The real surprise was with revenues: Not only did revenue growth of 7% come in below the 9% to 11% range forecast in April -- one month into the quarter -- but Herbalife trimmed revenue growth to a range of 8.5% to 10.5% from earlier guidance of 10% to 12%.
Equally surprising was the continued slowdown in two important metrics for Herbalife: Growth in volume points and sales leaders. Sales leaders are the people who sell Herbalife's products. With a multi-level marketer, any slowdown in that number can suggest either maturity and/or a more selective process in letting people sell the product; volume points are a bit more complicated. Here's how the company describes them in its 10-Q:
"A key non-financial measure we focus on is Volume Points on a Royalty Basis, or Volume Points, which is essentially our weighted average measure of product sales volume. Volume Points, which are unaffected by exchange rates or price changes, are used by management as a proxy for sales trends because in general, an increase in Volume Points in a particular geographic region or country indicates an increase in our local currency net sales while a decrease in Volume Points in a particular geographic region or country indicates a decrease in our local currency net sales.
"We assign a Volume Point value to a product when it is first introduced into a market and the value is unaffected by subsequent exchange rate and price changes. The specific number of Volume Points assigned to a product, and generally consistent across all markets, is based on a Volume Point to suggested retail price ratio for similar products. If a product is available in different quantities, the various sizes will have different Volume Point values. In general, once assigned, a Volume Point value is consistent in each region and country and does not change from year to year.