Herbalife Ltd. (ticker: HLF) stock sold off by more than 6 percent on Monday morning after the company lowered its second-quarter sales guidance. Investors are concerned that the Federal Trade Commission’s recently-implemented sales guidelines will have a lasting impact on Herbalife stock.
Herbalife now expects second-quarter sales to fall between 2 and 6 percent, below its previous guidance of a 1 to 5 percent decline.
The lower sales outlook comes after the company was forced to restructure its business following a $200 million settlement with the FTC in 2016. As part of the settlement, Herbalife agreed to generate at least 80 percent of its total sales from customers outside of its multi-level marketing distribution network.
[See: 7 Warning Signs Your Stock Might Be Faking its Numbers.]
Herbalife said it anticipates about 90 percent of its second-quarter sales will qualify under the FTC rules. Critics such as Pershing Square Capital CEO Bill Ackman have accused Herbalife of being a pyramid scheme. While the FTC stopped short of using the term pyramid scheme, FTC Chairwoman Edith Ramirez says Herbalife must “fundamentally restructure its business” and “start operating legitimately.”
Herbalife CEO Richard Goudis says the second-quarter projections should reassure investors that the company’s business model is not a concern. “These figures should put an end to any questions regarding demand for our nutrition products and the strength of our go-to-market business model,” he says.
Herbalife says its lower sales numbers are partly due to employees learning the company’s new sales documentation technology and procedures.
Ackman, who took a $1 billion short position in Herbalife back in 2012, says he still ultimately expects the company to go out of business. “While it appears that Herbalife negotiated away the words ‘pyramid scheme’ from the settlement agreement, the FTC’s findings are clear,” Ackman’s Pershing Square said in a statement last year.
Ackman and his famous short position and campaign against Herbalife are the subject of the documentary “Betting on Zero,” which was released in the U.S. in March.
[See: 7 of the Best Stocks to Buy for 2017.]
So far this year, Herbalife’s stock has defied Ackman and the company’s other critics. Shares are higher by more than 44 percent.
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Herbalife Lowers Sales Guidance originally appeared on usnews.com
