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Text: [Technical Issues] meaning of the federal securities laws.
These reconciliations, together with additional supplemental information, are available at the Investor Relations section of our website herbalife.com.
Additionally, when management makes reference to volumes during this conference call, they are referring to volume points.
During the second quarter we delivered worldwide reported net sales of $1.6 billion, growth of 15% compared to the prior year.
Net sales grew by double-digits for the fourth straight quarter.
All three of our core product categories grew double-digits, led by the Energy, Sports and Fitness category, which increased 45% compared to the prior year.
All of our regions, except China, experienced net sales growth in the quarter with four of our six regions increasing by more than 20%.
We will discuss China in detail toward the end of my remarks.
The underlying fundamentals of our business remain strong.
For the third quarter we are guiding reported net sales to be in the range of down 1% to up 5%.
For the full year, we expect net sales growth to be within a range of 8.5% to 12.5% compared to the prior year.
In addition to our net sales and earnings per share guidance, this quarter we have initiated guidance for adjusted EBITDA.
For the full-year 2021, we expect to generate between $875 million and $935 million of adjusted EBITDA, which highlights the ongoing profitability and underpins the cash flow generation of our business.
Alex will provide detail on our new guidance and why we believe this incremental metric is valuable for investors as they analyze our business.
Now let me get into our Q2 performance in more detail.
The North America region grew by 7% in the quarter, primarily driven by continued strong momentum in the US.
It is important to note that the single-digit growth is up against an extraordinarily high prior year comparison period.
However, the two-year stack growth rate of 47% in the US accelerated compared to last quarter's two-year stack.
We have seen significant growth in our US Nutrition Club business as many parts of the country returned to more in-person activities.
Over the first half of the year, we have had an increase of over 2,000 Nutrition Club locations in the US, with the total club count now exceeding 11,000.
While we continue to monitor pandemic conditions, we are currently planning a return to some of our in-person training activities and sales events in the second half of the year, utilizing a hybrid format.
The Asia Pacific region had another quarter of powerful growth, up 38% compared to the prior year.
The region had notable strength in Vietnam, which grew 60%, Malaysia, which was up 45%, Taiwan, which increased 21% and South Korea, which returned to growth with a 19% increase.
Herbalife Nutrition India has emerged as the number one direct selling company in that country based on a recent market research store report.
Our Indian business grew 93% this quarter compared to Q2 of 2020.
Recall that in Q2 2020, our business in India was disrupted by the severe public health-related restrictions imposed in response to the onset of COVID-19.
Over the past year our business in India has adapted well to ongoing pandemic conditions, implementing several successful digital strategies, including a virtual nutrition club model.
Virtual nutrition clubs incorporate many elements of traditional in-person nutrition clubs, but are conducted through virtual platforms such as Zoom or Facebook Live.
Virtual clubs establish a sense of community and a personal sense of connection elements that proved incredibly important during the pandemic.
The virtual club strategy is now being shared as a model of success with other regions around the world.
The EMEA region set a second straight quarterly net sales record with year-over-year growth of 22%.
Strong performances continued to be seen in markets such as Turkey, which was up 63%, Italy, which grew 38%, Belgium, which was up 25%, and Spain, which increased 21% in the quarter.
The United Kingdom delivered 24% growth, which was on top of a challenging comparison of 73% growth experienced in Q2 of 2020.
Although combined new distributor and preferred customer numbers are lower than the peak of Q2 2020, we had significant growth of 56% compared to the more normalized 2019 comparison period.
We have also seen a 27% year-over-year increase in the number of active supervisors, which reflects the continued strength of the EMEA business over the past 18 months and helped drive the record performance.
Mexico grew 23% in the quarter, its first quarter of double-digit growth since 2013.
Net sales growth was aided by a currency tailwind in the quarter.
Our members in Mexico are beginning to adopt the preferred customer program, which was implemented in March.
We'll talk more about preferred customers in a moment.
Additionally, the South and Central American region grew 23% in the quarter.
The region was led by Chile, which grew over 200%, Bolivia, which was up 58%, Guatemala, which increased 57%, and Peru, which was up 20% compared to the prior year.
The region also benefited from the implementation of the preferred customer program, which is now live in eight of that region's markets.
Let me go a little deeper on the preferred customer program, which is one of our key strategic elements.
Segmentation, which for us means bifurcating our member base into two groups, distributors who intend to sell product and preferred customers or as they're known in the US, preferred members who are only product consumers.
The preferred customer program is now live in 25 markets around the world.
These markets represent approximately 70% of our total net sales.
The ability to identify and distinguish preferred customers from distributors provides us with a powerful dataset on each group.
We believe this primary customer data will be incredibly valuable.
We will talk more about our preferred customer program and segmentation in our upcoming Investor Day.
We're also seeing more interest in our business from young adults as approximately two-thirds of new distributors and preferred customers who joined Herbalife Nutrition during the second quarter were Millennials or Gen Z. The ability to run their business through digital platforms and to utilize social media to connect with consumers is appealing to this tech savvy demographic.
As we evaluate future product launches, we have Gen Z and their consumer preferences in mind.
This demographic is particularly interested in sports nutrition, clean label products, and offering such as our recently launched hemp cannabinoid products.
Now returning to China, in China net sales declined 16% compared to the second quarter of 2020.
This year-over-year decline for the quarter was below our expectations.
We'd like to speak about China in more detail to give you a sense of what we're seeing and more importantly, what we're doing about it.
China represented approximately 11% of global net sales and just under 6% of global volume in the second quarter.
We're intensely focused on two key metrics that have decreased recently in China.
One, the number of new service providers joining the business and two, the activity levels of our sales representatives and service providers.
We are taking a number of actions in the market to adapt our business and to turn these two metrics around.
First, we are continuing to invest in our digital platform.
We recognized in 2019 that our powerful digital platform was going to be a crucial component of our efforts for the China market.
Since we began our digital transformation, we have formed partnerships with Tencent and Alibaba to help support our efforts.
We are just now beginning to see the initial results through the increased usage of our tools.
Through the first half of the year, approximately 50% of our business was transacted through our recently launched digital platforms.
Second, many of our service providers are shifting their focus to a newer Nutrition Club model, which includes a smaller scale, more rural location with an increase in daily customer interactions.
This type of Nutrition Club more closely resembles the very successful Nutrition Club businesses we have in many other parts of the world such as our US market.
Third, with the goal of improving the activity and quality of our service providers in China, we elected to modify our qualification requirements.
Historically, in our business, we found that strategic changes to qualification methods often create short-term disruption, but eventually, lead to long-term positive results.
Fourth, beginning this month, we believe we've secured the ability to expedite the business licensing processes for our new service providers, where they can obtain their license significantly faster than getting their license on their own.
We anticipate this accelerated business licensing timeline will lead to incremental new entrants.
Overall, we believe these initiatives will improve the number of new entrants joining the business and create a more active base of service providers in the long term.
While below our expectations, China's volume has been more stable sequentially from month-to-month this year.
The China comparisons continue to be difficult for Q3, but they actually get much easier toward the end of 2021 and into early 2022.
And we expect China to be additive to the total company growth within the next year.
Lastly, let me add that although at its current level China is a relatively small part of our overall business, we believe it offers significant growth opportunity long term and we remain firmly committed to the market.
So we've set a date for our Virtual Investor Day, which will take place on September 14th at 8:00 AM Pacific Time.
We look forward to sharing a deep dive on our company, on our strategy and on many of the initiatives that we have underway to drive continued growth.
Second quarter net sales of $1.6 billion represents an increase of 15% on a reported basis compared to the second quarter in 2020.
This was the largest quarterly net sales result in company history.
The growth was broad-based as over 50 of our markets grew by double-digits or more.
We had net sales growth in four of our five largest markets, consisting of the US, which grew 6%, China, which was down 16%, India, up 93%, Mexico, up 23% and Vietnam up 60%.
Currency was a tailwind to net sales in the quarter, representing a benefit of approximately 520 basis points, excluding Venezuela.
Reported gross margin for the second quarter of 79.2% decreased by approximately 60 basis points compared to the prior year period.
The decrease was largely driven by unfavorable country mix, primarily from China representing a smaller portion of our overall company sales.
Second quarter 2021 reported an adjusted SG&A as a percentage of net sales were 32.6% and 32.9%, respectively.
Excluding China member payments, adjusted SG&A as a percentage of net sales was 26.6%, approximately 30 basis points unfavorable compared to the second quarter of 2020.
This was largely due to a return to more normal levels of advertising promotion and sales event spending, which was significantly disrupted during the second quarter 2020.
For the second quarter, we reported net income of approximately $144.2 million or $1.31 per diluted share.
Adjusted earnings per share of $1.52 was a beat of $0.15 above the top end of our Q2 guidance.
Our expected year-over-year currency benefit for the second quarter should have been approximately $0.10 lower than originally projected, which translates to our actual currency adjusted earnings per share exceeding the top end of our guidance range by $0.17.
This resulted in the largest quarterly adjusted EBITDA result in company history for the second quarter in a row, with adjusted EBITDA of approximately $262 million.
Combined with the prior record in Q1, we have generated over $500 million of adjusted EBITDA during the first half of the year.
We are issuing guidance for the third quarter 2021, as well as updating our full-year 2021 guidance.
For the third quarter, we estimate net sales to be in the range of down 1% to up 5%, which includes an approximate 200 basis points currency tailwind.
The third quarter 2021 represents the most challenging comparison period of the year as we are comping 22% growth in Q3 of 2020.
Looking back over the past four quarters, the two-year stack has range between approximately 19% and 28%.
This quarter's guidance implies a two-year stack of 21% to 27% growth.
Third quarter adjusted diluted earnings per share is expected to be in a range of $1.05 to $1.25.
Adjusted diluted earnings per share includes a projected currency benefit of $0.06 compared to the third quarter of 2020.
John described earlier the strategic initiatives we have in place to return China to growth.
With that said, our expectations for China have come down in 2021.
This is reflected in our updated net sales guidance of 8.5% to 12.5% growth on a reported basis.
Despite the reduction from China, the midpoint of our guidance still implies double-digit net sales growth for the year.
Currency remains a tailwind and we now project an approximate 220 basis point tailwind due to currency for the full year compared to the expected 200 basis points benefit from a quarter ago.
We are updating full-year 2021 guidance for adjusted earnings per share to a range of $4.70 to $5.10.
Despite the reduction to the midpoint of our sales guidance, the midpoint of our adjusted earnings per share range is increasing by approximately $0.05.
This raise to the midpoint of our adjusted earnings per share guidance is primarily driven by the Q2 beat, partially offset by lower sales expectations in China for the remainder of the year.
For the full year, our guidance includes a projected currency tailwind of approximately $0.15 per diluted share, which is $0.03 higher than the currency benefit included in our prior guidance.
Incrementally, we are initiating adjusted EBITDA guidance for the third quarter and full-year 2021 of $205 million to $235 million and $875 million to $935 million, respectively.
We believe this incremental metric will be helpful to investors as they analyze the profitability and cash flow generation potential of our business.
Now we will turn to our cash position, capital structure and our share repurchase activity.
Through the first half of the year, we have generated $287 million of operating cash flow.
This was lower than our cash flow generation in the prior year period.
However, for the full year we continue to anticipate cash flow will be stronger than the $629 million we generated in 2020.
At the end of the second quarter, we had $838 million of cash on hand.
During the second quarter, we completed approximately $98 million in share repurchases.
Our expectation is that we will complete approximately $200 million of share repurchases over the remainder of the year, resulting in over $900 million of share repurchases for the full-year 2021.
During the quarter, we completed a $600 million offering of 2029 senior notes at a rate of 4.875%.
We used a portion of the net proceeds from the offering to redeem all outstanding $400 million 2026 senior notes that paid a coupon of 7.25%.
Given the favorable rate differential of approximately 240 basis points, we were able to raise nearly $200 million more debt at effectively the same interest payment.
This transaction resulted in a charge of approximately $25 million from the loss on the extinguishment of the 2026 notes.
This one-time charge was excluded from our adjusted results.
Also, just last Friday, we announced a repricing and upsizing of our term loan A and revolver credit facilities.
The borrowing margins of both facilities were reduced by at least 25 basis points in a new pricing grid to 2.25% or lower.
The revolver was increased by approximately $48 million to $330 million with the term loan A increasing by approximately $41 million to $286 million.
The amendment and incremental commitment from our bank group demonstrates their confidence in our current and future business outlook.
We also incorporated into the term loan A and revolver facilities a sustainability linked pricing grid relative to certain ESG KPIs.
These KPIs include our use of virgin plastic materials, reductions in greenhouse gas emissions and female diversity in our senior management ranks.
Herbalife Nutrition is proud to demonstrate our commitment to an ESG strategy that is measurable through financial incentives.

user
compname reports q2 sales of $1.6 bln.
q2 sales $1.6 billion versus refinitiv ibes estimate of $1.57 billion.
q2 earnings per share $1.31.
sees fy sales up 8.5 to 12.5 percent.
q2 adjusted earnings per share $1.52.
sees fy 2021 adjusted diluted earnings per share guidance range $4.70 - $5.10.
sees q3 adjusted diluted earnings per share $1.05 to $1.25.

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