Public Direct Sellers End 2017 on a Strong Note

Douglas M. Lane, CFA, is a securities analyst with more than 20 years of experience covering companies that employ the direct selling business model. He leads a boutique equity research firm, Lane Research, focusing on those companies. His website is, and he can be reached at

The six publicly traded direct selling companies we follow and whose stocks are listed in the United States, Herbalife (HLF), Medifast (MED), Nu Skin (NUS), Tupperware (TUP), USANA (USNA) and London-based Avon Products (AVP), on balance ended the year on a strong note.

Organic sales growth on average increased by 10 percent in the fourth quarter 2017, which is an acceleration from the low- to mid-single digit growth rates on average in the four previous quarters. The companies focused more on nutrition and healthy living did particularly well, while the more traditional companies, Avon and Tupperware, showed some softening in the fourth quarter.

OPTAVIA, Medifast’s direct selling company, led the way with very strong growth. In fact, the direct selling channel has become so dominant that Medifast management stated it would no longer report separate segment information, and that the company was moving its Medifast Direct customers over to the OPTAVIA health coaches. We view Medifast as an interesting laboratory for go-to-market strategies of weight-loss and nutrition companies, as its direct selling channel went from less than half of the business 10 years ago to now virtually taking over the company.

OPTAVIA ended the year with a strong 32 percent organic growth, much better than expected due to continued momentum coming out of the recent convention in Dallas, Texas. After introducing the OPTAVIA product line to its health coaches in 2016—which was very well received—it was at the company’s convention in July 2017 that Take Shape For Life was rebranded altogether to OPTAVIA, a name, in our view, more suited for international markets. OPTAVIA announced in March that it would open its first international markets, Hong Kong and Singapore, in early 2019.

Therefore, with momentum building domestically coupled with international expansion on the horizon, the future seems bright for Medifast, which did not go unnoticed by the markets as its stock soared on the earnings release.

Nu Skin also posted strong double-digit organic growth rates in the fourth quarter, driven by the limited-time offer (LTO) of its AgeLOC LumiSpa treatment and cleansing device, introduced at its Salt Lake City convention held in October. Importantly for future growth, the number of sales leaders in the fourth quarter was much higher than we expected at 81,900 versus our forecast of 68,800. It appears that the LumiSpa LTO generated an increase in product sales and leadership activity, so the key now is to see how that translates into growth in 2018 as LumiSpa is rolled out globally. Management also noted that its focus on utilizing social selling programs to increase outreach and expand its customer acquisition contributed to an 8 percent increase in its customer base. Clearly the company is on much stronger footing coming out of 2017 than it was a year ago, which is reflected in the nearly 50 percent appreciation in the stock over the past 14 months.

USANA and Herbalife round out the direct sellers posting accelerating organic growth trends in the fourth quarter. In the latter part of 2017, USANA appears to have reversed several quarters of decelerating growth, benefiting from successful new product and promotional activity. The prelaunch of its new Celavive skincare line created some excitement among leadership and USANA was able to execute on a successful promotion in China that drove 12 percent organic growth in that important market for the company. Total organic sales growth was up 5.1 percent in the fourth quarter after being up 3.0 percent in the third quarter and up 2.3 percent in the second quarter. These improving trends have also been recognized by the market after some of the 2016 product and promotional efforts didn’t live up to expectations. Overall, USANA is up 25 percent over the past 14 months and 33 percent since the first quarter 2017.

For Herbalife, after several quarters of negative growth as a result of sharp declines in the U.S. due to its leadership being more focused on FTC compliance in conjunction with its July 2016 settlement—as well as softness in China—organic sales increased 3 percent in the fourth quarter. This was the first positive note for that metric in five previous quarters. Organic sales in North America were down 5 percent after being down double digits in the second and third quarters, and organic sales growth in China turned positive for Herbalife for the first time in several quarters. Therefore, with these two markets heading in the right direction, a combined accounting for more than one-third of total company sales, the stage appears set for a sustained return to positive organic sales growth later in 2018. Despite the recent fundamental soft patch, Herbalife’s stock has almost doubled over the past 14 months as it became apparent that it would be able to successfully navigate through the FTC settlement in the U.S. Short seller Pershing Square Capital Management exited its position, which it held for five years, in the first quarter 2018.

Conversely, Avon’s organic sales declined 2 percent and Tupperware’s were reportedly down 4 percent, a deceleration from flat and up 2 percent in the third quarter respectively. However, for Tupperware, if you adjust for the vagaries of the calendar and for the recent BeautiControl divestiture, organic sales were actually up 3 percent, which was a modest sequential improvement from Q3. Brazil, which surpassed $300 million in sales for Tupperware in 2017, and China were the biggest contributors to growth. However, this sequential improvement was still below expectations as Indonesia, Italy, Malaysia/Singapore and Tupperware South Africa were softer than expected. We reduced our estimates, and the stock has been soft since the quarter was announced. In fact, Tupperware has shown opposite trends from other direct selling companies in that a year ago it was coming into 2017 with some momentum, but appears to have stalled coming out of 2017—and so consequently its stock price today isn’t much different than it was 14 months ago.

Organic sales growth at Avon continues to soften, and missed our forecast for the fourth quarter. However, investors’ attention was on the new CEO, Jan Zijderveld, and his commentary, which was apparently well received by the markets since Avon’s stock has risen over 20 percent since earnings were reported despite what we would characterize as soft top-line results. However, even with that bounce Avon’s stock is still about half the price it was a year ago as business fundamentals continue to be challenged.

In looking at the performance of direct selling stocks overall since the end of 2016, our Lane Research Index, which is comprised of U.S.-listed stocks over $1 billion in market capitalization, has modestly lagged the market as represented by the S&P 500. Outperformance in the first half of 2017, the fourth quarter and so far in Q1 2018 has not been enough to offset the underperformance in the third, which was driven primarily by Avon’s 40 percent stock drop after a poor second quarter earnings report and the announced departure of its CEO. Tupperware’s stock also declined double digits in Q3 as it became apparent that top-line momentum had stalled.

However, we note that Medifast, which is not in our index since it had not reached the $1 billion market capitalization threshold, saw momentum build as 2017 progressed, and its stock has more than doubled since the end of 2016. If it holds these levels, we anticipate it will be added to our index in the not too distant future.

Lastly, after several years of rebranding to Herbalife Nutrition, Herbalife is taking the next logical step and renaming the whole company Herbalife Nutrition Ltd. Can anybody say OPTAVIA Inc.

Disclosures: Financial Interests

The analyst, Douglas M. Lane, and members of his household own equity and/or equity derivative securities in Herbalife Ltd., which had previously been publicly disclosed in a Direct Selling News article originally published in January 2013.

Other than mentioned above, neither I, Douglas M. Lane, nor a member of my household, owns any security(ies) which is/are the subject of this article. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. I do not know or have reason to know at the time of this publication of any other material conflict of interest.