Herbalife (HLF)

Health and wellness products company Herbalife (NYSE:HLF) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 3.4% year on year to $1.22 billion. Next quarter’s revenue guidance of $1.26 billion underwhelmed, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.59 per share was 44.9% above analysts’ consensus estimates.

Company Overview

With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Competitors offering health and wellness supplements and products include Usana Health Sciences (NYSE:USNA), Bellring Brands (NYSE:BRBR), and The Simply Good Foods Company (NASDAQ:SMPL).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $4.95 billion in revenue over the past 12 months, Herbalife carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Herbalife struggled to generate demand over the last three years. Its sales dropped by 4.2% annually as consumers bought less of its products.

This quarter, Herbalife missed Wall Street’s estimates and reported a rather uninspiring 3.4% year-on-year revenue decline, generating $1.22 billion of revenue. Company management is currently guiding for a 1.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months. While this projection implies its newer products will spur better top-line performance, it is still below average for the sector.

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Herbalife’s products has barely risen over the last eight quarters. On average, the company’s organic sales have been flat.

In the latest quarter, Herbalife’s organic sales rose by 1.4% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Herbalife has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 48.7% gross margin over the last two years. That means for every $100 in revenue, only $51.25 went towards paying for raw materials, production of goods, transportation, and distribution.

This quarter, Herbalife’s gross profit margin was 78.3%, up 33.7 percentage points year on year and exceeding analysts’ estimates by 0.5%. Herbalife’s full-year margin has also been trending up over the past 12 months, increasing by 9.4 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

Herbalife has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 7.9%, higher than the broader consumer staples sector.

Analyzing the trend in its profitability, Herbalife’s operating margin rose by 1.8 percentage points over the last year, showing its efficiency has improved.

In Q1, Herbalife generated an operating profit margin of 10.1%, up 4.4 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Herbalife, its EPS declined by 21.9% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Herbalife reported EPS at $0.59, up from $0.49 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Herbalife’s full-year EPS of $2.06 to stay about the same.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Herbalife has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, subpar for a consumer staples business.

Taking a step back, we can see that Herbalife failed to improve its margin over the last year. Its unexciting margin and trend likely have shareholders hoping for a change.

Herbalife burned through $18.1 million of cash in Q1, equivalent to a negative 1.5% margin. The company’s cash burn was similar to its $19.1 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Herbalife hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 45.1%, splendid for a consumer staples business.

Herbalife reported $329.4 million of cash and $2.19 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $688.5 million of EBITDA over the last 12 months, we view Herbalife’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $168.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked how Herbalife beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its EBITDA guidance for next quarter missed and its organic revenue fell short of Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The market seemed to focus on the negatives, and the stock traded down 1.7% to $7.06 immediately after reporting.

Updated: June 14, 2025 at 10:49 PM EDT

When considering an investment in Herbalife, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Herbalife isn’t a terrible business, but it isn’t one of our picks. First off, its revenue has declined over the last three years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its shrinking sales volumes suggest it’ll need to change its strategy to succeed.

Herbalife’s P/E ratio based on the next 12 months is 3.8x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $8.67 on the company (compared to the current share price of $7.87).