Q2 2025 Herbalife Ltd Earnings Call
Good afternoon and thank you for joining the second quarter 2025 earnings conference call for Herbal Life Limited.
During the company's opening remarks all participants will be in a listen-only mode.
Following the opening remarks, we will conduct a question and answer session.
As a reminder, today's conference call is being recorded.
I will now like to turn the call over to earn bions vice president and head of investor relations to begin today's call.
Thank you, and good morning, good afternoon, or good evening to everyone joining us.
Joining us today are Stephan grittani, our chief executive officer and John D Simone our Chief Financial Officer.
Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 of our presentation. And in our earnings release issued earlier today, which are both available under the investor relations section of our website.
The presentation and earnings release, including a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the private Securities. Litigation Reform, Act of 1995,
As is customary, the content of today's call and presentation will be governed by this language.
in addition, during today's call, we will be discussing certain non-gaap Financial measures these non-gaap Financial measures exclude certain unusual or non-recurring items that management believes impact the comparability of the period's reference
Please refer to our earnings release and presentation materials for additional information regarding these non-gaap Financial measures and the reconciliations to the most directly comparable gaap measure.
And with that, I will now turn the call over to our CEO. Stephane graciani.
Thank you, Aaron and good afternoon everyone, when I stepped into the role of CEO, I shared my belief that herbal life's next chapter would honor our 45 Year Legacy while redefining what's possible for health and wellness worldwide over the past 3 months. The progress we've made has only reinforced my conviction. That Herbalife is uniquely positioned to lead in this new era of Health and Wellness.
Herbal Life is In Motion from Our Roots, as a weight management company to becoming the number 1, active, and lifestyle nutrition brand in the world, we are now well on our journey to becoming the world's Premier health and wellness company community. And platform this next chapter Blends trusted human connection, with personalized, data-driven solutions to meet the evolving needs of consumers around the globe.
Our transformation is underway in gaining momentum.
We're taking bold steps moving with speed and building on the strengths of our brand business model and science to shape the future of Herbal Life. While these bold changes, take time to fully reflect in sales, we are encouraged by a clear signs of accelerating momentum.
Since our last earnings call, we've made notable strides in transforming, Herbal Life into a Next Generation data-driven, wellness company.
Product Innovation remains a key Focus. We entered into a new category with our first healthy lifespan product and we launched multi burn, a non-pharmaceutical weight loss supplement. At the same time we continue to strengthen our Core Business through market and DMO specific product launches while also evolving our product launch strategy, integrating real-time education, targeted digital engagement and enhanced consumer accessibility. We're also laying the groundwork for long-term differentiation through the integration of linked biosciences, enabling truly personalized, nutritional supplements through advanced algorithmic and goal, specific recommendations with protocol, as the connective thread across these initiatives. We're building a unique health and wellness platform in ecosystem that will Define the next era of verbal life.
Down 1.7% versus Q2 of 2024 and near the midpoint of our guidance range.
On a constant currency basis, net sales were flat year-over-year.
we delivered a solid adjusted ebit or result that exceeded guidance and we paid down 55 million in debt in the quarter, maintaining our total leverage ratio, at 3 times as of June 30th,
Occasionally we provide updates on the subsequent quarter and I'd like to turn to July performance in July, we delivered Global year-over-year, volume growth, and more notably, we're excited to report. We marked the key milestone in North America. July was the first month of year-over-year, volume growth in the region, since April 2021 reflecting the Region's continued momentum and with this progress in growing confidence in our Outlook, we've raised and narrowed our full year, net sales guidance range, John D Simone will give more details about our financial performance later in the call.
Our distributor growth initiatives drove strong engagement across the globe in Q2 fueled by the launch of the Herbal Life, Flex 45 Challenge, and successful ongoing programs. Like the Herbal Life premiere league and the diamond development, Mastermind globally. New distributor growth was flat year-over-year, which we expected given the tough comparison due to the initial Spike and recruiting from last year's Premier League launch that said for out of 5 regions saw year-over-year, increases led by 16% growth in Latin America.
Distributor engagement and enthusiasm was high in the quarter with nearly 38,000 attendees at Extravaganza training, events in Hong Kong, Chile in the US between May and July.
That enthusiasm was especially clear in North America where Distributors are actively embracing the future of verbal. Life 1 defined by data-driven personalized and accessible health and wellness Solutions.
attendees at the North America Extravaganza previewed, the beta version of the protocol app alongside the debut of our first healthy lifespan supplement,
This is more than a beta program. It's a signal of what's ahead by integrating data, personalization coaching and Community protocol, gives customers greater insight into their health. Empowers Distributors with Smarter Tools and amplifies the connection between them delivering deeper value in today's evolving health and wellness landscape.
Our protocol beta is centered around. 4 key pillars designed to guide users towards personal health outcomes.
First, what to measure?
Through digital Health inputs and assessments users receive a proprietary Pro to score which is a personalized Wellness. Baseline along with the plan for improvements in tools to track progress over time.
Second what to do?
AI assisted daily, lifestyle recommendations, helped shape healthier habits.
Third, what to take or adaptive algorithm tracks nutrition and specific product use and provides reminders to encourage following the recommended protocol.
Finally, who to do it with.
Building on our legacy of person-to-person connection and our distributor-driven model protocol strengthens the connection between distributors, customers, and the community, providing ongoing encouragement and accountability.
Distributors at the North America, Extravaganza were enthusiastic about the potential impact. The protocol app can have on their businesses just over 7,000 Distributors signed up to participate in the exclusive protocol beta Group, which included the purchase of a 60-day supply of our first healthy lifespan supplement. Let me see a few words about this product.
Knowing that lifelong Wellness begins at the cellular level. This supplement supports 4 key areas of cellular health and function. It includes niagen a patented ingredient that's clinically shown to increase levels of NAD, which is important for maintaining cellular energy.
While the product name will be revealed when its commercially launched in the US and Puerto Rico. And Q4 excitement is already building.
That excitement extended beyond our Herbal Life distributor base. As we shared last quarter, we acquired certain assets of prove it which we plan to integrate over the next 2 years. In the meantime, we welcome to proximately 400 prove it Distributors to our North America Extravaganza with the majority opting into the protocol beta program.
Proved it. Distributors will have the opportunity to join Herbalife in Q4.
Greater retention and Community expansion, all leading to increased customer lifetime value.
With thousands of Distributors as beta participants were actively Gathering feedback to refine the user. Experience ahead of our planned Q4 launched in the US and Puerto Rico with additional markets to follow beginning in 2026.
Distributors, who joined us in this first phase of the protocol beta aren't just getting early access to an exciting, new technology and product, they're stepping into a multi-phase Innovation Journey.
Those in the initial beta group will have the opportunity to join the next phase in Q4, which will introduce access to at-home tests. That deliver Baseline blood biomarkers as an additional health and wellness service.
A subsequent phase launching in the first half of 2026 will take personalization. Even further with link. Biosciences customized supplement formulations tailored to individual needs and goals.
This staged approach. Reflects our long-term vision for Herbal Life, to become the world's Premier Health and Wellness platform by offering personalized accessible Wellness Solutions, which provides the heart of our company. Our Distributors with the front row, seat, in shaping our future.
With the distributor community of more than 2 million and a globally. Trusted brand Herbalife is uniquely positioned to reach customers. In ways. Few companies can match for amplifying that reach an Effectiveness through stronger digital connectivity, and by leaning into AI, assisted tools in the introduction of protocol is just the beginning.
We're leveraging AI marketing to help our distributors. We are delivering custom AI-generated content for social media and offering a new wellness AI chat assistant featuring our own Dr. Luigi Graten.
We're also leveraging AI to support Distributors through our key account management program.
For processing, thousands of data points including actionable, insights from the field, about ideas challenges, best practices and more. This helps us quickly identify knowledge, gaps, create targeted content and improve the program's Effectiveness in real time.
While we focus on evolving, how we work and innovate for the future. We remain committed to delivering products that align with global Trends resonate locally and meet the needs of diverse dmos and customers. In Q2 we expanded our nutrition Club offerings in Mexico with the launch of instant coffee. We also introduced sleep enhance with saffron extract in India.
And in certain markets, in Latin America. We launched Neutra muffin, a muffin mix. That provides a convenient high protein snack,
In the US, we continue to see strong consumer demand for effective weight loss Solutions.
And in July, we introduced Multi Burn, an innovative non-pharmaceutical weight loss supplement designed to support metabolic health with a proprietary blend of clinically studied botanical ingredients. For more information about the science behind Multi Burn, you can refer to the press release we issued on July 7th.
To support consistency and drive, recurring Revenue multi burn and other select products are now available to customers and preferred members in the US through automatic monthly subscriptions.
While it's still early, the excitement we're seeing from distributors and customers about Multi Burn is encouraging, and the initial sales are outpacing our expectations.
Before I close, I want to give a brief update on link biosciences.
We are currently focused on integrating protocol with link biosciences, proprietary personalization, Technology, and Manufacturing capabilities.
This positions us to deliver data-driven, personalized supplement formulations, which gives us a unique competitive advantage in the U.S. today.
We look to expand this competitive advantage globally, with regulatory assessments underway. In other key markets, we're confident in the long-term differentiation and growth that this new capability will drive.
While this capability along with other developments we've discussed, today spans Innovation and products, technology, AI personalization and distributor engagement, all of it is built on the same Foundation that has guided Herbal Life from the very beginning from day 1. Our company has been built on, trust 1-on-1, relationships community, and results.
What's different today is the scale and sophistication with which we can build upon that Foundation. We are evolving into a technology enabled data, driven Wellness platform, 1 that empowers our Distributors personalizes the customer experience and uniquely positions us within the global Wellness Market which is projected to reach 5.8 trillion by 2028.
And this is only the beginning.
Analyzed Wellness Solutions integrate link biosciences and harness AI across our business. We see a powerful and clear path to sustainable growth and long-term shareholder value.
Thank you for your continued trust and support. I'll now turn it over to John to walk through our Q2 financials.
Thank you, Stefan.
Turning to our Q2 financial highlights on slide 11.
We delivered another solid quarter with the adjusted ibida, exceeding guidance.
We reflecting our continued focus on operational efficiencies.
Operating cash flows for the quarter were also strong at 96 million.
Net sales were 1.3 billion dollars down, 1.7% versus Q2 of 2024 and just below the midpoint of our guidance range of down, 3 and a half to up a half year-over-year.
Sales on a constant currency basis were flat compared to the second quarter of 2024 and near the lower end of our guidance range.
And while FX headwinds were less severe than expected, they still had a 170 basis point negative impact year over year.
Our Q2 adjusted evida was 174 million. Exceeding, the high end of our guidance range,
Adjusted EBITDA margin of 13.8% was down 30 basis points for the last year, driven entirely by unfavorable currency impacts.
Capex for the second quarter was 23 million.
Slightly below the low end of our guidance range of 25 to 35 million.
As we continue to optimize our Capital spend, which you will see reflected in our revised full year guidance.
Capitalized SAS implementation costs were approximately 4 million in the quarter.
Gross profit margin improved 10 basis points to 78%.
Driven by approximately 70 basis, points of favorable pricing approximately, 20 basis points of lower inventory, breakdowns.
Partially offset by foreign currency, headwinds of approximately 60 basis points and input costs inflation of approximately 10 basis points.
Following our acquisition of a controlling interest in link biosciences. We are now separately reporting. Net income attributable to Herbal Life.
Second quarter, net income attributable to Herbal Life, was 49 million.
With the adjusted, net income of 61 million.
Q2 adjusted diluted EPS of 59 cents. Included an 11 Cent FX headwind, versus the second quarter of 2024.
Our adjusted effective tax rate was 27.7% down from 32.3% for Q2 of last year.
Contributing to an approximately 4 Cent, favorable impact on adjusted diluted eps.
the decrease in the 2025 rate was primarily due to changes in Geographic mix of income,
Partially offset by discrete events in the period.
We now expect a full year 2025 adjusted effective tax rate to be in the range of 27 to 28%,
During the quarter, we paid $25.5 million in connection with the acquisitions of certain assets of Protocol, Prove It, and Link Biosciences, and repaid $55 million of debt, which included $50 million for the redemption of the 2025 notes.
As of the end of the quarter, our revolving credit facility remained undrawn.
Credit agreement Nea for the second quarter was 192 million.
and with our debt repayments during the quarter,
we maintained our total leverage ratio of slightly under 3 times as of June 30th.
For additional details, regarding the adjustments between adjusted EBA and credit agreement, Eva as well, as the calculation of our total leverage ratio. Please refer to the presentation appendix in the earnings press release.
Turning the slide 12, we see the drivers of our year-over-year, net sales performance.
As I stated earlier reporting, net sales for the quarter decline. 1.7% year-over-year while constant currency. Net sales were flat.
Overall volume was down 3.1% or 39 million year-over-year.
Which was nearly offset by approximately 38 million of favorable pricing.
FX impact in the second quarter was approximately 22 million or 170 basis. Point headwind year-over-year.
But this was better than the 300 basis point headwind we anticipated in our Q2 guidance.
however, even with the dollar weaker than anticipated,
it was an overall headwind for the quarter on average.
While we are pleased with our performance in Q2.
Our underlining Trends. Continue to strengthen.
As Stefan mentioned, Q3 is off to a strong start, driven by our July sales performance.
This positive trend is reflected in the guidance we shared earlier today which projects year-over-year, net sales growth for the third quarter.
Of 0.5% to 4.5% on both the reported and constant currency basis.
Turned to slide 13. We have the regional net sales results for the second quarter.
Sequential Trends. Improved across all 5 regions.
For the second quarter, Latin America delivered, another strong performance.
While reporting that sales were down. 1% year-over-year constant currency. Net sales were up 9%.
Favorable year-over-year net pricing and an approximately 3% increase in volume were more than offset by unfavorable FX headwinds, primarily due to the Mexican peso.
In Mexico specifically reporting. Net sales were down 4%.
But local currency net sales were up 9%.
Primarily driven by favorable pricing and an approximately 4% increase in volume year-over-year.
Sales were flat on a reported basis and down 1% on a local currency basis.
Favorable year-over-year pricing and FX tailwinds were more than offset by approximately 5% decline in volume.
In asia-pacific reporting. Net sales were down. 2% and constant currency. Net sales were down 1%
Favorable year-over-year pricing. Impacts were more than offset by an approximately 3% decline in volume along with unfavorable sales, mix and FX movements.
In India, net sales were down, 0.5% on a reported basis, but up to 2% on a local currency basis. Primarily due to an approximately 1% decline in volumes year-over-year and unfavorable FX headwinds partially offset by higher pricing.
In North America, that sales were down 4%.
Primarily driven by approximately 6% declines in year-over-year volumes. Partially offset by favorable pricing.
On a sequential basis. The year-over-year, net sales Trend improved by approximately 50 basis points with volume Trends improving by about 230 basis points.
In July.
We saw a strong momentum in North America supported by the recent launch of multi burn and the protocol Beta release at the North America extravaganza.
Based on current trends. We continue to expect sequential quarterly Improvement in both North American net, sales and volume trends for the remainder of the year.
China, net sales were down 2% year-over-year, on both the reported and local currency basis primarily due to their 6% decline in volumes year-over-year.
By favorable sales, mix.
Moving to slide 14. We see the drivers of the second quarter year-over-year change in our adjusted ibida.
Adjusted ibida was 174 million slightly below, last year, driven entirely by unfavorable foreign exchange.
On a constant currency basis, adjusted ibida increased to 290 million for the second quarter of 2025 reflecting the continued underlying strength of the business.
Looking at the bridge, the impact of gross profit margin Improvement, can be seen in the pricing benefit partially offset by lower volumes and input cost inflation. Primarily related to manufacturing overhead,
The slight increase in salaries is primarily due to employee Merit increases in the first quarter of 2025.
Lower employee bonus approvals reflected reduction, in headcount.
As well as normalized bonus achievement levels, expected in 2025 compared to the high levels achieved in 2024.
The increase in promotional related spend primarily reflects lower spending in Q2 of 2024 due to the restructuring activities of the time, as well as a shift, in timing of spending, from q1 to Q2 of 2025.
unfavorable year-over-year, FX movements resulted in approximately 16 million reduction in adjusted ibida,
Extravaganza.
as previously disclosed and in accordance with the terms of the agreement, the related to million-dollar contingency payment has been earned and will be paid in the third quarter of 2025
In addition, we remain subject to an incremental contingent payment of $9 which could become payable in the fourth quarter, upon the commercial release of protocol technology platform in the US.
Also, during the quarter, we paid approximately 55 million of debt which included the 50 million Redemption of the 2025 notes at the end of June and 5 million of the term loan. B, scheduled immunization payment,
As I noted earlier, our revolving credit facility remained undrawn as of June 30.
And we remain on track to reduce our principal amount of debt outstanding to $1.4 billion by the end of 2028.
Which is a 1 billion dollar reduction from where we stood at the end of Q2 2024. When we first made the commitment,
We plan to repay the $147 million of outstanding on the 2025 note at or prior to the September 2025 maturity, leaving the next meaningful debt maturity not due until 2028.
Moving to slide 16.
We will review our outlook for the third quarter and full year 2025.
Given FX movements over the past year. We are continuing to provide net sales and adjusted. Eva do guidance both on a reported and constant currency basis.
For the guidance. On a reported basis, we use the average daily exchange rates for the first 2 weeks of July, 2025,
We expect sales growth in the third quarter of between 0.5% and 4.5% year-over-year, both on a reported and constant currency basis.
We expect adjusted. Eva to offer the third quarter to be in a range of 150 to 160 million, while in the range of 155, to 165 million on a constant currency basis.
Our planned capital expenditures for the third quarter are in the range of $20 million to $30 million.
Shifting to our full year guidance, we revised our Outlook based on our year to date performance.
And updated expectations for the remainder of the year, including updated estimates for tariff impacts and currency movements. Since we provided guidance in April,
Most notably, we've narrowed and raised our fully net sales range to now being between 1% to 3% year-over-year.
As a constant currency basis, we expect net sales to be flat to up 4% year-over-year.
We're also raising our expectations for full year adjusted EBITDA to a range of $640 million to $660 million, while in the range of $685 million to $705 million on a constant currency basis.
Regarding tariffs, our 2025 guidance includes a preliminary estimate of the impact from tariffs enacted as of yesterday.
We do not believe that the impact will be material to our full-year 2025 expected results. Looking ahead on an annualized basis, we continue to believe that the enacted tariffs will not have a material impact on our overall results.
With respect to Capital expenditures.
We are reducing our expectations for the year to now be in the range of 75 to 95 million. Primarily due to reductions in our overall projected technology related spend, as we continue to optimize our Capital spend plans. As I mentioned earlier,
We continue to expect full-year capitalized SAS implementation costs to be in the range of $25 million to $30 million, which is incremental to our planned CapEx.
Depreciation and amortization, including immunization of SAS implementation costs is expected to be in the range of 140 to 150 million.
For the full year 2025, we expect our adjusted effective tax rate to be between 27% and 28%.
Now before moving to Q&A, I want to close my opening remarks with 1 final comment.
Over the last year, we've shared many strategies and initiatives that we put in place to strengthen our distributor base and drive engagement.
With projected, net sales growth in Q3 as announced earlier today. We believe those initiatives are starting to inflect on the top line.
While we remain grounded in the work still ahead, we're encouraged by the progress and energized by the direction our net sales trends are heading.
This concludes our opening remarks. Operator, please open the call for questions.
Thank you.
Announcement: To ask a question, please press *11 on your telephone, then wait for your name to be announced.
To withdraw your question. Please press star 1 1 again.
Please stand by while we compare the Q&A roster.
Our first question comes from the line of chasing Bender with City. Your line is open
Hi, afternoon, guys. I, uh, I wanted to ask about, uh, the commercial release of Protocol, uh, planned for later this year. I know you called out that distributors were able to get access to Protocol at the beta by purchasing that 60-day supply of the Healthy Lifespan supplement. I was wondering if you could share your latest thoughts on the monetization strategy for the app when it launches, and if you are planning on using the same bundle package with the Healthy Lifespan supplement. Are the unit economics of that product meaningfully different than, call, the existing portfolio?
Hey Jason, thank you for the question. All that, John answered the last part of it. Let me just talk to the first part. So, as you mentioned, we started with the beta, and I think this is a really important point. Number 1, obviously our business model goes through our distributors and their input, feedback, and how they are going to promote it, how they're going to use it.
Uh, positioning with their customers is really important, which is one of the reasons why, you know, doing this through a beta first and foremost is a really important step for the company. So, you know, number one, we have a lot of different distributors, different models. As you know, in North America, through nutrition clubs, to people doing social media, running challenges.
And different flows within even those particular models. So working alongside the distributors, so that in Q4, when we do the launch, they exactly know how they are going to go-to-market, position things, and start onboarding.
Customers into protocol is very important. So number 1, that's really the first point of the beta. So we we, we actually have, uh, around over just over 7,000 Distributors that opted in which quite honestly, it was beyond the expectations that we had, it was literally 50% more of the Distributors that were present at Extravaganza and over the next 3 months. We will be working with them on a weekly basis going through strategies of how they're going to implement this with their customers into their businesses from a monetization standpoint. I think it's important to look at 2 pieces, 1 is that protocol is designed as a tool, right? To be able to help Distributors do more, sell more of what they're currently selling. So it's going across the board, although we
Launched this new healthy lifespan product, really? We look at this in two ways: 1) supporting the $5 billion business that we currently have, meaning whatever distributors are working with, whatever customers, and whatever they're selling them, the protocol and the application will be a value add to the existing customer and to the business. The second piece is really coming with a new.
Premium. I would say just from a more digitally enabled brand standpoint.
Attracting a customer that is probably not for most of our distributors—their main core customers—so it's getting us into a new segment and an opportunity to bring a new story, a new narrative to the market. So these two focuses are really important. There are going to be options for the distributors, and sorry for taking a long time at this, but it's something that is new and it's important to understand. There are going to be some distributors that simply are going to want to use it as a tool to engage with their customers and to add value. Others are going to want to build a business, a model, and flow. And I'll just kind of talk about this because one of our main business models in the United States is our Nutrition Clubs, and it is more of a daily consumption, transactional business. And we've been talking about over the last year and a half wanting to shift from a transactional business to a transformational business.
Model and a new opportunity to our business that we currently do not have. And so, you know, I share this kind of high-level overview of the two things. John, maybe you want to talk a little bit about the different monetization strategies. Yeah, let's talk about, I mean, the economic model.
Is not materially different, but it is slightly different.
And it's different in two ways. So, one, we have a concept called urn base, which is what percent of retail our Distributors earn on. And that will be a little different for this product.
And that's one again; not materially different, but a little different.
the second concept is,
This is a subscription-based model.
And that first shipment, the cost of that first shipment is more expensive than the second. Third and fourth which are refilled shipments. And so there are certain assumptions we made on the life of the subscription to get a blended rate that meets our hurdles. And if that ends up changing a little then it could have a have an impact on the economics. For, for us. Having said that, none of that will be material. Certainly not in the near term, because it's been launched in 1 country. Um, but as we go globally, we'll have a lot more data for which to base that, uh, those assumptions are
Got any, just one point of clarification on that. What, if anything, have you assumed in guidance? In terms of sales contribution in Q4 from the protocol commercial release?
Very little at this point. Um, yeah, mostly it's just mostly upside. Um, that's our, you'll get a little in Q3 that's included because we launched it in July; there will not likely be much incremental beyond July in Q3 because the commercial launch is not to appeal for, but there'll be a slight benefit in Q3.
Okay, got it. That's helpful. And then my second, uh, main question is just on pricing. You've continued to take prices here in several markets around the world, and I was hoping you could just offer some perspective on your price gaps versus competitors and how you're thinking about that.
And the competitive environment into the second half of the year, particularly in the context of a pressured consumer who, frankly, we've heard from a number of CPG companies, are exiting value-seeking behavior and, in some cases, trading down.
Yeah, um, so our strategy on pricing hasn't changed, which is to take pricing commensurate with what we're seeing in the marketplace. So when we talk about our products versus the competitors, that differentiation should not be meaningful, and we're not seeing a lot of.
Pressure from that end. Um, we are taking.
Much lower price this year than many other countries and we took last year. Um, that's one of the reasons why the delta between volume and net sales was much greater in Q1 than in Q2 because this year, the price increases have been lower. Um, but we'll continue to take price, but we'll take it at, you know, at a level that's.
Limited risk is consistent with what's going on in the marketplace, and we have not seen a negative impact from that. Because if, you know, again, our volume trends have been heading in the right direction in most of our markets. We've got a lot of momentum.
um,
Especially in the US. Jason Jason, just on this 1. There, there is a value. Add to the products and someone can offer a digital application that is going to help them. To be more compliant, use their products more, seriously, more consistency, help them get better results. And so, uh, you know, I think this is an important piece but because the core offer gets elevated just with the simple fact of now, having something that can be a digital support tool and can connect the distributor with the customer. So, you know, again from a pricing standpoint, not directly, but definitely from the value proposition.
Got it. Appreciate that, caller. Thanks so much, guys.
Thank you.
As a reminder, ladies and gentlemen, that's *#11* to ask the question.
Please stand by for our next question.
Our next question comes from the line of Doug Lane with Water Tower Research. The line is open.
Yes, hi everybody. Um,
just,
Me, uh, on the protocol. And, um, at the extravaganza, the distributors did.
By the 60 days' supply of the supplement and got the beta test of the app.
So I guess my question is, when you commercialize this in the fourth quarter, are they going to continue to be connected? Will you buy the supplement and the app? And will you buy both on subscription? Or can you do one or the other?
To offer the product that we're going to, you know, launch the name and everything in October. And and you know uh I would almost want to tell you now. But first we need to tell our Distributors and actually it's not going to take until October so um, but that will be an option also. So so it is fitting current models and it's going to also create a new model. So the answer is both and I think what's important is just to, you know, we are supporting the 5 billion dollar business and we're also entering into a new category. And as John mentioned new models for monetization as well.
Fair enough, that makes sense. Um, I I guess I'd like to also follow up on the whole idea of subscription, which is a very attractive model in which the new product. Uh, the healthy lifespan product is, um, um, you know, suited for how, how have you dealt with subscriptions in the past. And, and what do you think? How do you think that will change going forward?
I think it's going to change a lot. I think it's going to take a bit of time. We have had.
A subscription model in the past which was, I would say not very consumer friendly. Uh, and I, you know, a very small percentage of our business comes from subscription when we look at other companies and especially not only just in our industry, but just in general the subscription model business is is huge and I think you're right. I think this product in particular lends itself, very well to a subscription model. I think we have other products as well multi burn.
For example, lends itself very well to a subscription model as well. So you know, without giving any projections, we believe that adding this element is going to be an important element um, for the future for us, and it's new. So it's, it's going to take time. And we're going to work with our Distributors through the process. As I mentioned, they're the best ones to position this, you know, within the market. So but yes, you're you're, you're absolutely right.
Okay, you know, you've been consistent talking about the the protocol beta test in North America and then the the commercialization in the fourth quarter and then it just sort of drops off from there. So I don't want to talk about 2026 and and guidance or anything. But what, how do you envision protocol? You know, assuming everything gets used to go. Well, rolling out in the rest of the world. Is that something that could take a quarter or 2 a year or 2? Just what do you think is from a high level?
Well, we have plans for expansion in 2026. Um, so I can tell you that we are looking at different markets, regulatory environments, and what it would take to launch. Our goal is to globalize this as quickly as possible, and you're going to see in 2026 that we're...
Already answering other markets.
Okay, okay, that's helpful. And then, um, on the balance sheet where, you know, you're you're deleveraging that 3.0 and you reiterated your 2028 Target. Um, what and you don't have uh, maturities do much until um, you know, a couple of years out, but you have some high cost debt out there. What are your plans for the high call set in the mean?
Yeah, that's a great question. So, um, you know we closed a new debt deal. Last April, good chunk of that. The bond had a 2 2 year? No, no call Protection. Uh, which means you really can't redo that part of the debt deal till April of next year. Um but at that point you know we'll actively consider refinancing if the conditions are right. Um, because you know, we went to Market at a time where there wasn't a lot of visibility to what was going on here, we'd come off a tough 2023 year, our leverage ratio and the prior public quarter was 2. 3.9%, we're in a much different financial position than we were a year and a half ago with much more visibility. Um, and trending in entirely, in the correct direction. So, no, margins are even down margins were, you know,
11.3% in 2023, and
13.8% this quarter on an adjusted basis, so things are just in a much better spot. So, you know, we'll look at the economics and do as soon as it makes sense; that's our objective.
Okay, that's helpful. That's it for me. Thank you.
Thank you.
As a reminder, ladies and gentlemen, let's start with a 1-on-1 to ask the questions.
Please stand by for our next question.
Our next question comes from the line of Christina with Mazulu. Your line is open.
Your line is open.
Sorry, I was on mute.
On the particle if I understand correctly. So there, there are going to be some benefit and started in 3Q and then more in 4 q, but the, uh, constant currency guidance for fiscal 25. The midpoint of it, uh, is slightly reduced. Can you talk about like, what's driving, that
Yeah, that's a great question. So, um,
You know, our our Trends are good but we we we did come in below our constant currency midpoint for Q2 and that's a majority of the reason why the year, um, the midpoint for the year has come down but but again, we've got net sales, growth projected in Q3, we actually have net sales growth. If you did the math, we would uh, directly projecting Q4 and guidance. But you know, if you wanted to or in the books Q3 we are giving you guys if you do the math, the Q4 is also has um
so,
We narrowed the range a little bit. It got moved a little bit to the left because what happened in Q2, but we're still expecting strong performance.
Okay, and on the EPA guidance. So you have a beat, and then you are going to have a beneficial currency tailwind for the year. But, uh,
I guess the race was not, um, as much as, um, the currency tailwind and the beach and the quarter. So, can you, um, talk a little bit about that as well? Well, it was as much as the beat the quarter. It wasn't, the tailwind doesn't hit the bottom line until about next year. I'm going to hit the very end of the year.
I think that needs a little explanation.
So currency impacts topline right away because that's all translation.
On the gross profit line, we have a lot of transactions that are denominated in dollars.
And like we saw last year when the dollar strengthened, we get a one-time inventory turn benefit that cost.
When the dollar weakens, we actually get hurt from currency on the gross profit line, but inventory turns.
And so, the actual impact from currency year over year for Q3 and Q4 are still slightly negative.
And maybe there needs to be just a little more description on that. So, and I'm going to give you a just just a.
hypothetical example that I hope you can describe the situation.
And I'm going to use, let's use the Mexican peso, and I'm going to use inventory that was purchased at a rate of 20 to 1.
So, it was purchased at a rate of 20 to 1. A few months ago, let's just say the rate dropped to 10 to 1. I know that's extreme, but that makes the math easy if the inventory cost $1.
Because it's priced in dollars.
When it was purchased, it was paid for at 20 pesos. Today, it would have been paid for at 10 pesos, but it's on the books at 20. And that's what hits the P&L. So, what hits gross profit?
On any transaction, there is a translation rate when the inventory was purchased, so there is a lag.
To the, you know, to the, uh, effect of translation on the bottom line, which is why you don't see it as much in Q3 and Q4 as you might expect without building in that lag.
The good news is, if it stays this way, we will see it in Q1 and Q2 of next year.
In the whole year.
All right. Thank you.
Thank you.
Thank you so much. At this time, I would like to turn the call back over to Stefan for closing remarks.
Thank you very much. Uh, first of all, I want to thank everyone for attending today. Um, as I approach 100 days as CEO and just celebrated 2 years as part of the executive team,
And before that, 32 and a half years as a distributor.
I've been reflecting a lot on the current situation and...
Basically, in my life and the choices that I've made and what drives me to do what I do.
I can share with you that for 32 and a half years, from starting as a distributor in 1991, I had the opportunity to face each day, every single day of my life, for 32 and a half years.
To be in front of people that I saw the impact that urban life made in their lives, whether that was a customer that was looking to lose weight or looking to improve some aspect of their well-being. Whether it was a distributor, that was in need of an opportunity looking for something part-time to improve their personal situation, to improve something for their family, to, to believe in something that they could invest their life into to build a career to, to to, to have certain limits that outside of our business and our industry. Um, were were created for them that they found and especially with Herbal Life and opportunity that that they wanted to invest themselves into and for 32 and a half years, I built friendships.
And community, and I was part of something. And it was extraordinary for me.
And for 32 and a half years over time, one of the things that became clear was that Herbalife, in my role, in my life and my every single day, there was a reason and a purpose behind what we were doing and who we were. It's a purpose that I believe not everyone understands, and I'll just share this with you because when we talked about becoming the premier health and wellness company, community and platform, it's not just words.
I understand that there's a big paradigm shift.
Herbalife, 45 years public, is the largest direct seller of nutritional products in the world, sold through a multi-level marketing distribution channel.
I understand that there's a paradigm shift when you think about when consumers think about um when people think about becoming and what it means to be the world's Premier health and wellness company community and platform,
I can see that they would.
I have a little bit of difficulty sometimes understanding because it is a big paradigm shift.
What I will tell you is that, as someone who has been a distributor for 32 and a half years, spent 2 years as an executive, was part of the executive team, and now am 100 days in the seat of CEO.
That everything that we are thinking about and working towards every single day is about becoming that company, community, and platform. And one of the things that I can tell you that, you know, the...
The acquisitions that we made, you know, that we announced on March 12th, that we acquired on the 11th, and then at Extravaganza just a couple of weeks ago, launched and onboarded over 7,000 distributors into a platform. Um, this is.
Something that I'm very proud about, I'm proud from a distributor lens and how quickly and how they see the opportunity and how willing they are to venture with us into this future and I'm very proud as an executive of the team internally and the 90600 or 8600 employees that we have that all live for the same Mission and purpose. I'll tell you that personally, I don't think there's anything that's going to stop us from becoming the company that we're talking about for the future. I think, with 2 million Distributors that live the same purpose, every single day that operate out of some of them over 60,000 nutrition clubs that makes us very unique in the marketplace. That now
When we talk about the platform and the launch of the protocol, just in a very short amount of time with approximately 4,600 distributors, we have over 140,000 data points on the health and wellness of these individuals. These are the distributors; we have 31,000 products that they've scheduled into the application and 146 instances of how and when they're using the products. We have 8,200 different things that they do outside of that, which we would call wellness hacks, whether it's cold plunging, meditation, breath work, or stretching.
For 68,000 instances of when they are going to do it, not only that, we have a lot of data as a company that, for the first time in 45 years, we now have access to, and we can track the improvements in their lifestyle, in their wellness, and in their health.
This is going to empower us in a way, and it's just one clear sign—something that we have very quickly executed on—of how we will become that company and platform for the future.
So, we look forward to quarterly updates, giving you the updates. We thank you for being on this journey with us.
We believe you're part of this purpose. So we thank you for your support, and we'll talk to you next quarter.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.