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Sagging economy weighs down wellness and nutrition MLMs

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Herbalife, USANA, Nu Skin, Medifast and Nature’s Sunshine are all struggling with slumping revenue.

The global economic climate is hurting sales across multilevel marketing companies specializing in wellness and nutrition.

Weighed down by record inflation, higher material and labor costs, war in Ukraine, ongoing supply chain disruptions and a strong U.S. dollar, revenue at Herbalife, USANA, Nu Skin, Medifast and Natures Sunshine declined in the third quarter.

As a result, the MLMs, which rely on direct distribution and the availability of disposable consumer income, are reeling in their financial guidance. In fact, Herbalife went so far as to withdraw its full-year outlook altogether.

“[W]e are not able to forecast in an environment with such rapidly shifting consumer behaviors and volatility in the world at large,” Alex Amezquita, chief financial officer at Herbalife, told analysts on Oct. 31.

Some of Herbalife’s peers also pulled back on expectations for the rest of this year.

USANA said its fiscal 2022 consolidated net sales will fall between $955 million and $975 million, instead of $1.02 billion to $1.1 billion.

Nu Skin adjusted its guidance to $2.2 billion to $2.25 billion, down from a range of $2.3 billion to $2.4 billion.

Medifast, meanwhile, trimmed its 2022 revenue guidance to $1.51 billion to $1.59 billion. Its earlier predictions foretold revenue ranging from $1.58 billion to $1.66 billion.

Nature’s Sunshine did not provide detailed guidance for the rest of this year. However, the Lehi, Utah-based company did say it’s looking to save up to $12 million and reduce sales, general and administrative expenses over the next 18 months. It already spent $100,000 between June and September on restructuring as the company’s third-quarter net sales dropped to $104.5 million, compared to $114.7 million a year earlier.

“We remain confident that we will navigate this unique period of volatility and uncertainty, bolstered by our strong balance sheet and team of experts on the ground,” Nature’s Sunshine CEO Terrence Moorehead said in a Nov. 3 management commentary.

Nu Skin is facing similar circumstances. This month, Ryan Napierski, Nu Skin president and CEO, told analysts to anticipate changes.

“With more challenging macro conditions expected over the near to mid-term, we are pursuing a more aggressive tactical approach to our previously indicated restructuring to better align capabilities, resources and operational efficiencies,” Napierski said. “While these decisions are never easy, the moves we are making will place us in a stronger financial position going forward.”

The plans to restructure — which often start with layoffs — mirror the cutbacks firms in other industries already have undertaken. In the technology sector, for example, giant organizations including Facebook’s parent company are cutting jobs even as others such as Amazon and Google enact hiring freezes. Economic experts also continue to predict a 2023 recession, although to varying degrees of severity. MLM executives see that slowdown coming and are reacting accordingly.

In addition, much of the impact on the MLMs’ revenue stemmed from Covid-19-related restrictions on in-person meetings in Asia and China where the virus originated. Even though much of the pandemic appears to have abated, the MLM companies are still grappling with its consequences.

“[W]hile a lot of the headlines aren’t necessarily new, we've been dealing with the pandemic, the fallout of the pandemic, the issues around the supply chain—all of those are largely new,” Herbalife CFO Amezquita told analysts during the company’s third-quarter earnings call. “What we have seen through the third quarter is a pretty dynamic shift in consumer behavior and purchasing behavior.”

The same applied at Nu Skin. Mark Astrachan, managing director for consumer and retail coverage at investment bank Stifel, wrote in a Nov. 2 memo to clients that the prohibitions in Asia have put “a considerable drag on the [Nu Skin] business in the region, and efforts to pivot to social commerce have been less successful to date in comparison to Western markets.”

USANA, too, faced a “challenging operating environment in Asia Pacific,” CEO Kevin Guest said.

While USANA did not specifically indicate what measures it will take to save money, the company has plans in the offing.

“We are working to better align our cost structure with current and expected sales performance while continuing to invest in select strategic initiatives that we believe are essential to position USANA to return to long-term growth,” Guest and CFO Douglas Hekking said in their Oct. 25 earnings commentary.

There were a couple of bright spots in the various MLMs’ third-quarter announcements. For example, Baltimore-based Medifast, which targets weight management, was able to retain more end users.

“We've seen faster-than-anticipated improvement in customer retention rates back to quarterly historical norms," said Dan Chard, chairman  and CEO, in a Nov. 3 earnings release.

And both USANA and Provo, Utah-headquartered Nu Skin are making progress with their digital platform strategies. USANA rolled out new features to its shopping app in China, while Nu Skin debuted the Vera personalization app, as well as one called Stella for sales affiliates to manage their businesses. The skin care company aims to move its sellers to social media and ecommerce.

At least two of the MLMs also are focusing on developing incentives to entice both distributors and buyers to their brands amid worldwide economic headwinds. USANA, for its part, says it will enact several “short-term incentives to regain momentum in our business.” Meanwhile, Herbalife is trying to work its way around “price sensitivity,” CFO Amezquita said. The company wants to figure out how to avoid “passing along price increases on a very select part of the portfolio to encourage demand.”

Such strategies likely will prove vital as an expected downturn looms. Perhaps returning and interim Herbalife CEO Michael Johnson best summed up the situation he and his peers face: “…to get growth back, that's my No. 1 goal here. And if we don't get the growth back, you won't see me on this call.”

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