling quite good about that the one kind of I think.
Question, Mark would be how long does it take for APAC.
To get through its omicron wave because they too are an important part of that process.
And I know that you had to go virtual with some events in recent months, how long do you think before I mean.
You can't predict Covid I get that but just from your planning standpoint or are you looking to be pretty much fully up and running withdrew regional conventions events by the second half of this year for instance.
And speaking to all of our leaders around the world almost every market expects to try to have important events by the end of the year.
There'll be a mix of transition between now and then and I have no doubt, we're going to hold on to many of the positive aspects of of the virtual world that we've all learned to live in we're going to layer that on top of the impression events as they begin to them kind of happen around the world. So the answer to your question is we fully expect to have most of our country.
Trees hosting some kind of live events by the end of this year with a trajectory between here and there that kind of wraps up pretty dramatically as COVID-19 exits.
Okay. Thank you that's very helpful. Just one last question your Big Global Company can you give us how you think about and what you can possibly bill or how are you thinking about it and your forecast.
With the geopolitics in Russia, and Brazil going on.
Yeah, Let me throw this one to John do Simone R. R. A president who worked so closely with the markets.
Hey, Doug So just.
Just like every other companies got business in those markets were putting contingency plans together.
We have distributors and customers who rely on this company and.
There are.
95 countries, we have supply chains coming from.
Different regions that I think can get product into those countries depending on what the circumstances are they don't have to come from the U S.
Simulations with the U S isn't good really the biggest risk is more on the banking side.
Can we get money out and right now we expect that we'll be able to you never know.
But we could contingency plans in place that we're hopeful we'll manage at least any kind of reasonable outcomes from the events and look.
Ukraine itself just to give you a perspective it's.
10 to 59 million $5 a quarter, it's not it's not big that's probably where the biggest risks risk lies I mean this is risk in Russia. This risk in Brazil, but the biggest risk is probably in the Ukraine.
Material country to us.
Okay. That's helpful. Thanks, Joan.
Thank you.
Our next question comes from the line of Matthew Barry with Mellow value partners.
Hello.
Hello, guys.
Thank you for taking my call could I get.
I know you done provide guidance, but could you maybe provide any thoughts on.
The the the the big step down that you're expecting in the first quarter of this year.
Obviously at this point you have almost two months.
Of data that you are reading off so that's a big step down your minus 10.
Minus 4% I think on the volume points. So what's really driving that is that the number of sales leaders that you've got out there is it the the number of volume points to those sales needs.
Producing.
Any sort of.
Additional data on what you're seeing in the business.
That's driving that will be really helpful.
Yeah. So so great question and so this is a little bit the nuances of the profiling. So.
So clearly in queue for we had sequential growth over Q3, and Q1, the health and strength of the business continues to actually be stronger.
Now with that said like.
Like the numbers that you called out if you look at the midpoint of the guidance that is either slightly.
To the downside or flat with where we were in Q4 and that's less about the current state of the business and more about what the business is comping off of so if you go back to the first quarter of 21, we reaccelerated with the surge that we experienced in the middle of 2020 from the pandemic. So if you're looking at some.
Those topline numbers and you are saying hey, well.
This isn't getting better than Q4 actually the health of the business is getting better, but it's comping off of more difficult comp.
So that's when you when you look at that you have to kind of put some of that in perspective. So if you go back for example, and you go back to the first quarter of 21 weeks Reaccelerated with 19% net sales growth in the first quarter of last year right. So we're coming off of 19% net sales growth year.
Quarter versus <unk>.
<unk> six and the and the fourth quarter does that makes sense.
That makes sense I guess.
Yes.
This is something we could probably get into a little more.
Detail offline, because there's definitely a few moving parts.
But I appreciate the help.
To help on the outage. Thank you.
Sure thing.
Thank you.
Our next question comes from the line of Hail hold on with Barclays. Your line is open.
Great. Thanks for choosing me and I just had a couple of quick housekeeping ones.
Would it be possible for you to also give us a capex estimate for sure.
Sure our Capex guidance is $200 million in the mid point.
And again, that's getting to some of these digital programs that John mentioned to some of the technology initiatives to help on the on the front end of the business too.
That's supporting that.
Slightly elevated number from where we would have been historically.
The second question is even a guy that you gave does that include or exclude can be sushi and coffees charges that you're doing the sure put you called on <unk>.
Yeah. So the charges the types of charges that we excluded in 2021 and that I mentioned that to the tune of $25 million to $30 million total basket is not in the EBITA number we we expect that will be carved out.
In that in that EBITDA guide for 2022.
Great and then I got a picture one which is there's been a lot of discussion on as you emerge from the pandemic and it becomes a direct.
Weight loss and healthy behaviors or maybe less of a focus on my probably should be and I was wondering if you were saying that at all from from your sales performance or if that was a concern for me you guys.
Not a concern we're not we're not seeing it in our so performance at all in fact.
We believe there's going to be increased demand.
Beyond the pandemic a couple of things first.
First of all I think the pandemic is conditioned a lot of people to focus on on their health and on their immunity and on their ability to fight external threats from viruses and bacteria and the harms of the world.
Reason is unfortunately, many people on lockdown gained weight and we think that once they all emerge and get active again go back to work and so forth.
There's going to be we believe an increased demand for weight management as people tried to get healthy again after two years of sitting on their couch.
Lastly, I would just kind of points to the fact that there are long term trends that have not been impacted by the by the pandemic.
Obesity epidemic continues to be a major issue. It was for the five years prior to the pandemic and we believe will be for the five years that followed the pandemic and then there's been a surge.
More subtle unless you're in the industry because it's not a headline news thing, but but people are there has been a big trend towards sports outdoor activities healthy living and especially in the younger than the younger demographics and that that Serge as evidenced by the increase in our.
Sports nutrition business up 26% in the.
The prior year, we believe that's going to continue there's no indication that is going to slow down for at least from the data we see.
Great. Thank you so much I appreciate it.
Thank you.
I would now like to turn the call back over to C. E O John Edward Nobody's, what closing remarks.
Thank you, we we've gone a little longer in our call today, obviously end of year, a lot of complicated issues with the pandemic and so forth I'm glad we did because we had an opportunity to kind of go a little deeper than we might typically have gone with with all of you. Thank you for your questions and for attending ill and quickly therefore by saying listen we have a <unk>.
Long term strategy that we're very confident and we're very proud of it's it's working it's delivering.
And it's going to continue to deliberate as we look out into the future.
We've given your guidance for 2022.
And if you take those midpoints you recognize that.
Our share repurchase program is an important part of our tactical play for the rest of this year as Alex pointed out we're going to try to make it a lot more consistent at least on its base and then we'll be opportunistic on top of that as we move forward.
The the market continues to look for I want it to the market I mean, our customers and the distributors that support them continue to look for the kinds of products that we sell all around the world.
Demand continues to be something that we're very pleased to see and as we profile out 2022 and beyond.
Feeling really good about our future as a company I'll leave it at that and say thank you for attending look forward to speaking with all of you on the road at some point.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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