Herbalife Ltd. (HLF) Responds To ‘Leaked’ Survey Report

By
Michelle Jones
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Herbalife says there’s no “smoking gun” in a Seeking Alpha contributor’s recent post

Herbalife management has posted several responses on Twitter to an article posted by Matt Stewart on Seeking Alpha. Stewart claims to have seen an internal Herbalife survey that was leaked to him and suggests that it may be enough for the Federal Trade Commission to move on.

The nutritional supplements company has been on the agency’s radar for some time, and the investigation has remained an overhang on Herbalife shares.

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Arrest Herbalife’s CEO?

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Stewart actually makes the bold suggestion that regulators might think now is “a good time to arrest Mr. [Herbalife CEO Michael] Johnson once and for all.” He published his February travel itinerary, which shows he’s cruising Latin America in what Stewart calls an “extravagant” way. Then he dives into the documents he says a source leaked to him.

He refers to a survey conducted by the research firm Actionable and polls former distributors. He also reminds us of something Herbalife management has said about 73% of its distributors joining to get discounts on the company’s products. However, he suggests that this statement may not be true.

The survey shows that 44% said they joined to supplement their household income, while 17% joined to get discounts on Herbalife products and 13% needed a job. He also said the survey indicates that “a very small percentage of former distributors had success building even a modest portfolio of clients,” suggesting that the majority who joined to supplement their income aren’t able to do it by selling Herbalife products.

Pyramid scheme allegation leveled at Herbalife… again

In addition, the survey indicated that 55% of distributors sold at least half their products to customers, but almost all of the rest used the products themselves or gave them to family. Also sales conversion rates tended to be lower 10%. Summing up all the results from the survey, Stewart suggests that all of the results are “entirely consistent with what one would expect from a participant in a pyramid scheme. Among the other findings of the survey, according to Stewart, are low return on time invested, “rampant” saturation evidence and “inevitable economic failure.”

Stewart has disclosed that he is short on Herbalife, siding with Bill Ackman on the company. He recently suggested that Post Holdings Chairman and CEO Bill Stiritz is unloading the company’s stock. But the opposite turned out to be true, as Herbalife’s biggest shareholder actually added to his position, according to recent regulatory documents.

Herbalife responds to Stewart’s “smoking gun”

Management at Herbalife had a four-part tweet for Stewart in an attempt to deny that his Seeking Alpha post had anything worth reporting in it. In fact, they said this survey has been published before.

As of this writing, shares of Herbalife were flat at $31 per share.

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