Herbalife Says Cleaning Up Its Act Is Hurting Sales

June 5, 2017, 1:29 PM UTC
Operations Inside The Herbalife Distribution Center
An employee stacks boxes of products for orders at the Herbalife Ltd. Los Angeles distribution center in Carson, California, U.S., on Tuesday, March 4, 2014. Hedge fund manager Bill Ackman has accused Herbalife of being a pyramid scheme and the company has repeatedly denied Ackman's claims. Herbalife met privately with congressional staff members Feb. 21 to discuss its business practices. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
Patrick T. Fallon — Bloomberg via Getty Images

Herbalife (HLF) said on Sunday it expects current-quarter revenue to fall more than previously expected, after sales were hurt amid efforts by the nutritional supplement maker to comply with regulatory requirements related to its business practices.

Shares of Herbalife were down 5% at $70.25 in premarket trading on Monday.

The company said it expected sales to fall 2-6% in the second quarter ending June 30, a steeper fall than the 0.5-4.5% decline it had earlier expected.

Herbalife said sales were hurt by the impact of new technology and tools that were put in place to better document sales following an agreement with the U.S. Federal Trade Commission (FTC).

The company also blamed softer sales in Mexico for the new forecast.

Under a July 2016 agreement with the FTC, Herbalife agreed to pay $200 million and change the way it does business to avoid being labeled a pyramid scheme following criticism of its sales methods.

The settlement had come as a blow to billionaire investor William Ackman, who had accused Herbalife of being a pyramid scheme.

At the time of the agreement, Herbalife had a massive network of independent distributors selling powdered shakes, vitamins and other tablets designed to help people manage their weight, boost energy and calm stress. Under that business model, some people got more money for recruiting new distributors than selling products.

Among other requirements, the FTC had asked Herbalife to ensure that 80% of its annual sales were from documented purchases of nutritional products by consumers.

The company said on Sunday 90% of its U.S. sales last month represented such purchases.

Herbalife also said it now expects adjusted profit of 95 cents-$1.15 per share for the second quarter, up from an earlier forecast of 88 cents-$1.08 per share.

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