Alan Quan - Vice President, Investor Relations Michael Johnson - Chairman and CEO Richard Goudis - Chief Operating Officer John DeSimone - Chief Financial Officer.
Timothy Ramey - Pivotal Research Group LLC Michael Swartz - SunTrust Robinson Humphrey, Inc. Beth Kite - Citi.
Good afternoon, and thank you for joining the First Quarter 2017 Earnings Conference Call for Herbalife Limited. On the call today is Michael Johnson, the company's Chairman and CEO; Richard Goudis, the company's COO; John DeSimone, the company's CFO; and Alan Quan, the company's Vice President, Investor Relations.
I would now like to turn the call over to Alan Quan to read the company's Safe Harbor language..
Before we begin, as a reminder, during this conference call, comments may be made that include some forward-looking statements. These statements involve risk and uncertainty. And as you know, actual results may differ materially from those discussed or anticipated.
We encourage you to refer to today's earnings release, and our SEC filings for a complete discussion of risks associated with these forward-looking statements in our business.
We do not undertake any obligation to update or release any revisions to any forward-looking statement, or to report any future events or circumstances, or to reflect the occurrence of unanticipated events except as required by law.
In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with U.S. Generally Accepted Accounting Principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures.
We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release.
Please refer to the Investor Relations section of our website, herbalife.com, to find our press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volumes during this conference call, they are referring to volume points.
I'll now turn the call over to our Chairman and CEO, Michael Johnson..
Goo afternoon everyone thank you for joining our first quarter 2017 earnings call. We started the year with better than expected financial performance on both the top and bottom line. While we are pleased with our results this quarter, we remain cautiously optimistic with our outlook for the full year.
In the second quarter we have to overcome difficult comparisons for last year in the US, along with that go live of our agreement with the FTC. We need to continue to nurture growth back into our China business. While we work through these opportunities our new guidance reflects more favorable movement of the U.S.
dollar and therefore, we have raised our outlook for the full year. In the first quarter of 2017, volume points increased 1% worldwide compared to last year. Total net sales for the quarter were $1.1 billion, a 2% decrease compared to the prior-year period but on a constant-currency basis, net sales were flat compared to the first quarter 2016.
Our higher-than-expected volume performance this quarter was primarily driven by a 17% volume growth for China. This was a result of our members buying significantly more products in March ahead of our planned price increase on April 1.
On the one hand, this confirms the strong customer demand for our nutrition product, however, the consequences that our second quarter in China volume will likely be impacted by this activity. Nevertheless, our long-term full-year outlook for the market remains positive and this is reflected in our guidance.
Net income for the quarter was $85.2 million or $0.98 a share compared to net income of $95.8 million or $1.12 per share for the first quarter 2016. As we disclosed in our press release today, adjusted earnings for the first quarter was $1.24 per share compared to $1.35 per share for the first quarter of 2016.
Reported in adjusted EPS both beat the high end of our guidance by $0.28 and $0.29, respectively, and each reflecting higher than expected sales in China. While we make necessary investments for future, we are also maintaining our control on costs and continuing our commitment towards enhancing shareholder value under our new share buyback program.
We repurchased 2.1 million shares at the end of April for a total of $119 million. Since 2007, we have repurchased over $3.2 billion in stock and we have approximately $1.38 billion remaining under the new program. John DeSimone will go into more detail on this in our financials later in the call.
In a moment, our incoming CEO, Rich Goudis will talk about the progress we are making in the U.S. to meet the requirements of our agreement with the FTC. Rich and many of our executives and senior distributor leaders in the U.S.
have been working tirelessly to ensure a smooth transition using new technologies and business tools, along with incorporating new rules and processes as we distinguish preferred members and distributors and track end-user purchases. It's hard to believe that this is my last call with you as CEO of Herbalife.
I've had the honor of leading our company on these calls since we went public in December 2004, sharing quarterly and annual highlights. In that time, we've experienced tremendous growth. From just over $1 billion in 2003 to nearly $5 billion in 2016 in net sales, an increase of more than 5 times in our market cap during that period.
From listening to these quarterly updates, you should recognize by now my passion for Herbalife and our mission grows stronger every year. I'm proud to be one of Herbalife's largest individual shareholders, a reflection of my confidence in my current and long-term positive outlook for this amazing company.
Earlier this week, I had the pleasure of attending the annual Milton Institute Global Conference here in L.A. where I joined two panel discussions on health and global talent.
The event provided a forum to talk about the future of nutrition and the economic opportunity we offer with the amazing leaders in the field of public health, both of the private and public sectors.
And my new role as Executive Chairman, my goal would be to do more outreach to government, universities and policymakers to help usher in solutions to the growing man-made issues affecting consumer health around the world.
I'm more convinced today that we are uniquely positioned to be a solution to many of the world's problems but specifically, the skyrocketing healthcare costs. We offer personalized nutrition programs that blend our science-based products with a voice and high touch and informed distributor, offering personal coaching community and social support.
We believe these differentiating attributes of our business are a competitive advantage not found in any traditional retail or anywhere else. And now, with our advances in science and technology and smart data from transacting directly with end consumers, we can assist our distributors in maximizing the economic value of their customers.
Additionally, with the rise in entrepreneurship in the big economy where people choose to work for themselves, we are uniquely positioned to appeal to all generations we'll be millennial pursuing flexible work and a sense of purpose, and increasingly, retirees looking to supplement their retirement savings.
Herbalife offers a business opportunity where our distributors can earn extra income while working to their own schedule and in the nutrition and wellness industry we see growing. And folks need that opportunity. I read recently that the average 40 to 55 year old in the U.S. has only $14,500 in their retirement account and 43 million people in the U.S.
are receiving food stamps, up from 17 million in 2000. I've often described Herbalife as a company of stories, thousands of stories that we have heard over the past 14 years have helped to inspire and motivate us to several business cycles in unprecedented business challenges. One such story is from Robert, who lives in Rhode Island.
He spent his life working in factories and retired at 63 years of age at a pension of $91 a month. In his letter to me, Robert told me how we started as a customer of Herbalife benefiting from the daily shake and a sense of community of this local nutrition club.
He was inspired by the club's owner and under her guidance Robert became a distributor and went on to build his own base of customers. Through Herbalife, like so many customers, Robert improved his own health and then, like many other distributors, he found purpose and saw the opportunity in helping others in his community do the same.
Through his experience, he's gained new skills in business, marketing, nutrition and he is earning extra income that supplements his pension. It's the mark of a successful career is a favorable impact you make on the life of others, I couldn't be more fulfilled knowing that the lives of so many have been improved because of our mission for nutrition.
This coming June, just a few weeks from now, Rich Goudis, my colleague for 13 years, will become our Chief Executive Officer.
I'm excited for you to experience his passion for our nutrition purpose, his vision for our product and technology innovation and his focus on assisting our distributors and employees to training as we strive to improve nutrition in the world. Rich, congratulations, my friend. It's over to you..
Thank you, Michael, and good afternoon, everyone. It's hard to believe this is Michael's last earnings call as CEO. Michael's passion for our mission has driven incredible growth for a company over the past 14 years.
And today, more importantly, the Herbalife Nutrition brand is recognized worldwide for its nutrition products and personalized approach to supporting customers with their nutrition goals. Ever since we announced the change in leadership last November, Michael and I have been working closely together to ensure a smooth and seamless transition.
Given our 13-year working relationship, it should come as no surprise that we have been joined at the hip during this critical period. I'm grateful for his encouragement, wisdom and friendship and I look forward to his continued partnership and our new roles to enhance shareholder value.
As Executive Chairman, Michael will continue to provide us with his invaluable counsel and advice, his inspiration for our distributors along with his experience leading the Board.
For the past 9 months, many of our executives, along with the entire North American management team and distributor leaders have focused on implementing new technologies along with new rules and procedures that will ultimately enhance distributor earnings under the FTC agreement here in the U.S.
One of the exciting areas of advancement and one that we believe will create significant competitive advantage for us in the future is the way we are now capturing distributor and customer transactions and tracking product sales using newly developed technology tools.
In close collaboration with our distributors, we have built and continued to enhance of these tools that we believe will allow us to leverage data, analytics and build an even stronger customer relationships and design better retention programs for our distributors. As our technology and tools have continued to improve in the U.S.
during 2017, our distributors around the world have expressed their desire for us to provide them with the same type of functionality in the coming years. Our U.S. distributors have dedicated a significant amount of time and effort to help develop and implement these new tools into their business practices.
As a result of this shift in focus, and as we communicated, we expect that a small short-term impact in the U.S. In line with this expectation, our first quarter volume points in the U.S. were down 5%. We believe the impact of this transition in the U.S.
business is similar to that of the worldwide marketing plan changes that we implemented back in 2014 and 2015. As a reminder, after our worldwide distributors effectively cycle through those new changes, we experience a return to volume growth for the company. As was the case back then, we expect the same to happen here in the U.S.
We continue to make significant progress with the segmentation requirement of the agreement. We began segmenting our existing U.S. members into preferred customers and distributors in October, and today, the total number of preferred customers is approximately 360,000 people.
In addition, since January 13, when segmentation became available, at sign-up from the U.S. members, 80% of our new members are signing up as preferred members and more than 60 percent of all those placing orders in the first quarter were preferred members.
As we have maintained, this data continues to validate our previous research and studies that the majority of our members are comprised of customers who desire to consume Herbalife Nutrition products at a discount and not to resell the products or create a sales organization.
On our last earnings call, we talked about our focus on increasing distributalization of our new point of sale receiving tools that enable electronic tracking and verification sales to customers. In January, we processed approximately 120,000 retailer seats.
In February, approximately 1 million, and last month, in April, approximately 2.2 million retail receipts. In just 3 months, we've seen a tremendous increase in receipts being turned in and processed.
This is a significant accomplishment and it's a great testament to the robust technology infrastructure we have built, our talented global IT team of over 1,100 employees but, above all, the incredible time and effort our distributor leaders have put into making these tools to productivity advantages to their business.
Let me now provide you with an update on how we're tracking to the 80% threshold. As a reminder, the 80% is simply a threshold that determines how much additional compensation will be allowed to pay on top of the existing rewards for document sales.
While this is not a measure of compliance, we believe we are on track to meet the 80% threshold, and I'm pleased to report that, at the end of April, our calculations show we are in excess of 70%. To be clear, as we go live here in May, the 80% threshold is not a monthly measurement but rather a calendar year measurement.
Perhaps the most significant advancement to our business, which was developed through the implementation of the agreement, is that by tracking sales for our products to end-users we're getting direct transaction level visibility and insight into our customer base that we've never had before.
The segmentation of our member base is allowing us to develop communication and marketing materials that speak directly to customers and thus provides us with the ability to enhance and lengthen their experience with our company.
We now have access to valuable data such as consumer pricing, seasonal buying preferences, product selection and bundling by psychographic category, new product launch metrics, consumer contact information and patterns of usage across different geographic groups.
We believe this smart data will also help us empower our distributors to better meet their customers' needs thus increasing customer loyalty, purchase frequency and lifetime value.
We believe that the person-to-person connection relationship, nutrition education and coaching come along with the creation of the social community with our customers sets us apart from traditional retail.
And now with a new smart data rolling in for millions of retail, sales transactions each month just here in the U.S., we have an opportunity to see personalized nutrition to a whole new level. Michael said to me recently, "Rich, you're taking over CEO in an amazing time for our company", and he's absolutely right for several reasons.
The megatrends of obesity, aging populations, skyrocketing public healthcare cost and a rise in entrepreneurship provide us with an exceptional platform for growth. Over the last 14 years, we have invested in an infrastructure that we believe has not only created a barrier to entry but a competitive advantage.
Having direct access to consumer purchasing data will play a powerful role in our future growth and now like never before, we are in an enviable position. Our company has never worked so closely with and gained such trust and confidence from its distributor leaders.
Our unity, collaboration and shared purpose to make the world healthier and happier will be our true competitive advantage for years to come. I firmly believe that thanks to our increasing investment in education, training and innovation, the opportunity is greater today than ever before for someone just joining the company.
During my 6 years as CFO, I had the responsibility to instill in this company a fiscally prudent culture and disciplined to capital allocation that has only been enhanced with John's leadership these past 7 years.
Since becoming COO, I've had the opportunity to build and lead a team of tremendous professionals as we implemented our C2C program, rolled out a robust single instance Oracle technology platform and created global shared services.
Together, team Herbalife has created a strong balance sheet in an ROI driven culture along with a scalable infrastructure to support future growth, providing our distributors with pride and confidence in our products and our company, while establishing ourselves as a leader in the nutrition industry.
I'm thankful for the positive words of support and encouragement from our top investors and I'm grateful for the opportunity to lead this amazing company to the future. Let me now turn it over to John for a financial overview of the past quarter and a review of guidance for the balance of 2017..
Thank you, Rich. Today I'll start by discussing the company's first quarter 2017 reported and adjusted results, which will include key market highlights. I will then review our second quarter and full-year 2017 guidance and we'll conclude by providing an update on our share repurchase program.
Volume points for the first quarter 2017 grew 1% compared to the first quarter of 2016, while reported net sales in the first quarter decreased 2% to $1.1 billion. Constant currency net sales were flat compared to the first quarter in 2016.
Volume and sales performance in the quarter exceeded our Q1 guidance, largely driven by higher-than-anticipated volume in China during the month of March.
As stated in our press release, China significantly exceeded expectations, primarily due to the timing differences in sales and volume, which resulted from a price increase announced in March 2017, effective April 1, 2017, that we believe shifted member purchases into the first quarter that would likely have been made in the second quarter of this year.
The expected negative impact to the second quarter sales in volume is included in our current guidance. I will provide additional guidance detail later in the call. Reported net income for the quarter was $85.2 million or $0.98 per diluted share compared to the reported net income of $95.8 million or $1.12 per diluted share for the first quarter 2016.
Adjusted diluted EPS for the first quarter was $1.24 per diluted share compared to $1.35 per diluted share for the first quarter 2016. Reported and adjusted EPS both exceeded the high end of our first quarter guidance by $0.28 and $0.29, respectively. This feat was driven by approximately $0.18 from better-than-expected performance in China.
The adjusted EPS figures, exclude items we consider to be outside of normal company operations while we believe that will be used useful to investors when analyzing period-over-period comparisons of our results. Please refer to our first quarter 2017 earnings press release for additional details on these adjustments.
Currency, while improving over the past couple of months, continues to be a headwind in the year-over-year comparisons. First quarter 2017 reported an adjusted net income while negatively impacted by $9 million or $0.10 for the reported and adjusted diluted EPS due to currency fluctuations.
Reported gross margins for the first quarter of 81.4%, increased by approximately 40 basis points compared to the prior-year period.
This increase was driven primarily from the impact of cost-savings through strategic sourcing and self-manufacturing and retail price increases partially offset by the unfavorable impact of foreign currency fluctuations. First quarter 2017 reported an adjusted SG&A as a percentage of net sales with 39.8% and 38.8%, respectively.
Excluding China member payments, adjusted SG&A as a percentage of net sales was 28.7%, approximately 80 basis points higher than the first quarter 2016.
Our first quarter reported effective tax rate was 25% while our adjusted effective tax rate was 22.9%, which were approximately 820 and 730 basis points lower than our reported and adjusted tax rates, respectively, for the first quarter of 2016.
Included in the reported and adjusted tax rate for the quarter is approximately $4.3 million from the excess tax benefit on share-based compensation. This relates to the adoption of the updated stock compensation accounting standard, ASU number 2017-09.
This new accounting standard changed the treatment of any tax benefit the company receives from the exercise of equity grants that is different than the intrinsic value at the date of the grant.
Such differences in the past were booked directly to equity, but during the first quarter and going forward, such differences are and will continue to be included in the P&L. Shifting over to our regional market highlights. First quarter volume points for the U.S. were down 5% compared to the prior year quarter.
This was in line with our expectations and, as we previously stated, the short-term volume softness as a result of our distributors focus on preparation for the FTC implementation, which has taken away time from normal sales and business building activity.
Throughout this transition, as Rich highlighted, our distributors continue to adapt and educate their organizations to these new tools and procedures and continue to demonstrate high levels of engagement.
Looking to the second quarter, the comparisons get much more challenging as the second quarter of last year was the largest volume quarter in the history of the U.S., with April of 2016 being the largest single volume month in U.S. history. Moving on to China, first quarter volume points increased 17% compared to the previous year.
As stated previously, this was primarily driven by volume in the month of March, which was pull forward ahead of our 5% price increase effective April 1. We estimated that this impact to be approximately 40 million to 45 million volume points, which will lead to a lower than previously planned second quarter for China.
Excluding this estimated impact, the year-over-year change in China's first quarter volume trend would have been in line with both the Q4 trend and our expectations for the quarter. Asia-Pacific region showed positive year-over-year volume growth for the fourth consecutive quarter.
Volume points for the region grew 5% percent compared to the first quarter in 2016 with notable performance from India, Indonesia and Vietnam. Volume points for South Korea were down 31% and in line with our expectations for the quarter and similar to the fourth quarter of 2016 trend.
Volume points for Asia Pacific, excluding South Korea, increased by 13% compared to the prior-year period. Mexico volume points increased 4% year-over-year, representing the sixth straight quarter of volume growth. First quarter volume points EMEA grew 5% compared to the first quarter of 2016 with growth in 6 of the top 10 markets.
Lastly, volume points were soft in Central America, decreased by 14% compared to the fourth quarter of 2016 with Brazil having a quarterly decline of 13% year-over-year, in line with the forecast of the market. Looking at the guidance for the second quarter of 2017, we estimate volume points in a range of a decline of 5% to a decline of 1%.
Volume point guidance for the second quarter is significantly impacted by the China pull forward of volume into the first quarter that I discussed earlier. For the full year 2017, the volume point guidance remained unchanged, and growth of 2% to 5%.
Net sales guidance ranges for the second quarter and full-year 2017 are estimated between a decline of 4.5% to a decline of 0.5% and between a growth of 3% to 6%, respectively. On a constant-currency basis, we estimate second quarter and full-year 2017 net sales to be in the range of a decline of 4% to flat and growth of 3.6% to 6.6% respectively.
For EPS, excluding the potential impact of any future share repurchase, second quarter with fully reported diluted EPS is estimated in the range of $0.65 to $0.85 and adjusted diluted EPS guidance in the range of $0.85 to $1.05.
Second quarter adjusted EPS guidance includes a projected currency headwind of approximately $0.03 per diluted share versus the second quarter 2016. The company has raised its full-year reported diluted and adjusted diluted EPS guidance to a range of $3.25 to $3.65 into a range of $4.05 to $4.45, respectively.
Full-year 2017 currency headwinds are now projected to be $0.20 compared to 2016, which is $0.30 less than the headwinds included in the guidance the company provided a quarter ago.
Capital expenditures for the second quarter is expected to be within the range of $40 million to $50 million and for the full year, remain unchanged to $125 million to $155 million. Second quarter effective tax rate guidance is 29% to 31% on a reported basis and 26% to 28% on an adjusted basis.
Our full-year 2017 effective and adjusted tax rate guidance has been updated to ranges of 27.5% to 29.5% and 25% to 27%, respectively. Lastly, in regards to cash and our share repurchase activity.
At the end of the quarter, we have $1.8 billion in cash, which was largely comprised of the proceeds from our recent $1.3 billion term note that we discussed on our last quarter's earnings call.
And through the end of April, the company has purchased a total of 2.1 million of Herbalife's common shares at an aggregate cost of approximately $119 million or an average cost of $57.7 per share. The shares were repurchased in the open market, mostly utilizing a 10b5-1 plan.
As of April 28, 2017, the remaining authorized capacity under the company's $1.5 billion of share repurchase program was $1.38 billion. I will now turn the call back over to Michael before taking questions..
Thanks, John. Before we all open the call for Q&A, I wanted to convey some closing comments.
We've had an amazing success over the past 14 years thanks to our incredible and passionate distributors who are amazing entrepreneurs and continue to pioneer new ways to reach customers and a special thanks to our 8,000 employees who ensure we deliver quality products catering to our distributors and customers' needs.
We are deeply grateful for the dedication and hard work and the relentless passion they bring each day to make Herbalife the premier nutrition Company the world. We have stood together through every twist and turn in our journey and throughout it all, we've built Herbalife bigger, better and stronger.
I'm extremely proud of what we've done together and I can't wait to see what the future holds for our Herbalife. Thank you. And now, operator, we can open the call for questions..
[Operator Instructions] Our first question comes from the line of Tim Ramey with Pivotal Research group..
Thanks so much and congratulations and again thanks Michael for tremendous leadership. I wanted to get into a couple of questions on share repurchase, glad to see you did some which was more modest than I thought you could have done at a pace of kind of 60 million a month.
Is there a rationale why the pace is perhaps more measuring than we would've thought?.
Well, as we said on the call Tim, most of the buyback was done through 10b5. There were certain parameters in the 10b5 that could create acceleration or deceleration of a certain amount. Stock, obviously, moved up during the quarter and that certainly had an impact on the quantity that we were buying.
So once you get in a quiet period, you kind of lose control, you set up a 10b5 based on the circumstances as you see them before the window closes, the window closed pretty quickly after earnings last time because year-end earnings is pretty late in the cycle. I want to say we might have had 20 calendar days, it's that long before we set the 10b5 in.
And so once we put the 10B5 in, you live with it. So that's probably why it was a little bit lower than what you were thinking..
Okay, but the window reopens and you can adjust the parameters presumably in a couple of days?.
Correct..
Okay. The ASU 2016-09, I think if I'm not mistaken there's a corresponding impact on shares, I was just trying to think through with the EPS impact was in implementation there.
Can you discuss that at all?.
Yes, first of all, I don't think it should, but it does impact share base. Basically, when you use the treasury stock method for determining diluted shares, in the past, you get tax benefit that created an assumption that you have cash then you assume you would use that cash to buy back stock, which in our case we would.
Because the - there is no economics change in this, just the new pronouncement requires that you can a longer get that benefit in our assumptions for us that was 0.5 million shares in share-based, to be a little more direct..
Okay, and I had kind of postulated and I don't know your comments so far would clear it out, but I wondered if kind of the extreme engagement that you had with distributors over the last couple of quarters, actually sort of reenergized troops a bit as opposed to the example, Rich cited of the comp plan changes in 2014 where the negative effect was more pronounced.
They might be asking you to just pontificate, but do you think that was true to any degree?.
Tim, this is Des.
Look experiences taught us that our distributors respond extremely well to challenges and adversity that's always been the pattern over the last 37 years, and will continue to be so certainly the degree of involvement of partnership, the calls, the meetings that has certainly been a factor in what we're seeing but, look, the reality is that we're facing a very difficult comp in the second quarter.
Obviously, second quarter 2016, the highest volume quarter in the U.S. in Herbalife's history, April was the largest single month in the U.S. So obviously if you go through it in the second quarter, confident about the FTC implementations that just recognized the rate of the comp that we're going into..
Got it, and just one more while I got you the forecasted ETR for the full year, does that assume any future benefits from - I think you said it didn't assume future benefits from the ASU 1 6?.
Yes, it does not. We don't do a projection on equity exercises. Those are decisions made by employees. And so - and by the way, it could be positive or negative, right? In our case, I'd agree it to be positive.
Basically, it's any difference between the intrinsic value at grant date and the true value at exercise date goes to the P&L so in our case that would be a benefit given the likelihood of stock exercises but we do not project it..
Okay, got it. Thanks so much..
And your next question comes from the line of Mike Swartz with SunTrust..
Hi, good evening guys.
I apologize if you've already gone through this, been hopping between calls, but the - in the China business it sounds like, John, what you said was essentially the underlying trend in volume points was similar to the fourth quarter, if I do the quick math it looks like it was down about 10 if we exclude the shift due to the pricing action.
So maybe you can give us just a sense of kind of what's going on in the business there and maybe how to think about that as we move through the year?.
Yes, Mike hi. This is Des. So listen basically we've engaged a lot of focus on China. We've got a whole team focused on this. We've had some of our international people relocate are working with the local team there because, again, the fundamental challenge that we reflected and the past were still there but we are very actively engaged on that.
The confidence that we take from what happened, obviously, with this pull forward because of the price increase if it's an indication of a significant engagement of our sales force in China and the strong consumer demand for our products.
So both of those are very positive and then in terms of the trends, in terms of focus on clubs, on best practices, on reengaging with our customers, on using social media as a supplement rather than a way for doing business, all those initiatives are still in place and will continue..
If I could just build on that, just because, if you choose any quarter, we've got a couple things going on that's going to make it challenging from a comp standpoint. One is, in China, we have a lot of our members pulled a lot of volume into Q1, which will certainly hurt the comp in Q2.
And then U.S., as Des said, Q2 last year was the record high for the business and April with the record month.
And so we've got to comp that and at the same time we are going live with the tools for the FTC agreement and the nuance between ending in April without the requirement, even though we're using them and starting without the requirement to use them. So we do think Q2 is the bottom for both of those markets, but Q2 is a difficult comparable..
Okay, that's helpful.
And then maybe just an update on the Tasly JV partnership that you announced, I believe it was last quarter, where we stand today and just maybe timing of - I know you guys are coming up with some new products, so timing of when maybe you start to roll that out?.
I'll start with your second part first. So what we said in the last call, we're still consistent with what we are today, which is it's much more of a next year benefit. The Tasly joint venture, as we announced, it was a letter of intent, I think. It's not yet done, it's close, we are working diligently to get it done.
And when it's done, we'll have a say..
Okay. That's it, thanks..
Your next question comes from the line of Beth Kite with Citi..
Terrific, hello everyone. I had one question still on China before moving to a couple of other markets.
I just wanted to understand so the price changes that went into effect during April, does that present risks and so much as the market is already going through a little bit of turmoil in general, what was logic behind that? And are you concerned that the higher prices pose a greater challenge?.
We don't, Beth. The last price increase which took in China was in 2011 on a worldwide basis, our general philosophy is price increases on a regular basis, at or below the rate of inflation. We see significant strength in terms of our underlying business in China.
And so frankly, the 5% price increase really just takes into account what has happened in recent years in terms of inflation and so on.
We've got a high group of highly engaged leaders there, I think that was evidenced in what we saw in March in terms of that, the impact of that price increase and then reaching out to current and former customers and so they know what to focus on going forward..
Got it. Fair enough. For the EMEA region, where the locally currency sales were 6%. The couple of countries you cited in the queue were down slightly below that.
Could you help us understand some of the countries in there that were stronger?.
Are you looking for - sorry, I didn't understand the question, total sales reps, average active can you just....
I'm sorry, I'm thinking about local currency sales growth and just the driver in EMEA just to sort of think about that for the rest of the year, which countries since Russia was 4% and Italy 4% and Spain 4%.
What were some other ones that prep stronger as you comp some tougher local currency sales growth the next couple of quarters?.
Yes, listen, Beth. What's driving growth in EMEA is the continued adoption - successful adoption of the marketing plan changes that we put in place a couple of years ago, to focus on daily consumption.
So markets like Italy, that have always been solidly based as they continue to lead that trend, we're also seeing some other Western European markets, we're pleased with what's happening in Germany that has been flat for so many years, return to growth.
So basically, just continuation of the same strategies that you're going to see just continue to evolve..
Okay, great. And then I think, keep walking around the road for 2 more countries specifically. Brazil, what - it feels like you have such a good fix on what you want to go about changing in China.
Where are you in your decision-making or plans to execute to potentially reaccelerate growth in Brazil?.
So look, we have a lot of things happening in Brazil, Beth, but the reality in Brazil, unfortunately, is that it's a very different economic and geopolitical situation to China. Obviously, a lot of distractions there the majority of our business in Brazil is done with credit cards because most orders are placed online.
I think you may know in Brazil, you're facing interest credit card interest of 30% a month. So the amount of cash that's available in the market both for our distributors and for consumers is just greatly restricted simply because of the economic environment.
And although we continue to see our high levels of distributor engagement and lots of activity, lots of initiative, the reality is that you've got to just a very tough environment to do business in there. And frankly, that's likely to continue for the rest of this year..
Okay, great. And then even in U.S., you did some great data points in terms of preferred members and receding and the like.
Do you have a sense across your nutrition clubs here in the U.S., how many nutrition club owners are kind of like ready to go in terms of - do you still have to reach x percent to really teach them the new tools and train them per se?.
So Beth, this is Rich. I think that if you look at the receipt information we give you and have on over 2.2 million receipts last month was encouraging to us and it tells us and a lot of those of were Nutrition Clubs receipts tells us that this continues to have upside as far as engagement. And as you know, April was not to go live month.
We expect more receipts in the month of May when it actually will affect how we compensate our distributors. So like anything, like that telephone game we played back in kindergarten, it's going to take time. We have a war room, our distributors are active.
This is job 1 for everybody right now in the month of May to make sure that we can get as higher receding percentage as possible and our clubs will lead the way..
Great. Okay, thank you. And then one last question for John on guidance.
So I think that basically for the incremental $0.40, it sounds like a large part of that is FX, maybe some of the tax changes, specially seeing that great benefit hit in the first quarter, were there any sort of offsets, anything turn more negative or was everything kind of just more incremental and positive?.
I'll try to roll it forward, right, so it's $0.40 on the high end and the low end. We beat the high-end by $0.29 in Q1, $0.18 of that is timing from China so you've really got $0.11 in Q1, we took the year by $0.40 and an incremental $0.29, $0.26 if it's currency.
So the rest of the $0.03 is tax rate, a lot of which was already booked in Q1 because of the excess tax benefit on comp plans --. So the $0.03 is made up by a handful of things that go each way, but nothing material that's a negative offset..
Alright. Thank you so much..
We have no further questions in queue at this time..
Let me do a quick closing here and it's going to be probably slightly emotional for me because I think you all know it's been an honor for me to lead this incredible company over the past 14 years. For those who have been shareholders with us a long time, you've seen us evolve as a company from 50 to 94 countries.
We're 5 times greater in the increase of our market cap, but above all, we're closer and more engaged relation - we have a closer and more engaged relationship with our distributor leaders, our employee team and a few for our investors.
And with all of our investment in infrastructure and all the different things that we're doing, we're incredibly well-positioned for the future.
This is a great future ahead for us and I look forward to be engaged and part of it to help build our company stronger and better and as a shareholder, my interest, I think you know are aligned with all of yours.
As Vice Chair of this company going forward, I'm curious in helping our company continue on a journey to be a positive and impactful member of the community, where we live and work. It's my next chapter in my Herbalife.
So many thanks to you for your support and enthusiasm over the years and for the shared confidence we all have for incoming CEO, Rich Goudis. That confidence is extremely high across the breadth of this company and with our distributors. And to our distributors, we just mentioned our customers and employees, a heartfelt thank you.
And as I say to our team, onward and upward. And on behalf of Rich and the team, we look forward to being with you next quarter. Thank you..
Thank you for your participation. This does conclude today's conference call and you may now disconnect..