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Will Volume Growth Continue Aiding Herbalife (HLF) in 2019?

Herbalife Nutrition Ltd. HLF is a preferred pick among investors, evident from the stock’s 68.7% surge on a year-to-date basis compared with the industry’s decline of 0.1%. The renowned weight management and general wellness company is gaining from improved volumes in key markets as well as sturdy products portfolio and global presence. However, negative impacts of currency fluctuations are a worry.

Let’s delve deeper into the aspects affecting Herbalife’s performance and see if it can sustain the strong bull-run in 2019 as well.

Volume Growth a Major Catalyst

Herbalife is witnessing steady growth in volume points. Notably, during the third quarter of 2018, volume points advanced 15% to 1,506.9 million, exceeding management’s projections. This marks the second highest volume points achieved by the company, following second-quarter 2018 as well as highest year-on-year volume points growth since 2012.

Additionally, volumes depicted double-digit growth in four of the top five markets for the second consecutive period. Clearly, management’s efforts to keep pace with consumers’ preferences and effective direct-selling strategy are paying off. Encouragingly, management raised volumes outlook for 2018.



 

Portfolio Strength and Strong Global Presence

Herbalife boasts a robust product portfolio, which includes weight management, targeted nutrition, energy, sports and fitness products. The company continues to expand product portfolio to enable distributors to retain old customers and draw new ones.

Incidentally, the company introduced 58 products, across 51 countries in the third quarter, which fueled growth at Herbalife. Also, the company launched a High Protein Iced Coffee, which is expected to be a healthier alternative for traditional coffee. Further, the company is on track with launching new flavors for existing brands, considering local tastes and preferences.

Further, the company has a strong geographic presence, with its products accessible in more than 94 countries worldwide. In fact, top ten nations in the world accounted for 71.8% of Herbalife’s net sales in 2017.

Can Efforts Offset Hurdles?

Herbalife’s significant global presence exposes the company to adverse currency movements. Incidentally, currency headwinds weighed on the gross margin in the third quarter of 2018. Management expects such headwinds to persist and dent fourth quarter as well as 2018 performance. Further, the company is exposed to stiff competition from other retailers as well as distributors of weight management and nutritional products.

Nevertheless, we expect the company’s extensive business spread, focus on solidifying brands and a strong direct-selling network will continue to boost performance and enable the company tide over the aforementioned hurdles. In fact, such growth drivers and a strong past performance propelled management to raise earnings view for 2018. That said, we expect the Zacks Rank #3 (Hold) company to continue being in investors’ good books in 2019.

3 Retail Stocks to Consider

Fossil Group, Inc. FOSL, flaunting a Zacks Rank #1 (Strong Buy), has surpassed estimates in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands, Inc. LB, with long-term EPS growth rate of 11%, carries a Zacks Rank #2 (Buy).

Macy's, Inc. M has long-term EPS growth rate of 8.5% and a Zacks Rank #2.

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