June 13, 2013
A Nielsen survey has given some Wall Street analysts another reason to remain bullish on Herbalife, Ltd.
In a survey of 10,525 consumers, 3.3% of the population reported buying Herbalife products within the preceding three-month period, indicating the company serves nearly eight million customers in the United States, Herbalife announced Tuesday.
Nielsen's study "affirms what we already knew. Herbalife has millions of enthusiastic consumers, and it is growing every day," wrote Timothy Ramey, an equity analyst with investment firm D.A. Davidson & Co., in a research note June 12.
Analysts point out Nielsen asked consumers about multiple brands, concealing that Herbalife was the focus of the study.
Herbalife has faced accusations that most of its customers are its own distributors rather than consumers who don't have a business relationship with the company. Herbalife doesn't track its actual retail sales. As of March 31, 2013, Herbalife sold its products in 88 countries through a global network of 3.6 million distributors.
Scott Van Winkle, an equity analyst with the investment bank Canaccord Genuity, said the Nielsen results concluded that 87% of purchasers were consumers.
"While the Nielsen research doesn't alter our opinion, as we have not harbored concerns over the legitimacy of Herbalife's business model, the survey provides additional support to the breadth of consumer usage of Herbalife products," he wrote in a research note June 11.
Pershing Square Capital, the New York hedge fund that claims Herbalife operates an unsustainable pyramid scheme, did not respond today to an emailed request for comment on the Nielsen study.
Just days before Christmas, hedge-fund manager Bill Ackman of Pershing Square Capital told investors Herbalife was a pyramid scheme that would collapse. The hours-long, 334-page presentation, "Who wants to be a Millionaire?", scared investors, and Herbalife's stock price tanked.
Since the presentation, shares of Herbalife have rebounded, trading late this afternoon at $46.83 on the New York Stock Exchange. On Christmas Eve, the stock was only worth $24.24the lowest price over the last 52 weeks.
Herbalife last month announced retaining a new auditor, PricewaterhouseCoopers LLP. Its former auditor KPMG resigned, although Herbalife said the resignation did not concern its financial statements or accounting practices. (One of KPMG's former partners is suspected of insider trading). PricewaterhouseCoopers has been retained to audit Herbalife's financial statements for the fiscal year ending Dec. 31, 2013 and re-audit financial statements for the past three fiscal years.
Requests for FTC Investigation
Herbalife has brushed aside the pyramid scheme allegations and invested nearly $10 million over a three-month period on legal, advisory and other fees in connection with the accusations.
Still, the company possibly faces a Federal Trade Commission (FTC) probe into its business model.
In a June 5 letter to the FTC, Congresswoman Linda Sanchez (D-CA) asked the agency to investigate the allegations made against Herbalife. She expressed concerns that vulnerable ethic groups may be victims of Herbalife's multi-level marketing model.
"Given the FTC's mission to investigate claims of fraud and potential pyramid schemes, I encourage you to investigate this matter," Sanchez wrote. "I have confidence that such an investigation will provide clarity to consumers and I expect you will aggressively pursue it in a timely manner."
A spokesman for Sanchez said FTC had not contacted her office as of today.
The National Consumers League and Hispanic Federation have made similar requests for an FTC probe. The Hispanic Federation cited its understanding that most distributors lose money.
"A particular concern to us about Herbalife is whether distributors make money selling products or recruiting others to sell the product," Hispanic Federation President Jose Calderon wrote in a letter last month to the agency. "The latter is an indicator of a pyramid scheme. Reading the recent debate on this issue, Herbalife's statements to explain its compensation structure are contradictory."
In a March 12 letter to the FTC, the National Consumers League said a survey it conducted revealed that a third of consumers couldn't identify a pyramid scheme when it was described to them while African-Americans, Hispanics and low-income consumers "were found to be especially vulnerable to pyramid schemes masquerading as legitimate home-based business opportunities."
Frank Dorman, an FTC spokesman, said the agency doesn't comment on whether or not it is conducting an investigation. Barbara Henderson, a spokeswoman for Herbalife, did not respond this afternoon to a request for comment on whether FTC is investigating the company.
Earlier this year, Herbalife disclosed that the Securities and Exchange Commission (SEC) has requested information on its business and financial operations after it requested a meeting with SEC staff. Herbalife has said it is cooperating and maintains it has nothing to hide.
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