Herbalife shines in China

LOS ANGELES 

Herbalife Ltd., the global marketer of nutritional products, is growing rapidly in China, its smallest region.

Annual net sales in China rose 69.3% to $471.6 million, the company disclosed Tuesday in its annual report.

At the end of last year, Herbalife was operating 66 retail stores in 29 Chinese provinces and had direct selling licenses in 25 provinces.

Herbalife also posted strong annual growth in South and Central America, where net sales climbed 41.3% to $973.5 million.

In Herbalife's home market of North America, sales rose 7.9% to $908 million. Sales in Mexico climbed 13.4% to $562.4 million while sales in EMEA rose 17.1% to $735.2 million.

Herbalife's performance in Asia Pacifica separate category from China and its largest regionwas modest with just 3% growth in annual sales ($1.17 billion).

Overall, sales climbed 18.5% to $4.8 billion as Herbalife brought home a profit of $527.5 million or $4.91 per diluted share.

Since China reopened the market to direct selling in 2006, the country has become a bastion of growth for the likes of Herbalife, Amway and Nu Skin Enterprises.

Euromonitor International forecasts that the retail value of vitamins and dietary supplements in China will grow from US$10.06 billion in 2008 to $17.56 billion in 2018.

But revelations that the Chinese government is investigating whether Nu Skin Enterprises has engaged in unlawful pyramid scheme activities have raised questions as to whether Herbalife and other direct sellers could face similar investigations and suffer sluggish sales. Herbalife Chief Financial Officer John DeSimone told Bloomberg News that the probe hasn't adversely affected Herbalife's China unit. In the United States, Herbalife has faced allegations from a well-heeled hedge fund manager that it exploits distributors and operates a pyramid scheme, though the company has vigorously denied the claims.

China restricts direct sellers from engaging in the traditional multilevel marketing that is authorized in the United States and other countries. For instance, a distributor cannot reap compensation based on sales of other distributors who are lower or "downline" in the same network. According to the Chinese law firm Lehman, Lee & Xu, China limits the pay of direct sales agents to compensation based on their own personal sales and comprising no more than 30 percent of their sales volume.

In spite of the restrictions, which an Amway lawyer said his company rigorously follows, the direct sales market in China is booming with 2012 sales of nearly $20 billion, according to the Direct Selling Association.

During the first nine months of 2013, Nu Skin's sales in mainland China nearly tripled to $667.4 from $176.4 million.

The investigations into Nu Skin, first reported by the Community Party's official newspaper People's Daily, have prompted Nu Skin to commence a review of its business in the Chinese provinces. The company has said it is "dedicated to operating in full compliance with all applicable regulations as interpreted and enforced by the government of China."

And in a Jan. 21 letter to its customers, Nu Skin revealed plans to provide additional training to reinforce policies that bar "inaccurately attributing endorsements to public figures or media reports", "exaggerated product claims" and "improper descriptions of Nu Skin's distinct business model in China that confuse it with Nu Skin's business model in other markets."

China banned direct sales in 1998 after consumers reported being defrauded by pyramid schemes.