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Herbalife Reports Strong Growth and Sustainability Initiatives

Herbalife Nutrition is making significant strides in enhancing its leadership, credibility, and product offerings. In the third quarter, the company launched a new line of Herbalife gels in the EMEA region, complying with strict European Food Safety Authority standards.

Additionally, Herbalife24 Prolong energy gel, developed with input from leading sports scientists and certified for banned substances, was introduced in EMEA. The company emphasizes its commitment to promoting not only individual health through innovative products but also environmental health through sustainability initiatives. A key focus is limiting their environmental impact.

As part of these sustainability efforts, Herbalife23 has transitioned the packaging of its Rebuild Strength product from plastic canisters to a modern, lighter pouch format. This change reduces plastic usage, lowers shipping weight, decreases overall carbon footprint, and reinforces sustainability commitments. Herbalife24, known for peak performance, enjoys the trust of top athletes like Cristiano Ronaldo.

Herbalife recently concluded its “Fueling the Best” campaign, spotlighting athletes during the 2024 Summer Olympics and Paralympics. Sponsored athletes returned with 11 total medals, and the committees from several countries—including India, Italy, Greece, Mexico, Israel, and Vietnam—secured an impressive 74 medals combined. This success highlights the dedication of Herbalife’s global athlete community.

The company also maintains strong ties with the L.A. Galaxy, marking Herbalife as the first and longest-running jersey sponsor in Major League Soccer. Their commitment to nutrition is evident in the Galaxy’s success, with players relying on Herbalife products.

Herbalife’s dedication to supporting women’s sports spans nearly two decades. This month, the launch of the new Her campaign coincided with International Women’s Day in March 2025 to highlight this commitment. Women represent about 70% of direct sellers globally, and Herbalife aims to encourage more women to engage with their products and community.

The Herbalife community is a powerful aspect of the brand. Recently, over 4,900 independent distributors, fitness enthusiasts, and employees gathered on September 21 to set a Guinness World Record for the largest high-intensity interval training class, conducted simultaneously across multiple venues. Additionally, more than 11,000 people joined the workout virtually via a YouTube live stream, reflecting Herbalife’s inclusive approach.

Stephan Gratziani, President, took over to discuss the initiatives aimed at enhancing distributor growth. The focus has been on reversing three years of declines in new distributor trends. Successfully, Herbalife reports their second consecutive quarter of year-over-year growth in new distributor enrollments.

In terms of growth metrics, new distributor numbers increased across most markets, highlighting a positive trend excluding China. Leadership levels and the count of active non-sales leaders have shown improvements quarter over quarter. The table presented shows significant percentage growths in the number of new distributors at various marketing plan levels.

In North America, the past quarter observed encouraging stability following multiple periods of decline, showcasing the management team’s focus on strengthening the distributor base. While one quarter of growth won’t fully remedy past declines, momentum appears to be shifting positively.

Moving forward, the Herbalife leadership acknowledges that while there is still work to do, they remain optimistic about future sales volume growth as the distributor base continues to expand.

Herbalife’s Growth Strategy: A Closer Look at Recent Developments

Following the launch of the Herbalife Premier League in April, aimed at acquiring 20 new preferred customers, the company introduced its first-ever customer loyalty program in China this past June. These initiatives have shifted the focus toward customer acquisition rather than recruiting new sales representatives, leading to a notable decrease in new sales representatives joining the firm during the quarter. In response, we have updated the Herbalife Premier League qualification criteria in China to encompass both preferred customers and new sales representatives.

Despite the drop in new sales representatives impacting quarterly sales, we remain optimistic about the long-term benefits of our customer-centric strategy, and early results are already promising. In Q3, we observed a 65% increase in new preferred customers compared to the same period in 2023. Furthermore, the percentage of these customers making purchases has significantly risen from last year. China represents a substantial growth opportunity for us, and we aim to mirror the successful outcomes we’ve seen in India, where a robust preferred customer program has established a solid base of customers and high conversion rates from preferred customers to distributors.

Shifting gears, let’s discuss our training and support initiatives. We recently rolled out the Diamond Development Mastermind program in North America, which targets top-level leadership within our organization. Traditionally, training has been conducted on a distributor-to-distributor basis, which remains vital. However, we are now implementing a new approach that involves company-to-distributor training and support programs. Leveraging my field experience along with guidance from industry expert, Eric Worre, this program currently has about 800 distributor leaders participating and is Herbalife’s first training of its kind. It concentrates on mindset, personal and professional growth, business flows, systems, and leadership development.

This program also includes peer accountability groups and a key account management model. This enhances the connection and enables a continuous feedback loop, thereby aligning our commercial strategy with distributor needs. Thus far, feedback from North America has been overwhelmingly positive, and we are witnessing a notable spike in engagement and energy among participants. The excitement for this initiative is also spreading globally.

Because of this positive response, we are speeding up our rollout of the program. By January, we intend to launch it across most Asia Pacific markets, with further regions to follow later in the year. This program is one of many initiatives we are pursuing to fulfill our commitment to returning to sales growth. With that, I’ll pass the floor to John.

John G. DeSimone — Chief Financial Officer

Thank you, Stephan. Let’s review our Q3 financial performance, starting with Slide 10. Overall, Q3 net sales aligned with our expectations, while adjusted EBITDA dollars, margins, operating cash flows, and debt reduction surpassed them.

Given our strong operational results during the quarter, we are adjusting our adjusted EBITDA projections for the year upward. Delving into the third quarter specifics, net sales amounted to $1.2 billion, reflecting a 3.2% decrease compared to Q3 of last year. Exchange rate fluctuations negatively impacted reported net sales by 290 basis points year over year.

When adjusted for constant currency, net sales were nearly unchanged compared to Q3 2023. Our third-quarter adjusted EBITDA reached $167 million, exceeding our guidance range of $125 million to $155 million. Additionally, our adjusted EBITDA margin stood at 13.4%, representing a 70 basis point increase from Q3 of 2023. This quarter marks another period of strong operational performance, thanks to our recent restructuring and cost-saving measures.

Our capital expenditure for Q3 was $27 million, falling short of our guidance range of $35 million to $45 million. This underspend was partly due to the timing of certain projects being postponed to Q4. We also incurred around $3 million in capitalized SaaS implementation costs this quarter. Gross profit margins for Q3 improved to 78.3%, which is a 200 basis point increase compared to last year’s third quarter.

The rise in gross profit margin can be attributed to pricing actions taken over the past year, contributing approximately 110 basis points of benefit, and another 110 basis points due to lower input costs, notably stemming from manufacturing efficiencies and reduced raw material expenses. However, an unfavorable sales mix had a negative impact on margins, reducing them by approximately 30 basis points year on year. Our diluted EPS for Q3 was $0.46, while adjusted diluted EPS was $0.57, which accounts for a $0.10 foreign exchange headwind compared to Q3 of 2023. It’s noteworthy that our Q3 diluted EPS was positively influenced by a pre-tax gain of about $4 million from the sale of our office building in Torrance, California, which is excluded from our adjusted results.

For Q3, the adjusted effective tax rate was 22.3%, down from 30.3% in the same quarter last year, leading to an approximate $0.06 favorable impact on adjusted diluted EPS. The lower effective tax rate in 2024 primarily results from changes in the geographical mix of income, somewhat offset by the tax effects of increased interest expenses after our recent debt refinancing. We continue to anticipate our full-year 2024 adjusted effective tax rate to be around 30%. Our cash generation in Q3 was robust.

Operating cash flows reached $100 million, inclusive of about $28 million in cash payments related to our restructuring program. Moreover, we received net proceeds of around $38 million from the sale of our Torrance office building in July, adding to our operating cash flows. We have until the end of November 2025 to vacate that building, which allows us sufficient time to transition our workforce and R&D and quality labs to other locations in Southern California. We estimate incurring approximately $8 million in one-time capital costs next year for this move.

As Michael mentioned earlier, we reduced our debt by $85 million during this quarter. The credit agreement EBITDA for Q3 amounted to $197 million, and our total leverage ratio has improved to 3.3 times as of September 30, down from 3.5 times at the end of June. For further details on the adjustments between adjusted EBITDA and credit agreement EBITDA, as well as the total leverage ratio calculation, please refer to the appendix of our presentation and our earnings press release. Now, let’s turn to Slide 11.

Examining our year-over-year net sales performance, we saw a reported decline of 3.2% and nearly flat results when considering constant currency. Overall, volume dropped by 5.4% year over year, generating an approximately $70 million headwind, which was partially counterbalanced by around $62 million in pricing benefits. Foreign exchange fluctuations accounted for a $37 million headwind year over year or 290 basis points, consistent with the anticipated 300-basis-point headwind we discussed in July.

Now, let’s move to Slide 12, where we will review the regional net sales outcomes for the third quarter. In local currency terms, Latin America, EMEA, and Asia Pacific all reported net sales growth during the quarter, though FX negatively influenced these results when reported. In Latin America, net sales were down 2% on a reported basis, while increasing by 9% in local currency terms.

Favorable pricing year over year was more than offset by adverse FX impact, primarily from the Mexican peso and the continued devaluation of the Argentinian peso, with overall volumes in the region remaining relatively unchanged. To address these FX pressures, we continue to implement regular price increases in Argentina.

Herbalife Reports Mixed Sales Results Amid Strategic Changes

Sales Overview: Local Currency Gains Offset by Global Challenges

On a reported basis, Mexico’s net sales experienced a decline of 4% year over year. However, when adjusted for local currency, net sales actually increased by 6% year over year, attributed to a price increase of 5.25% implemented in March 2024, which was somewhat countered by lower sales volumes.

Interestingly, a 5% price reduction occurred in most markets within the region during Q2, excluding Mexico. This change did not significantly impact year-over-year pricing in Q3, as many markets had already applied price increases in Q1 of 2024. It appears that the Q2 price adjustments may have positively influenced year-over-year volume increases observed in several markets during Q3. In Europe, the Middle East, and Africa (EMEA), net sales remained fairly stable year over year, with a 2% increase in local currency, though this was tempered by declines in volume and unfavorable foreign exchange (FX) rates.

The year-over-year results showed a mixed picture in various markets within the region. For the Asia Pacific area, net sales dipped by 1% on a reported basis but rose by 1% in local currency. Specifically, in India, net sales increased by 1% on a reported basis and by 3% in local currency, driven by price benefits that offset a slight volume decline. North America faced a more significant challenge, reporting a 6% decrease in net sales year over year, but that represents a slight recovery compared to the Q2 2024 decline.

Strategic Initiatives and Changes in China 

This marks the second consecutive quarter of improvement in year-over-year metrics. As mentioned by Stephan in his opening remarks, new distributor metrics are showing promise, and several initiatives are gaining momentum in the region. A constructive trend is clearly shaping up towards a return to growth. Nevertheless, in China, net sales dropped 16% year over year and 17% in local currency.

Stephan highlighted the surge in preferred customers enrolling in the new loyalty program and the Herbalife Premier League, which shifted focus away from recruiting sales representatives. The China team amended the qualifications for the Herbalife Premier League during Q3 to encourage more recruitment for both customers and representatives. Although the influx of new customers is encouraging, it will take time to evaluate their purchasing behavior and how it will transition into sustainable growth.

Financial Performance: Adjusted EBITDA and Future Plans

Turning now to Slide 13, we want to analyze the drivers behind the adjusted EBITDA increase. In Q3, adjusted EBITDA was recorded at $167 million, reflecting a margin of 13.4%, an increase of 70 basis points year over year. This improvement comes from price increases and favorable input costs, which were somewhat offset by lower volumes and changes in sales mix.

Higher employee bonus accruals presented a challenge, increasing by approximately $16 million year over year, in line with expectations set in Q1. Due to the ongoing restructuring and accrued bonuses as of September, no significant additional impacts are expected in Q4. Technology expenses also rose by around $5 million, driven by higher SaaS hosting fees. Notably, Q3 2024 adjusted EBITDA benefitted from $5 million in government grants in China, which was not reflected in Q3 2023. Additionally, a major distributor event shifted from last quarter before the restructuring caused a $7.2 million headwind to adjusted EBITDA. Unfavorable FX movements contributed to a rough $14 million decrease in adjusted EBITDA year over year.

Debt Management and Future Guidance

Moving forward to Slide 14, let’s evaluate our capital structure. During the quarter, we successfully repaid $85 million in debt, with $5 million attributed to scheduled Term Loan B amortization payments and $80 million to the revolving credit facility. As of September 30, this revolving credit facility remained fully drawn. Our total leverage ratio has reduced to 3.3 times, and we aim to lower this ratio to 3 times by the end of 2025 after repaying the 2025 notes. We plan to pay at least $62 million of these notes by early March 2024, with the remainder due at or before their maturity in September 2025.

Over the next four-plus years, the plan is to repay $1 billion in debt, which includes the $85 million repaid in the recent quarter. Switching to Slide 15, we will share our outlook for Q4 and the full year. For Q4, we project net sales will range from a 1% increase to a 3% decrease year over year. Adjusted EBITDA is expected between $105 million and $135 million, while capital expenditures could reach between $25 million and $45 million.

Furthermore, we anticipate capitalized SaaS implementation costs to total around $7 million in Q4, in addition to our planned capital expenditures. Based on third-quarter results and the projected outlook for the rest of the year, we’ve updated our full-year 2024 guidance. Now, we estimate net sales to decline between 1% and 2% compared to last year while increasing expectations for adjusted EBITDA to range from $590 million to $620 million, with planned capital expenditures adjusted to between $120 million and $140 million.

Lastly, despite the elevated capital expenses in technology, Herbalife continues to generate robust cash flow, which we intend to leverage to reduce debt by $1 billion over the next four-plus years and hopefully achieve by the end of 2028. This concludes our opening remarks. Operator, please open the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Jeff Van Sinderen with B. Riley Securities. Your line is open.

Jeff Van Sinderen — Analyst

Hi, everyone. Congratulations on the increase in distributor additions; it’s encouraging. Could you elaborate on the factors influencing sales volumes in North America?

It may still be premature to assess the new distributors’ performance. Also, could you share thoughts on what changes are necessary for reversing the negative sales volumes in major regions, and the expected timeline for seeing results considering the recent distributor additions?

Stephan Gratziani — President

Thank you, Jeff. In North America, we’ve observed positive trends in the metrics for active non-sales leaders, which points to improved performance. This progress is primarily achieved through a strong influx of new distributors, particularly in the past two quarters. Focusing on building a solid foundation is our main priority.

Understanding and refining the models utilized, especially the effectiveness of Nutrition Clubs, is essential for assisting distributors in enhancing their productivity. The Mastermind initiative is a significant step towards providing our top-level leaders with the necessary support to succeed, which is crucial for driving sales and volume growth.

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Herbalife Rebuilding Distributor Base: Insights from Leadership

In a recent discussion, company leaders emphasized the importance of strengthening their distributor base. The goal is to enhance customer acquisition, increase distributor participation, and create models that can replicate success efficiently. This grassroots approach, supported by strong leadership, aims to revitalize the network.

According to the leadership, rebuilding the distributor base is essential. The current focus is on productivity and providing support, which is a crucial element of the key account management program. The team engages regularly with about 800 leaders, ensuring they have direct communication lines with the company. This feedback loop allows leaders to voice their experiences and enhance support where needed. Each market has unique challenges, and the plan is to tailor solutions accordingly.

The strategy includes initiatives like the Herbalife Premier League and the Mastermind program, designed to motivate distributors and foster growth. Currently, the focus is not just on maintaining the distributor base but ensuring it is on an upward trajectory, which will be key for future sales volume growth. As the company moves forward, it will evaluate progress on a quarterly basis.

Jeff Van Sinderen — Analyst

Let’s dive into the gross margin outlook. What are your current plans for price increases? How are input costs shaping up, and when can we expect year-over-year comparisons to become more challenging?

John G. DeSimone — Chief Financial Officer

Looking at the gross profit outlook, I don’t expect significant changes for the remainder of this year or next. Most of the anticipated price increases have already been rolled out, with only the Indian market remaining to adjust. Future price changes will depend on various factors, including potential adaptations from our South American strategy.

Jeff Van Sinderen — Analyst

Is there anything else you can share about input costs?

John G. DeSimone — Chief Financial Officer

No, input costs remain manageable, and we don’t foresee any major increases in the near future.

Jeff Van Sinderen — Analyst

Thank you for the insights. I will follow up offline with further questions.

John G. DeSimone — Chief Financial Officer

Thanks.

Operator

We’ll now move to the next question from Chasen Bender with Citi. Please go ahead.

Chasen Bender — Analyst

Good afternoon. I wanted to revisit the trends among distributors in North America. You’ve noted increased growth in new distributors, indicating a promising sign for replenishing the network. However, the absolute numbers, particularly for active non-sales leaders, still show some underperformance compared to new additions. This could imply challenges in retention or settling new distributors. What strategies do you see as key for improving this situation?

Stephan Gratziani — President

Thank you, Chasen. After three years of decline, there may be lingering attrition in our distributor pipeline. As we observe a quarter-by-quarter improvement, it’s evident we’re addressing these challenges proactively. Each distribution model requires specific focus. For instance, nutrition clubs vary significantly between general and Latin markets, necessitating tailored support for market leaders. Our objective is to strengthen individual market strategies, which will ultimately enhance distributor productivity.

While managing attrition is crucial, rebuilding and supporting our distributors effectively is our primary focus. The growth of our distributor base is foundational, leading to an increase in supervisors who, in turn, draw more customers and recruits. This cycle is essential for driving sales growth.

Chasen Bender — Analyst

That’s insightful. Reflecting on previous experiences, it’s worth noting that not all past groups of new distributors have proven productive. With your new initiatives with Mastermind and Eric Worre, how do you ensure that the current influx of new distributors aligns with productivity benchmarks, rather than falling into patterns of unproductiveness seen previously?

Stephan Gratziani — President

That’s a valid concern. Our current strategy emphasizes the efficacy of different distributor models. For example, we have seen notable success with high-performance models that drive productivity. This approach is vital to strengthening our recruitment efforts and ensuring that new entrants are equipped to thrive within our framework.

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Strategies for Success: Insights from Global Growth in the Direct Selling Market

The breakfast budget club model in the UK has seen impressive growth.

Over the past four years, a dedicated distributor couple in the United Kingdom has refined their approach, leading to a growth of 20 times, significantly outperforming other distributors selling similar products and facing comparable economic conditions. Their effective business model demonstrates how crucial it is for distributors to enhance productivity, foster leadership skills, and successfully recruit new customers. This model illustrates a stark contrast to others operating in the same market.

As we look toward the United States and North America, it’s clear that our leaders, who are committed and diligent, require support to identify optimized strategies. Learning from successful models in other markets is essential for improving their own operations. In a noteworthy initiative, about 25 leaders from the U.S. will attend an upcoming master class in the UK, aiming to gather knowledge and return with strategies they can apply to their businesses. Overall, our company seeks to be a platform that facilitates education and support so that all individuals can implement successful practices that enhance productivity.

Chasen Bender — Analyst

Understood. Thank you for the clarification. I’ll pass this information along.

Stephan Gratziani — President

Thank you.

Operator

Please hold for the next question. Our next query comes from Hale Holden with Barclays. Your line is open.

Hale Holden — Analyst

Good evening, and congratulations on your second Guinness World Record. I have two quick questions. The first concerns your internal banking strategy and the absence of repatriation cash taxes. Will this approach alter the cash holdings on your balance sheet moving forward?

John G. DeSimone — Chief Financial Officer

Yes, this strategy is intended to decrease our cash reserves. We recently reached a low of approximately $370 million and are now just above $400 million. We have the potential to reduce this further, but I’m not ready to specify an exact figure yet. The internal bank model enables us to maintain less cash in each country by centralizing funds, which also reduces the friction related to repatriation. Thus, when evaluating our cash balance, it reflects the overall value we derive from it.

Hale Holden — Analyst

Got it. My second question is about the decision not to report India as a separate region anymore. Can you explain that choice?

John G. DeSimone — Chief Financial Officer

Historically, we have not reported India as a standalone geography; it has consistently been part of the broader Asia-Pacific region. Typically, we highlight the largest markets within each region, such as focusing on the U.S. as a key player in North America. This approach has been standard throughout my 17 years with the company.

Hale Holden — Analyst

I understand. Could you provide insights into how India is currently performing and your outlook for the future?

Stephan Gratziani — President

As mentioned earlier, net sales in India increased by 1%, with local currency sales rising by 3%. Over the past seven years, the market has seen consistent growth, with six of those years featuring double-digit gains. However, we don’t anticipate maintaining such robust growth moving forward. The market has significantly scaled up during that time. In Q3, distributor recruitment saw a 30% year-over-year increase, indicating a positive trend, though expectations need to be tempered given the market’s maturation.

Hale Holden — Analyst

Thank you for that information.

Operator

Thank you. Please hold for the next question. Our next inquiry comes from John Baumgartner with Mizuho Securities.

John Baumgartner — Analyst

Good afternoon, and thanks for taking my questions. I’d like to dive deeper into developing markets and the encouraging growth in distributor numbers. However, what concerns do you have regarding potential demand risks due to macroeconomic factors, especially with rising prices and persistent borrowing costs? I noticed that volume points in India fell slightly in Q3.

Stephan Gratziani — President

Thank you, John. From my 32 years of experience in the distribution sector, I recognize that macroeconomic conditions are significant. However, it ultimately comes down to the value your products and services offer to consumers. The way you present your brand, the shopping experience, and how you position the opportunities offered are vital in driving demand. For example, if I present a basic shake for weight loss, that might attract some interest, but when I add value through personal coaching, diet evaluations, workout sessions, and detailed tracking, customers see substantial benefits for their investment. The onus is on us to find ways to provide enhanced value and support our distributors in doing the same.

While economic strife may influence spending habits, our approach must remain focused on delivering quality and value to maintain customer interest and loyalty.

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Herbalife Focuses on Value Delivery Amid Varied Market Conditions

Evaluating Success in Different Regions

In today’s market, both distributors and companies must maximize the value they provide to maintain their competitive edge. An example from the United Kingdom illustrates this point: a distributor has successfully grown from 50,000 volume points per month to over 1.1 million in five years. Despite facing the same macroeconomic trends and product prices, the distributor’s innovative model significantly enhanced the value they offered.

Insights from Latin America

John G. DeSimone, Chief Financial Officer, noted similar tests conducted in Latin America where adjustments in pricing and volume points have received positive feedback. These adjustments demonstrate that global business opportunities can be maximized even in fluctuating socioeconomic climates. Such tailored strategies could potentially be implemented in other regions, including Asia, to counteract current macroeconomic challenges.

North America’s Diabetes Prevention Program

John Baumgartner, an analyst, inquired about the diabetes prevention program in North America. President Stephan Gratziani explained that top members have undergone certification to become lifestyle coaches through a third-party program. Over the next year, the company plans to extend its internal certification to thousands of distributors, offering them flexibility in how they incorporate this training into their businesses. As they explore various methods—whether through clubs or online formats—the foundational importance of this program is clear.

Challenges and Strategies in the Chinese Market

Linda Bolton-Weiser from D.A. Davidson raised concerns regarding disappointing performance in China. Gratziani addressed this, highlighting a focus on customer-centric strategies that started last year. The company has launched a customer loyalty program for the first time, which provides benefits to preferred customers, significantly increasing new memberships by 65% in the last quarter. While this shift impacted sales representative recruitment, Gratziani emphasized it’s a strategic move that is expected to yield long-term benefits by expanding their customer base within the $1.4 billion population market.

Cost Savings and Financial Performance

Bolton-Weiser further questioned the cost savings program and its outcomes for 2024. DeSimone revealed that strong margin performance stems from both management restructuring and broad cost-saving initiatives. Current projections indicate that EBITDA margins for 2024 are on track to remain stable compared to last year, with a projected improvement of 100 basis points in 2025. As cost savings continue to increase, they will have a positive impact on profitability, though specific guidance will be provided in future updates.

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Company Improves Financial Outlook While Navigating Product Launches

Linda Bolton-Weiser — D.A. Davidson — Analyst

It’s natural to wonder about future developments, especially as they start to unfold.

Is there a chance you might find more savings or roll out a productivity program to achieve significant savings in 2025?

John G. DeSimone — Chief Financial Officer

We are actively working on a cost savings program in specific areas that could yield results in 2025. Until we provide guidance, I won’t commit to how much we can save or how much we’ll reinvest back into the business. As customary, we will offer detailed guidance in February. I can assure you that we will meet our previous commitment of achieving at least a 100 basis point improvement compared to the original expectations for margins, which we expect to remain flat with last year.

This means we’ll at least see that 100 basis point improvement in margins next year compared to 2023. That’s a minimum commitment. We’ll update you on any incremental cost savings as we progress. Our focus remains on active cost savings measures beyond our restructuring efforts.

Linda Bolton-Weiser — D.A. Davidson — Analyst

Regarding gross margins, you mentioned that the mix impact was negative. Could you elaborate on what’s driving that? Is it primarily due to lower performance in China, which has typically higher margins?

John G. DeSimone — Chief Financial Officer

China is indeed a significant factor, as it usually contributes higher gross margins, although not necessarily higher operating profit. In contrast, India tends to have lower gross profit compared to our company average. These geographic differences are likely the two major contributors to the mix impact. Additionally, various other factors may come into play, such as where products are manufactured versus currency fluctuations. However, the primary driver remains the mix from China due to its considerably higher gross profit margin.

Linda Bolton-Weiser — D.A. Davidson — Analyst

Thank you.

Operator

Thank you. Next, we have a question from Karru Martinson from Jefferies. Your line is open.

Karru Martinson — Analyst

I’ve noticed an increasing number of new product launches every quarter. How are recent products, especially the vegan and clean label options, performing?

John G. DeSimone — Chief Financial Officer

Yes, we have consistently launched new products, although we may be emphasizing them more in our discussions recently. Product launches are critical for our strategy, but they tend to grow slowly over time. This is different from some companies that see a rapid influx of sales from new products. Our model focuses on gradual growth.

For instance, our vegan line sold out quickly, but while it may not be a top seller, it enhances our brand and attracts new customers. The gels we just launched are in early stages, but I believe they will perform well. It’s essential to recognize that we won’t see sudden spikes from new product launches; instead, we expect steady growth in new offerings every quarter as part of our growth strategy.

Karru Martinson — Analyst

Considering these new products, what’s driving the volume turnaround? Is it dependent more on increasing distributor numbers or improving productivity among current distributors?

John G. DeSimone — Chief Financial Officer

It’s a combination of factors. Growth in sales can come from either increasing the number of sellers or boosting the productivity of existing sellers. Our short-term focus is on recruiting new sellers, which quickly expands our reach. However, we are not neglecting improvements in productivity among our current distributors; we are working on all these elements simultaneously.

Karru Martinson — Analyst

Lastly, the recent decline in input costs has positively impacted your gross margins. Should we expect any competitive response that might affect the sustainability of your pricing?

John G. DeSimone — Chief Financial Officer

Input costs have only decreased slightly. The significant factor for improved gross profit has been our operational efficiencies. Last year, we significantly reduced inventory, resulting in unfavorable manufacturing variances. This year, sales have stabilized, allowing for inventory to be rebuilt and factories to operate effectively. Thus, factory efficiency was the biggest contributor to cost savings, rather than a significant drop in input prices. I don’t anticipate major changes in pricing for inputs next year; we expect stability without large fluctuations.

Karru Martinson — Analyst

Thank you very much for your insights.

Operator

Thank you. Please hold for the next question. The next question comes from William Reuter with Bank of America. Your line is open.

Rob Rigby — Analyst

Hello. Good evening. Thank you for taking my question. This is Rob speaking for Bill.

Your efforts to repay debt are commendable. What are your plans and pace for doing this moving forward? Also, are there any priorities beyond the 2025 debt?

John G. DeSimone — Chief Financial Officer

Yes, the 2025 debt is our current priority, with a target completion in September next year. After addressing that, we’ll evaluate how we can continue to reduce our debt as we generate more cash. Keep in mind, there are certain penalties associated with early repayment of 2026 obligations.

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Herbalife Outlines Strategy for Debt Reduction and Future Growth

During the recent earnings call, Herbalife executives discussed plans for future refinancing and capital expenditures (capex). They indicated that despite minor fluctuations in sales, the company is aiming to stabilize and eventually grow its margins. John G. DeSimone, Chief Financial Officer, emphasized the importance of understanding cash flow dynamics in meeting debt repayment targets.

Future Plans for Debt Payment and Capex Management

“We might consider refinancing in 2026 which would allow more flexibility to address debt without incurring penalties,” said DeSimone. He noted that the goal is to pay down $1 billion in debt by the end of 2028, based on existing cash flow and interest savings. Current projections indicate that even without capex cuts, the company can still meet this target.

Understanding Capex Trends

Analyst Rob Rigby inquired about potential reductions in capex. DeSimone confirmed that while next year would still see significant tech investment, spending would decline significantly by 2026. “Our guidance reflects that we expect 2026 capex to be lower than both 2025 and 2024,” he added.

Positive Trends in Sales and Distributors

Michael Johnson, Chairman and CEO, highlighted encouraging trends in sales during the call. He stated that year-on-year net sales have remained flat while adjusted EBITDA has exceeded expectations, marking a 13.4% rise in margins. Additionally, the company generated $100 million in cash from operating activities and fully paid down $85 million from its credit facility.

Johnson expressed particular satisfaction with a 14% increase in new distributor growth year-on-year, calling it a key element in the company’s recovery strategy. “This is the second consecutive quarter that we’ve seen year-on-year improvement,” he said, emphasizing the need for continued team effort to bolster the distributor base.

Commitment to Health and Community Building

Reflecting on the broader goals of Herbalife, Johnson remarked, “We’re focused on creating opportunities for individuals in health and nutrition, as well as wealth building.” He believes strongly in the company’s ability to adapt and strengthen its community-building initiatives, despite challenges faced in the past.

Concluding his remarks, Johnson maintained a sense of optimism and urged employees and investors alike to rally behind the company’s growth mission. “We’re here to build this company’s strength and improve every single day. Let’s grow, let’s go, Herbalife,” he urged as he closed the call.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Erin Banyas — Vice President and Head of Investor Relations

Michael Johnson — Chairman and Chief Executive Officer

Stephan Gratziani — President

John G. DeSimone — Chief Financial Officer

Jeff Van Sinderen — Analyst

Hale Holden — Analyst

John Baumgartner — Analyst

Linda Bolton-Weiser — D.A. Davidson — Analyst

Karru Martinson — Analyst

Rob Rigby — Analyst

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