Shares of Herbalife Ltd. (NYSE: HLF) are trading at about 9x average daily volume today following some weak answers on the company’s conference call yesterday. The network marketer of nutrition and weight loss products took an immediate hit in after-hours trading when David Einhorn of Greenlight Capital asked why the company did not reveal the amount of the company’s products sold directly to consumers, not distributors, and why Herbalife no longer provided a breakdown of the different types of distributors is sells to.
The answers were lame and lamer and even the company’s announcement that it would re-purchase about $428 million of outstanding stock didn’t stop the slide. Another company with a similar business model, Nu Skin Enterprises Inc. (NYSE: NUS), is also taking a hit today. Nu Skin announced its own $250 million stock buyback yesterday.
The aim of Einhorn’s questions was to get Herbalife to indicate whether or not distributors were selling the products or just letting them stack up in the warehouse or garage. If they’re just stacking up, at some point the distributor will have to stop buying and that won’t be good for Herbalife.
Surely company executives must or should have this information. Without it they’re steering the ship blindfolded and it didn’t take investors long to reach a conclusion.
Herbalife shares are down about -9.5% today, at $47.68 after posting a new 52-week low of $46.50 earlier. The prior 52-week range was $47.50-$73.00. Nu Skin shares are down about -4.3% at $45.97 in a 52-week range of $33.52-$62.02.