HERBALIFE LTD

Previous wording

Global inflationary pressures and other macroeconomic factors such as foreign exchange rate fluctuations and geopolitical conflicts can impact our financial condition, results of operations and liquidity. For example, inflationary pressure impacts both our cost structures and our pricing. During the first half of 2024, we instituted pricing actions in certain markets to address region or market-specific conditions. We also instituted localized price increases in 2023. These actions are discussed further in the Sales by Geographic Region discussion further below. We continue to examine our cost structure and assess additional potential incremental pricing actions in response to ongoing inflationary pressures.

Current wording

Global inflationary pressures and other macroeconomic factors such as foreign exchange rate fluctuations and geopolitical conflicts can impact our financial condition, results of operations and liquidity. For example, inflationary pressure impacts both our cost structures and our pricing. During the nine months ended September 30, 2024, we instituted pricing actions in certain markets to address region or market-specific conditions. We also instituted localized price increases in 2023. These actions are discussed further in the Sales by Geographic Region discussion further below. We continue to examine our cost structure and assess additional potential incremental pricing actions in response to ongoing inflationary pressures.

Previous wording

The war in Ukraine has also impacted our results there as well as in Russia and certain neighboring markets; we do not have any manufacturing operations in Russia and Ukraine and our combined total assets in Russia and Ukraine, which primarily consists of short-term assets, was less than 1% of our consolidated total assets as of June 30, 2024.

Current wording

The war in Ukraine has also impacted our results there as well as in Russia and certain neighboring markets; we do not have any manufacturing operations in Russia and Ukraine and our combined total assets in Russia and Ukraine, which primarily consists of short-term assets, was approximately 1% of our consolidated total assets as of September 30, 2024.

Previous wording

The specific number of Volume Points assigned to a product, which is 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 historically has been consistent in each region and country and has not changed from year to year. For strategic reasons and to increase our Members’ ability to promote the business opportunity and stimulate volume growth, as described further below in the Latin America section of the Sales by Geographic Region, certain Volume Point values were adjusted during the second quarter of 2024 for most markets within the Latin America region, excluding Mexico. We use Volume Points for Member qualification and recognition purposes, as well as a proxy for sales trends, and therefore, generally, we have historically kept Volume Points for a similar or like product consistent on a global basis. However, because Volume Points are a function of value rather than product type or size, they are not a reliable measure for product mix. As an example, an increase in Volume Points in a specific country or region could mean a significant increase in sales of less expensive products or a marginal increase in sales of more expensive products.

Current wording

The specific number of Volume Points assigned to a product, which is 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 historically has been consistent in each region and country and has not changed from year to year. For strategic reasons and to respond to market conditions, we may from time to time adjust Volume Point values in particular markets or regions. For example, as described further below in the Latin America section of the Sales by Geographic Region, certain Volume Point values were adjusted during the second quarter of 2024 for most markets within the Latin America region, excluding Mexico. We use Volume Points for Member qualification and recognition purposes, as well as a proxy for sales trends, and therefore, generally, we have historically kept Volume Points for a similar or like product consistent on a global basis. However, because Volume Points are a function of value rather than product type or size, they are not a reliable measure for product mix. As an example, an increase in Volume Points in a specific country or region could mean a significant increase in sales of less expensive products or a marginal increase in sales of more expensive products.

Previous wording

Excluding Volume Point adjustments made during the second quarter of 2024 for most products in Latin America markets, excluding Mexico, the percent change for the three and six months ended June 30, 2024 would have been a decrease of 3.5% and 4.8%, respectively.

Current wording

Excluding Volume Point adjustments made during the second quarter of 2024 for most products in Latin America markets, excluding Mexico, the percent change for the three and nine months ended September 30, 2024 would have been a decrease of 0.4% and 3.4%, respectively.

Previous wording

Excluding Volume Point adjustments made during the second quarter of 2024 for most products in Latin America markets, excluding Mexico, the percent change for the three and six months ended June 30, 2024 would have been a decrease of 6.2% and 5.0%, respectively.

Current wording

Excluding Volume Point adjustments made during the second quarter of 2024 for most products in Latin America markets, excluding Mexico, the percent change for the three and nine months ended September 30, 2024 would have been a decrease of 5.8% and 5.2%, respectively.

Previous wording

Volume Points decreased 6.0% and 4.8% for the three and six months ended June 30, 2024, respectively, after having decreased 12.6% and 13.5%, respectively, for the same periods in 2023. Excluding the impact of the adjustments made in the second quarter of 2024, Volume Points decreased 6.2% and 5.0% for the three and six months ended June 30, 2024, respectively.

Current wording

Volume Points decreased 5.4% and 5.0% for the three and nine months ended September 30, 2024, respectively, after having decreased 5.6% and 11.0%, respectively, for the same periods in 2023. Excluding the adjustments made during the second quarter of 2024, Volume Points decreased 5.8% and 5.2% for the three and nine months ended September 30, 2024, respectively.

Previous wording

North America's Volume Point decreased for the second quarter and first half of 2024 as compared to the same periods in 2023 and the decreases were less than the prior period decreases. In North America, we continue to enhance our educational, training, and motivational programs and promotions. Latin America had lesser Volume Point decreases for the second quarter and first half of 2024 as compared to the same periods in 2023. Latin America continues to have difficult economic conditions including inflationary impacts on Members’ operations, and political and social instability in certain markets; however, we have implemented certain pricing changes and marketing plan changes in most markets in the region, excluding Mexico, which we believe did positively impact many of the markets in Latin America. EMEA’s Volume Point decreased for the second quarter and first half of 2024 as compared to the same periods in 2023. We believe EMEA results were negatively impacted by inflationary pressure and other ongoing macroeconomic conditions on customer demand, as well as political and economic uncertainty across certain markets in the region. The Asia Pacific region saw a Volume Point decrease for the second quarter of 2024 versus the 2023 period but saw a Volume point increase for the first half of 2024 versus the 2023 period which was led by the continued growth in our India market, the largest market in the region. Such growth was partially offset by declines in other markets in Asia Pacific, particularly Indonesia and South Korea. China saw a Volume Point decrease for the second quarter of 2024 versus the 2023 period but saw a Volume point increase for the first half of 2024 versus the 2023 period. This trend reflects, we believe, our Members’ ability to continue to adjust their business approaches to a confluence of factors, including changes and enhancements we have made for our business and external conditions.

Current wording

North America’s Volume Point decreased for the three and nine months ended September 30, 2024 as compared to the same periods in 2023, and the decreases were less than the prior period decreases. In North America, we continue to enhance our educational, training, and motivational programs and promotions. Latin America’s Volume Point increased for the third quarter and had lesser Volume Point decreases for year to date in 2024 as compared to the same periods in 2023. Excluding the Volume Point adjustments, mentioned above, Latin America’s Volume Point remained relatively flat for the third quarter as compared to the same period in 2023. In Latin America we have implemented certain pricing changes and marketing plan changes in most markets in the region during the second quarter of 2024, excluding Mexico, which we believe did positively impact certain of the region’s markets; however, the year to date fluctuations continue to reflect the difficult economic conditions including inflationary impacts on Members’ operations, and political and social instability in certain markets. EMEA’s Volume Point decreased for the three months ended September 30, 2024 as compared to the same period in 2023 and the decreases were higher than the prior period decreases. EMEA’s Volume Point decreased for the nine months ended September 30, 2024 as compared to the same period in 2023, and the decreases were less than the prior period decreases. The Asia Pacific region Volume Point decreased for the three months ended September 30, 2024 as compared to the same period in 2023, after a slight year-over-year increase for the three months ended September 30, 2023. The Asia Pacific region was relatively flat for the nine months ended September 30, 2024 as compared to the same period in 2023, after a year-over-year decrease for the nine months ended September 30, 2023. In our India market, the largest market in the region, our growth rate for the nine months ended September 30, 2024 was less than the growth rate experienced during the same period in 2023, and we also saw a slight Volume Point decline during the three months ended September 30, 2024 as compared to same period in 2023. China’s Volume Point decreased for the three months ended September 30, 2024 as compared to the same period in 2023, and the decreases were comparable to the year-over-year decreases during the three months ended September 30, 2023. China’s Volume Point decreased for the nine months ended September 30, 2024 as compared to the same period in 2023, and the decrease was less than prior period decrease. We believe, the recent economic difficulties experienced in the region are a contributing factor in China’s recent Volume Point decreases.

Previous wording

During the first half of 2024, our regions introduced a new training and recognition program that encourages recruitment and activity of new distributors. Despite the decreases in new Members in many of our markets, we believe this new training and recognition program could have been a contributing factor to increases in our new distributors in many of our markets during the second quarter of 2024.

Current wording

During the nine months ended September 30, 2024, our regions introduced a new training and recognition program that encourages recruitment and activity of new distributors. Despite the decreases in new Members in many of our markets, we believe this new training and recognition program could have been a contributing factor to increases in our new distributors in many of our markets during the third quarter of 2024.

Previous wording

Our “other expense, net” consists of non-operating income and expenses such as gains or losses on extinguishment of debt.

Current wording

Our “other expense (income), net” consists of non-operating income and expenses such as gains or losses on extinguishment of debt.

Previous wording

Net income was $4.7 million, or $0.05 per diluted share, and $29.0 million, or $0.29 per diluted share, for the three and six months ended June 30, 2024, respectively. Net income decreased $55.2 million, or 92.2%, and $60.2 million, or 67.5%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The decrease in net income for the three months ended June 30, 2024 was mainly due to $41.8 million higher selling, general, and administrative expenses, $19.3 million higher interest expense, net, $14.4 million lower gross profit, and a $10.5 million loss on extinguishment of debt in 2024 related to the April 2024 debt refinancing transactions; partially offset by $17.6 million lower income taxes and $14.4 million lower royalty overrides. The decrease in net income for the six months ended June 30, 2024 was mainly due to $58.1 million higher selling, general, and administrative expenses, $10.1 million of other operating income in 2023 relating to government grant income for China versus none in 2024, $17.8 million higher interest expense, net, and a $10.5 million loss on extinguishment of debt related to the April 2024 debt refinancing transactions; partially offset by $15.2 million lower royalty overrides, $11.4 million higher gross profit primarily driven by price increases, and $9.7 million lower income taxes.

Current wording

Net income was $47.4 million, or $0.46 per diluted share, and $76.4 million, or $0.75 per diluted share, for the three and nine months ended September 30, 2024, respectively. Net income increased $4.6 million, or 10.7%, and decreased $55.6 million, or 42.1%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increase in net income for the three months ended September 30, 2024 was mainly due to $11.3 million lower selling, general, and administrative expenses, and $10.6 million lower royalty overrides, partially offset by $18.0 million higher interest expense, net. The decrease in net income for the nine months ended September 30, 2024 was mainly due to $46.8 million higher selling, general, and administrative expenses, $35.8 million higher interest expense, net, and a $10.5 million loss on extinguishment of debt related to the April 2024 debt refinancing transactions, partially offset by $25.8 million lower royalty overrides, and $12.9 million lower income taxes.

Previous wording

Net income for the six months ended June 30, 2024 included a $65.5 million pre-tax unfavorable impact ($45.3 million post-tax) of Restructuring Program expenses, primarily relating to employee retention and separation costs; $17.0 million pre-tax unfavorable impact ($15.0 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools; $10.5 million pre-tax unfavorable impact ($7.9 million post-tax) of loss on extinguishment of debt related to the April 2024 debt refinancing transactions, and a $9.4 million pre-tax unfavorable impact ($6.9 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs.

Current wording

Net income for the nine months ended September 30, 2024 included a $68.2 million pre-tax unfavorable impact ($53.3 million post-tax) of Restructuring Program expenses, primarily relating to employee retention and separation costs; $22.1 million pre-tax unfavorable impact ($19.6 million post-tax) of expenses relating to our new Digital Technology Program focused on enhancing and rebuilding our Member facing technology platform and web-based Member tools; $10.5 million pre-tax unfavorable impact ($8.4 million post-tax) of loss on extinguishment of debt related to the April 2024 debt refinancing transactions, a $9.4 million pre-tax unfavorable impact ($7.5 million post-tax) of Transformation Program expenses, primarily relating to employee retention and separation costs, and $4.0 million pre-tax favorable impact ($3.1 million post-tax) of gain on sale of the Company’s land, building, and related building improvements of its office building in Torrance, California (See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further discussion).

Previous wording

The Primary Reporting Segment reported net sales of $1,199.4 million and $2,388.5 million for the three and six months ended June 30, 2024, respectively, representing a decrease of $26.6 million, or 2.2%, and $21.9 million, or 0.9%, respectively, as compared to the same periods in 2023. In local currency, net sales increased 0.5% and 1.0% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The 2.2% decrease in net sales for the three months ended June 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 6.2% decrease in Volume Points, a 2.7% unfavorable impact of fluctuations in foreign currency exchange rates and a 0.5% unfavorable impact of sales mix, partially offset by a 7.0% favorable impact of prices increases. The 0.9% decrease in net sales for the six months ended June 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 5.2% decrease in Volume Points, a 1.9% unfavorable impact of fluctuations in foreign currency exchange rates and a 0.8% unfavorable impact of sales mix, partially offset by a 6.9% favorable impact of prices increases.

Current wording

The Primary Reporting Segment reported net sales of $1,165.5 million and $3,554.0 million for the three and nine months ended September 30, 2024, respectively, representing a decrease of $26.3 million, or 2.2%, and $48.2 million, or 1.3%, respectively, as compared to the same periods in 2023. In local currency, net sales increased 1.0% for both the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The 2.2% decrease in net sales for the three months ended September 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 5.0% decrease in Volume Points, and a 3.2% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 5.2% favorable impact of price increases. The 1.3% decrease in net sales for the nine months ended September 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 5.1% decrease in Volume Points, and a 2.4% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 6.2% favorable impact of prices increases.

Previous wording

For a discussion of China’s net sales for the three and six months ended June 30, 2024, see the China section of Sales by Geographic Region below.

Current wording

For a discussion of China’s net sales for the three and nine months ended September 30, 2024, see the China section of Sales by Geographic Region below.

Previous wording

The Primary Reporting Segment reported contribution margin of $513.7 million, or 42.8% of net sales, and $1,014.9 million, or 42.5% of net sales for the three and six months ended June 30, 2024, respectively, representing an increase of $6.1 million, or 1.2%, and $24.8 million, or 2.5%, respectively, as compared to the same periods in 2023. The 1.2% increase in contribution margin for the three months ended June 30, 2024 was primarily the result of an 11.6% favorable impact of price increases, partially offset by a 6.2% unfavorable impact of volume decreases, a 2.3% unfavorable impact of foreign currency fluctuations, and a 1.5% unfavorable impact of cost changes related to self-manufacturing and sourcing. The 2.5% increase in contribution margin for the six months ended June 30, 2024 was primarily the result of an 11.4% favorable impact of price increases, partially offset by a 5.2% unfavorable impact of volume decreases, a 1.9% unfavorable impact of cost changes related to self-manufacturing and sourcing, a 1.5% unfavorable impact of foreign currency fluctuations, and a 1.5% unfavorable impact of sales mix.

Current wording

The Primary Reporting Segment reported contribution margin of $502.2 million, or 43.1% of net sales, and $1,517.1 million, or 42.7% of net sales for the three and nine months ended September 30, 2024, respectively, representing an increase of $16.1 million, or 3.3%, and $40.9 million, or 2.8%, respectively, as compared to the same periods in 2023. The 3.3% increase in contribution margin for the three months ended September 30, 2024 was primarily the result of an 8.7% favorable impact of price increases and a 2.6% favorable impact of cost changes related to self-manufacturing and sourcing, partially offset by a 5.0% unfavorable impact of volume decreases as indicated by a decrease in Volume Points, and a 3.2% unfavorable impact of foreign currency fluctuations. The 2.8% increase in contribution margin for the nine months ended September 30, 2024 was primarily the result of a 10.3% favorable impact of price increases, partially offset by a 5.1% unfavorable impact of volume decreases as indicated by a decrease in Volume Points, and a 2.1% unfavorable impact of foreign currency fluctuations.

Previous wording

China reported contribution margin of $27.9 million and $54.0 million for the three and six months ended June 30, 2024, respectively, representing a decrease of $2.7 million, or 8.8%, and an increase of $2.1 million, or 4.0%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The 8.8% decrease in contribution margin for the three months ended June 30, 2024 was primarily the result of a 3.9% unfavorable impact of foreign currency fluctuations, a 2.8% unfavorable impact of sales mix, a 1.8% unfavorable impact of volume decrease as indicated by a decrease in Volume Points, partially offset by a 2.0% favorable impact of cost changes related to self-manufacturing and sourcing. The 4.0% increase in contribution margin for the six months ended June 30, 2024 was primarily the result of a 4.6% favorable impact of volume increases as indicated by an increase in Volume Points and a 2.0% favorable impact of cost changes related to self-manufacturing and sourcing, partially offset by a 4.8% unfavorable impact of foreign currency fluctuations and a 2.6% unfavorable impact of sales mix. As described in the China section of the Sales by Geographic Region below, if Volume Points were recognized consistent with the timing of when net sales are recognized in accordance with U.S. GAAP, the favorable impact of volume increases would have been 7.6%.

Current wording

China reported contribution margin of $25.6 million and $79.6 million for the three and nine months ended September 30, 2024, respectively, representing a decrease of $4.7 million, or 15.5%, and $2.6 million, or 3.2%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The 15.5% decrease in contribution margin for the three months ended September 30, 2024 was primarily the result of a 14.9% unfavorable impact of volume decreases as indicated by a decrease in Volume Points and a 3.4% unfavorable impact of sales mix, partially offset by a 3.2% favorable impact of cost changes related to self-manufacturing and sourcing. The 3.2% decrease in contribution margin for the nine months ended September 30, 2024 was primarily the result of a 2.9% unfavorable impact of foreign currency fluctuations, a 2.7% unfavorable impact of volume decreases as indicated by a decrease in Volume Points and a 2.6% unfavorable impact of sales mix. As described in the China section of the Sales by Geographic Region below, if Volume Points were recognized consistent with the timing of when net sales are recognized in accordance with U.S. GAAP, the unfavorable impact of volume decreases would have been 0.5%.

Previous wording

Management’s role, in-country and at the region and corporate level, is to provide Members with a competitive, broad, and innovative product line, offer leading-edge business tools and technology services, and encourage strong teamwork and Member leadership to make doing business with Herbalife simple. We continue to provide our Members with enhanced technology tools, which includes updated brand sites, for ordering, business performance, and customer retailing to make it easier for them to do business with us and to optimize their customers’ experiences. Management uses the Marketing Plan, which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for Members, coupled with educational and motivational programs and promotions to encourage Members to increase retailing, retention, and recruiting, which in turn affect net sales. Such programs include sales events such as Extravaganzas, Leadership Development Weekends and World Team Schools where large groups of Members network with other Members, learn retailing, retention, and recruiting techniques from our leading Members, and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs increase the productivity of the sales leader network. The expenses for such programs are included in selling, general, and administrative expenses. We also use event and non-event product promotions to motivate Members to increase retailing, retention, and recruiting activities. These promotions have prizes ranging from qualifying for events to product prizes and vacations. In a number of markets, we have segmented our Member base into “preferred members” and “distributors” for more targeted and efficient communication and promotions for these two differently motivated types of Members. In certain other markets that have not been segmented, we use Member data to similarly categorize Members for communication and promotion efforts.

Current wording

Management’s role, in-country and at the region and corporate level, is to provide Members with a competitive, broad, and innovative product line, offer leading-edge business tools and technology services, and encourage strong teamwork and Member leadership to make doing business with Herbalife simple. We continue to provide our Members with enhanced technology tools, which includes updated brand sites, for ordering, business performance, and customer retailing to make it easier for them to do business with us and to optimize their customers’ experiences. Management uses the Marketing Plan, which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for Members, coupled with educational, training, and motivational programs and promotions to encourage Members to increase retailing, retention, and recruiting, which in turn affect net sales. Such programs include sales events such as Extravaganzas, Leadership Development Weekends and World Team Schools where large groups of Members network with other Members, learn retailing, retention, and recruiting techniques from our leading Members, and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs increase the productivity of the sales leader network. The expenses for such programs are included in selling, general, and administrative expenses. We also use event and non-event product promotions to motivate Members to increase retailing, retention, and recruiting activities. These promotions have prizes ranging from qualifying for events to product prizes and vacations. In a number of markets, we have segmented our Member base into “preferred members” and “distributors” for more targeted and efficient communication and promotions for these two differently motivated types of Members. In certain other markets that have not been segmented, we use Member data to similarly categorize Members for communication and promotion efforts.

Previous wording

The factors described above help Members increase their business, which in turn helps drive Volume Point growth in our business, and thus, net sales growth. The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the three and six months ended June 30, 2024, as compared to the same periods in 2023, as well as the unique growth or contraction factors specific to certain geographic regions or significant markets within a region during these periods. Net sales fluctuations, both Company-wide and within a particular geographic region or market, are primarily the result of changes in volume, changes in prices, or changes in foreign currency translation rates. The discussion of changes in net sales quantifies the impact of those drivers that are quantifiable such as changes in foreign currency translation rates, and cites the estimated impact of any significant price changes. The remaining drivers, which management believes are the primary drivers of changes in volume, are typically qualitative factors whose impact cannot be quantified. We use Volume Points as an indication for changes in sales volume.

Current wording

The factors described above help Members increase their business, which in turn helps drive Volume Point growth in our business, and thus, net sales growth. The discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, as well as the unique growth or contraction factors specific to certain geographic regions or significant markets within a region during these periods. Net sales fluctuations, both Company-wide and within a particular geographic region or market, are primarily the result of changes in volume, changes in prices, or changes in foreign currency translation rates. The discussion of changes in net sales quantifies the impact of those drivers that are quantifiable such as changes in foreign currency translation rates, and cites the estimated impact of any significant price changes. The remaining drivers, which management believes are the primary drivers of changes in volume, are typically qualitative factors whose impact cannot be quantified. We use Volume Points as an indication for changes in sales volume.

Previous wording

Sales volumes continued to decline for the three and six months ended June 30, 2024 compared to the 2023 prior year periods. We continue to have fewer total number of new Members in the region during the three and six months ended June 30, 2024 compared to the prior year comparison periods. We are supporting Members with new product launches, a new training and recognition program, targeted communications and sales incentives, as well as modernizing our technological tools in order to enhance our Members’ ability to market and sell our products and promote business opportunities. Despite the total number of Members decreasing, we have seen increases in our new distributors during the second quarter and first half of 2024 compared to the same periods in 2023. The region implemented 3.0% price increases during March 2024. During 2023, the region implemented 3.5% price increases during March 2023 and September 2023.

Current wording

Sales volumes continued to decline for the three and nine months ended September 30, 2024 compared to the 2023 prior year periods. Despite increases in new distributors, we continue to have fewer total number of new Members in the region during the three and nine months ended September 30, 2024 compared to the prior year periods. We are supporting Members with new product launches, a new training and recognition program, targeted communications and sales incentives, as well as modernizing our technological tools in order to enhance our Members’ ability to market and sell our products and promote business opportunities. The region implemented 3.0% price increases during March 2024. During 2023, the region implemented 3.5% price increases during March 2023 and September 2023.

Previous wording

The Latin America region reported net sales of $211.7 million and $425.9 million for the three and six months ended June 30, 2024, respectively. Net sales increased $4.7 million, or 2.3%, and $13.4 million, or 3.2%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 4.7% and 3.3% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The 2.3% increase in net sales for the three months ended June 30, 2024 was due to a 8.0% favorable impact of net price increases, partially offset by a decrease in sales volume, as indicated by a 2.1% decrease in Volume Points (3.5% decrease excluding the impact of the Volume Point adjustments noted above in the Volume Points by Geographic Region section), and a 2.4% unfavorable impact of fluctuations in foreign currency exchange rates. The 3.2% increase in net sales for the six months ended June 30, 2024 was due to a 7.7% favorable impact of net price increases, partially offset by a decrease in sales volume, as indicated by a 4.0% decrease in Volume Points (4.8% decrease excluding the impact of the Volume Point adjustments noted above in the Volume Points by Geographic Region section).

Current wording

The Latin America region reported net sales of $207.1 million and $633.0 million for the three and nine months ended September 30, 2024, respectively. Net sales decreased $4.9 million, or 2.3%, and increased $8.5 million, or 1.4%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 9.4% and 5.4% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The 2.3% decrease in net sales for the three months ended September 30, 2024 was due to an 11.7% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 5.2% favorable impact of net price increases, and an increase in sales volume, as indicated by a 1.5% increase in Volume Points (0.4% decrease excluding the impact of the Volume Point adjustments noted above in the Volume Points by Geographic Region section). The 1.4% increase in net sales for the nine months ended September 30, 2024 was due to a 6.9% favorable impact of net price increases, partially offset by a 4.1% unfavorable impact of fluctuations in foreign currency exchange rates, and a decrease in sales volume, as indicated by a 2.2% decrease in Volume Points (3.4% decrease excluding the impact of the Volume Point adjustments noted above in the Volume Points by Geographic Region section). As described further above, Volume Points are generally recognized when a Member pays for an order, while net sales are generally recognized when product is delivered and when control passes to the Member or customer. If Volume Points were recognized consistent with the timing of when net sales are recognized in accordance with U.S. GAAP, sales volume for the three and nine months ended September 30, 2024 would have been an increase of 5.2% and a decrease of 0.8%, respectively (3.3% increase and 2.0% decrease excluding the impact of the Volume Point adjustments, respectively) as there was a more favorable timing difference between net sales and Volume Point recognition during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

Previous wording

Net sales in Mexico were $142.7 million and $283.6 million for the three and six months ended June 30, 2024, respectively. Net sales increased $4.2 million, or 3.0%, and $17.3 million, or 6.5%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 0.1% and 0.1% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had a favorable impact of $4.1 million and $16.9 million on net sales for the three and six months ended June 30, 2024, respectively. To a lesser extent, a volume decline was seen for the second quarter and first half of 2024 versus the prior year. Macroeconomic conditions, such as a slowdown in the economy and prolonged high interest rates, have created challenges for Members’ and Members’ Nutrition Club operations, which continue to be an important DMO in the market.

Current wording

Net sales in Mexico were $131.5 million and $415.1 million for the three and nine months ended September 30, 2024, respectively. Net sales decreased $5.8 million, or 4.2%, and increased $11.5 million, or 2.8%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 6.1% and 2.2% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had an unfavorable impact of $14.0 million and favorable impact of $2.9 million on net sales for the three and nine months ended September 30, 2024, respectively. To a lesser extent, Mexico’s Volume Point decreased for the three and nine months ended September 30, 2024, as compared to the same periods in 2023. Macroeconomic conditions, such as a slowdown in the economy and prolonged high interest rates, have created challenges for Members’ and Members’ Nutrition Club operations, which continue to be an important DMO in the market.

Previous wording

During the second half of 2023 and in the first quarter of 2024, we experienced importation delays in Mexico as a result of the government delaying timely approval of importation permits which impacted certain of our inventory supply, which we believe adversely affected our net sales through the first quarter of 2024. To minimize the risk of disruption to our Mexico market, we continue to work closely with the Mexican government and during the second quarter of 2024, we have seen improvements as importation permits were timely received. The market saw a 5.25% price increase during March 2024. During 2023, the Mexico market implemented 2% and 5% price increases during June 2023 and January 2023, respectively.

Current wording

During the second half of 2023 and in the first quarter of 2024, we experienced importation delays in Mexico as a result of the government delaying timely approval of importation permits which impacted certain of our inventory supply, which we believe adversely affected our net sales through the first quarter of 2024. To minimize the risk of disruption to our Mexico market, we continue to work closely with the Mexican government and, during the second quarter and third quarter of 2024, we have seen improvements as importation permits were timely received and are no longer experiencing any disruptions. The market saw a 5.25% price increase during March 2024. During 2023, the Mexico market implemented 2% and 5% price increases during June 2023 and January 2023, respectively.

Previous wording

Many markets across the region also saw volume declines for the six months ended June 30, 2024 versus the 2023 period. The sales volume declines in markets other than Mexico was greatest for Peru, Chile and Colombia for the six months ended June 30, 2024, compared to the same comparison period in 2023. The majority of markets in the region instituted price increases to address market-specific conditions during the first quarter of 2024. During the three months ended June 30, 2024 compared to June 30, 2023, there were increases in volume for the majority of our markets in the region. During the second quarter of 2024, most markets within the Latin America region, excluding Mexico, implemented a 5% price reduction and Volume Point adjustments to enhance the competitiveness of our product pricing, aiming to stimulate incremental growth in volume and to increase our Members’ ability to promote the business opportunity. We believe these changes may have been a contributing factor for the increases in volume for many of the markets in the region during the three months ended June 30, 2024.

Current wording

Several markets in the region experienced sales volumes increases during the three months ended September 30, 2024 as compared to the same period in 2023 and experienced lesser volume declines for the nine months ended September 30, 2024 as compared to the same period in 2023. The sales volume declines in markets other than Mexico, were greatest for Chile, Colombia, and Argentina offset by increases in sales volume in our Guatemala market, for the nine months ended September 30, 2024, compared to the same period in 2023. The majority of markets in the region instituted price increases to address market-specific conditions during the first quarter of 2024. During the second quarter of 2024, most markets within the Latin America region, excluding Mexico, implemented a 5% price reduction and Volume Point adjustments to enhance the competitiveness of our product pricing, aiming to stimulate incremental growth in volume and to increase our Members’ ability to promote the business opportunity. We believe these changes may have been a contributing factor for the increases in sales volume for certain of our markets in the region during the third quarter of 2024.

Previous wording

The EMEA region reported net sales of $287.8 million and $565.7 million for the three and six months ended June 30, 2024, respectively. Net sales decreased $1.8 million, or 0.6%, and increased $8.0 million, or 1.4%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 3.5% and 4.9% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The 0.6% decrease in net sales for the three months ended June 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 9.7% decrease in Volume Points, and a 4.1% unfavorable impact of fluctuations in foreign currency exchange rates, partially offset by a 12.7% favorable impact of price increases. The 1.4% increase in net sales for the six months ended June 30, 2024 was primarily due to a 12.6% favorable impact of price increases, partially offset by a decrease in sales volume, as indicated by a 7.4% decrease in Volume Points, and a 3.5% unfavorable impact of fluctuations in foreign currency exchange rates. The EMEA region has no single market that accounts for a significant portion of our consolidated net sales.

Current wording

The EMEA region reported net sales of $261.9 million and $827.6 million for the three and nine months ended September 30, 2024, respectively. Net sales increased $0.9 million, or 0.3%, and $8.9 million, or 1.1%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 2.2% and 4.1% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The 0.3% increase in net sales for the three months ended September 30, 2024 was primarily due to a 8.3% favorable impact of price increases, and a 4.4% favorable impact of sales mix, partially offset by a decrease in sales volume, as indicated by a 9.7% decrease in Volume Points, and a 1.8% unfavorable impact of fluctuations in foreign currency exchange rates. The 1.1% increase in net sales for the nine months ended September 30, 2024 was primarily due to a 10.5% favorable impact of price increases, and a 2.5% favorable impact of sales mix, partially offset by a decrease in sales volume, as indicated by an 8.1% decrease in Volume Points, and a 3.0% unfavorable impact of fluctuations in foreign currency exchange rates. The EMEA region has no single market that accounts for a significant portion of our consolidated net sales.

Previous wording

Volumes declined, across most EMEA markets during the three and six months ended June 30, 2024 versus the 2023 period. Economic conditions across the region, including inflation in certain markets, weakened consumer confidence, and foreign exchange rate fluctuations, as well as political uncertainty in certain markets appear to be further hindering business recovery. The volume declines across the EMEA markets during the three and six months ended June 30, 2024 versus the 2023 period were led by Spain, Türkiye, and Russia. Our Russia entity had no sales during the first half of 2024 due to the suspension of product shipments to our Russia entity where its inventory had been fully depleted as of September 30, 2023; therefore our Russia entity will not have any product sales in future periods while its inventory remains fully depleted. As a result, Russian Members purchasing products in Kazakhstan, among other neighboring markets, has led to increases in volume in Kazakhstan in previous quarters despite having decreases in volume during the three and six months ended June 30, 2024 compared to the prior year periods. During the third quarter of 2024, the Kazakhstan market is increasing its pricing that could negatively impact future sales in this market.

Current wording

Volumes declined across most EMEA markets during the three and nine months ended September 30, 2024 as compared to the same periods in 2023. Economic conditions across the region, including inflation in certain markets, weakened consumer confidence, and foreign exchange rate fluctuations, as well as political uncertainty in certain markets appear to be further hindering business recovery. The volume declines across the EMEA markets during the nine months ended September 30, 2024, as compared to the same period in 2023, were led by Türkiye, Spain and Russia, partially offset by increases in Kazakhstan. Our Russia entity had no sales during the nine months ended September 30, 2024 due to the suspension of product shipments to our Russia entity where its inventory had been fully depleted as of September 30, 2023; therefore our Russia entity will not have any product sales in future periods while its inventory remains fully depleted. As a result, Russian Members purchasing products in Kazakhstan, among other neighboring markets, has led to increases in volume in Kazakhstan. During the third quarter of 2024, the Kazakhstan market increased its pricing that could negatively impact future sales in this market.

Previous wording

Focus areas for Herbalife and our Members in the region include promotions and events, launching new products, enhancing both online and in person training programs and meetings to help Distributors improve their business, supporting Nutrition clubs and other DMOs, and other promotional activities in order to grow our sales in the region. The majority of the markets in the region instituted price increases to address market-specific conditions during the six months ended June 30, 2024.

Current wording

Focus areas for Herbalife and our Members in the region include promotions and events, launching new products, enhancing both online and in person training programs and meetings to help distributors improve their business, supporting Nutrition clubs and other DMOs, and other promotional activities in order to grow our sales in the region. The majority of the markets in the region instituted price increases to address market-specific conditions during the nine months ended September 30, 2024.

Previous wording

Net sales in India were $204.6 million and $408.1 million for the three and six months ended June 30, 2024, respectively. Net sales increased $15.2 million, or 8.0%, and $40.1 million, or 10.9%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 9.7% and 12.3% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had an unfavorable impact of $3.1 million and $5.1 million on net sales for the three and six months ended June 30, 2024, respectively. Sales volumes have increased in India in recent years as we continue to promote our brand, such as through sports sponsorships, in-person events, introducing new product line for skin care, strengthening the Preferred Customer program and making it easier for our Preferred Customers to convert to Distributors in India. The India market had no price increase during the six months ended June 30, 2024. During 2023, the India market implemented a 4.5% price increase during November 2023.

Current wording

Net sales in India were $218.3 million and $626.4 million for the three and nine months ended September 30, 2024, respectively. Net sales increased $2.4 million, or 1.1%, and $42.5 million, or 7.3%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 2.5% and 8.7% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had an unfavorable impact of $2.9 million and $8.0 million on net sales for the three and nine months ended September 30, 2024, respectively. Sales volumes in India increased 3.3% for the nine months ended September 30, 2024, as compared to the same period in 2023, however, sales volume decreased 1.4% in the third quarter of 2024, as compared to the same period in 2023. We continue to promote our brand, such as through sports sponsorships, in-person events, introducing new product line for skin care, strengthening the Preferred Customer program and making it easier for our Preferred Customers to convert to distributors in India. The India market had no price increase during the nine months ended September 30, 2024. During 2023, the India market implemented a 4.5% price increase during November 2023.

Previous wording

Net sales in Vietnam were $62.9 million and $138.5 million for the three and six months ended June 30, 2024, respectively. Net sales decreased $3.2 million, or 4.8%, and increased $1.3 million, or 0.9%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 2.7% and 6.9% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had an unfavorable impact of $5.0 million and $8.2 million on net sales for the three and six months ended June 30, 2024, respectively. The sales volume was flat for the three months ended June 30, 2024 versus the 2023 period but sales volume increased for the six months ended June 30, 2024 versus the 2023 period and was partially driven by, we believe, the comparison to a 2023 first quarter that included lower level of sales as a result of a January 2023 increase in the local value added tax rate which may have had an adverse impact to our net sales during the first quarter of 2023. Members’ Nutrition Club operations continue to be an important DMO in the market which management continues to support and monitor, and we believe, macroeconomic conditions in the market continue to create challenges. The market implemented a 3.5% price increase in March 2024. During 2023, the Vietnam market implemented a 3% price increase during March 2023. Further, changes to direct-selling regulations in the market were approved by local government in April 2023; we continue to work closely with Vietnam government and monitor these regulations and any impact they may have on our business in Vietnam.

Current wording

Net sales in Vietnam were $69.7 million and $208.2 million for the three and nine months ended September 30, 2024, respectively. Net sales decreased $1.6 million, or 2.2%, and $0.3 million, or 0.1%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales increased 2.5% and 5.4% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The fluctuation of foreign currency exchange rates had an unfavorable impact of $3.4 million and $11.6 million on net sales for the three and nine months ended September 30, 2024, respectively. The sales volume was flat for the three months ended September 30, 2024, as compared to the 2023 period but sales volume slightly increased for the nine months ended September 30, 2024, as compared to the 2023 period and was partially driven by, we believe, the comparison to a 2023 first quarter that included lower level of sales as a result of a January 2023 increase in the local value added tax rate which may have had an adverse impact to our net sales during the first quarter of 2023. Members’ Nutrition Club operations continue to be an important DMO in the market which management continues to support and monitor, and we believe, macroeconomic conditions in the market continue to create challenges. The market implemented a 3.5% price increase in March 2024. During 2023, the Vietnam market implemented a 3% price increase during March 2023. Further, changes to direct-selling regulations in the market were approved by local government in April 2023; we continue to work closely with Vietnam government and monitor these regulations and any impact they may have on our business in Vietnam.

Previous wording

Across most of the region’s other markets sales volume was down for the three and six months ended June 30, 2024 as compared to the 2023 periods, most significantly for Indonesia and South Korea. We continued to see a decline of new Members for some markets. In addition, as Members’ Nutrition Club operations continue to recover from macroeconomic conditions including inflationary pressure and high interest rates in certain markets that have also challenged some areas of customer demand. Our efforts in the region include programs and promotional initiatives to incentivize sales, and launching new products. Most markets in the region instituted price increases to address market-specific conditions during the first half of 2024.

Current wording

Across most of the region’s other markets, sales volume was down for the three and nine months ended September 30, 2024 as compared to the 2023 periods, most significantly for Indonesia and South Korea. We continued to see a decline of new Members for some markets. In addition, as Members’ Nutrition Club operations continue to recover from macroeconomic conditions including inflationary pressure and high interest rates in certain markets that have also challenged some areas of customer demand. Our efforts in the region include programs and promotional initiatives to incentivize sales, and launching new products. Most markets in the region instituted price increases to address market-specific conditions during the nine months ended September 30, 2024.

Previous wording

The China region reported net sales of $81.7 million and $156.9 million for the three and six months ended June 30, 2024, respectively. Net sales decreased $6.3 million, or 7.2%, and increased $1.2 million, or 0.8%, for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales decreased 4.0% and increased 5.0% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The 7.2% decrease in net sales for the three months ended June 30, 2024 was primarily due to a 3.2% unfavorable impact of fluctuations in foreign currency exchange rates, a 2.8% unfavorable impact of sales mix, and a decrease in sales volume, as indicated by a 1.8% decrease in Volume Points. The 0.8% increase in net sales for the six months ended June 30, 2024 was primarily due to an increase in sales volume, as indicated by a 4.6% increase in Volume Points, partially offset by a 4.2% unfavorable impact of fluctuations in foreign currency exchange rates, and a 2.6% unfavorable impact of sales mix. As described further above, Volume Points are generally recognized when a Member pays for an order, while net sales are generally recognized when product is delivered and when control passes to the Member or customer. If Volume Points were recognized consistent with the timing of when net sales are recognized in accordance with U.S. GAAP, the increase in sales volume for the six months ended June 30, 2024 would have been 7.6% as there was a more favorable timing difference between net sales and Volume Point recognition during the six months ended June 30, 2024 as compared to the same period in 2023. The China region had no price increase during the three months ended June 30, 2024 and during the twelve months ended December 31, 2023.

Current wording

The China region reported net sales of $74.8 million and $231.7 million for the three and nine months ended September 30, 2024, respectively. Net sales decreased $14.7 million, or 16.4%, and $13.5 million, or 5.5%, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In local currency, net sales decreased 17.3% and 3.1% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The 16.4% decrease in net sales for the three months ended September 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 14.9% decrease in Volume Points, and a 3.4% unfavorable impact of sales mix, partially offset by a 0.9% favorable impact of fluctuations in foreign currency exchange rates. The 5.5% decrease in net sales for the nine months ended September 30, 2024 was primarily due to a decrease in sales volume, as indicated by a 2.7% decrease in Volume Points, a 2.4% unfavorable impact of fluctuations in foreign currency exchange rates, and a 2.6% unfavorable impact of sales mix. As described further above, Volume Points are generally recognized when a Member pays for an order, while net sales are generally recognized when product is delivered and when control passes to the Member or customer. If Volume Points were recognized consistent with the timing of when net sales are recognized in accordance with U.S. GAAP, sales volume for the nine months ended September 30, 2024 would have been a decrease of 0.5% as there was a more favorable timing difference between net sales and Volume Point recognition during the nine months ended September 30, 2024, as compared to the same period in 2023. The China region had no price increase during the nine months ended September 30, 2024 and during the twelve months ended December 31, 2023.

Previous wording

We believe our continued enhancement to our qualification requirements and promotion programs and training and recognition program have had a positive impact to our China market. The frequency and attendance of our and our Members’ in-person training and sales meetings, which are important to the business as they are a central channel for attracting and retaining customers, providing personal and professional development for our Members, and promoting our products, are stabilizing, but continue to be below pre-pandemic levels. Other focus areas for China include enhancing our digital capabilities and offerings, such as improving the integration of our technological and enhanced tools to make it easier for our Members to do business, encouraging a customer-based approach through customer loyalty programs to engage customers, and supporting Nutrition Clubs. We have expanded our product line for the China market and continue to conduct sales promotions in the region.

Current wording

Sales volume was down for the three and nine months ended September 30, 2024 as compared to the 2023 periods as our Members adjust to our sales initiatives and they continue rebuilding and optimizing their business process. We believe, the recent economic difficulties experienced in the region are a contributing factor in China’s recent Volume Point decreases. The frequency and attendance of our and our Members’ in-person training and sales meetings, which are important to the business as they are a central channel for attracting and retaining customers, providing personal and professional development for our Members, and promoting our products, are stabilizing, but continue to be below pre-pandemic levels. Other focus areas for China include enhancing our digital capabilities and offerings, such as improving the integration of our technological and enhanced tools to make it easier for our Members to do business, encouraging a customer-based approach through customer loyalty programs to engage customers, and supporting Nutrition Clubs. We have expanded our product line for the China market and continue to conduct sales promotions in the region.

Previous wording

Gross profit was $998.0 million and $1,012.4 million for the three months ended June 30, 2024 and 2023, respectively, and $1,977.3 million and $1,965.9 million for the six months ended June 30, 2024 and 2023, respectively. Gross profit as a percentage of net sales was 77.9% and 77.0% for the three months ended June 30, 2024 and 2023, respectively, or a favorable net increase of 85 basis points, and 77.7% and 76.6% for the six months ended June 30, 2024 and 2023, respectively, or a favorable net increase of 107 basis points.

Current wording

Gross profit was $971.6 million and $978.1 million for the three months ended September 30, 2024 and 2023, respectively, and $2,948.9 million and $2,944.0 million for the nine months ended September 30, 2024 and 2023, respectively. Gross profit as a percentage of net sales was 78.3% and 76.3% for the three months ended September 30, 2024 and 2023, respectively, or a favorable net increase of 200 basis points, and 77.9% and 76.5% for the nine months ended September 30, 2024 and 2023, respectively, or a favorable net increase of 138 basis points.

Previous wording

The increase in gross profit as a percentage of net sales for the three months ended June 30, 2024 as compared to the same period in 2023 included the favorable impact of price increases of 155 basis points; and the favorable impact of foreign currency fluctuations of 13 basis points; partially offset by unfavorable cost changes related to self-manufacturing and sourcing of 56 basis points; the unfavorable impact of higher inventory write-downs of 9 basis points; unfavorable changes in sales mix of 7 basis points; and unfavorable other cost changes of 11 basis points.

Current wording

The increase in gross profit as a percentage of net sales for the three months ended September 30, 2024 as compared to the same period in 2023 included favorable cost changes related to self-manufacturing and sourcing of 111 basis points; the favorable impact of price increases of 110 basis points; and favorable other cost changes of 13 basis points; partially offset by unfavorable changes in sales mix of 34 basis points.

Previous wording

The increase in gross profit as a percentage of net sales for the six months ended June 30, 2024 as compared to the same period in 2023 included the favorable impact of price increases of 152 basis points; the favorable impact of lower inventory write-downs of 25 basis points; and the favorable impact of foreign currency fluctuations of 14 basis points; partially offset by unfavorable cost changes related to self-manufacturing and sourcing of 69 basis points; unfavorable changes in sales mix of 4 basis points; and unfavorable other cost changes of 11 basis points.

Current wording

The increase in gross profit as a percentage of net sales for the nine months ended September 30, 2024 as compared to the same period in 2023 included the favorable impact of price increases of 134 basis points; the favorable impact of lower inventory write-downs of 16 basis points; favorable other cost changes of 14 basis points; and the favorable impact of foreign currency fluctuations of 10 basis points; partially offset by unfavorable changes in sales mix of 19 basis points; and unfavorable cost changes related to self-manufacturing and sourcing of 17 basis points.

Previous wording

Royalty overrides were $415.3 million and $429.7 million for the three months ended June 30, 2024 and 2023, respectively, and $830.5 million and $845.7 million for the six months ended June 30, 2024 and 2023, respectively. Royalty overrides as a percentage of net sales were 32.4% and 32.7% for the three months ended June 30, 2024 and 2023, respectively, and 32.6% and 32.9% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Royalty overrides were $405.5 million and $416.1 million for the three months ended September 30, 2024 and 2023, respectively, and $1,236.0 million and $1,261.8 million for the nine months ended September 30, 2024 and 2023, respectively. Royalty overrides as a percentage of net sales were 32.7% and 32.5% for the three months ended September 30, 2024 and 2023, respectively, and 32.6% and 32.8% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

The decrease in royalty overrides as a percentage of net sales for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to favorable changes in mix of products and countries. Generally, royalty overrides as a percentage of net sales may vary from period to period due to changes in the mix of products and countries because full royalty overrides are not paid on certain products and in certain countries. In addition, the majority of service fees to our independent service providers in China are included in selling, general, and administrative expenses while Member compensation for all other countries is included in Royalty overrides which could also impact royalty overrides as a percentage of net sales.

Current wording

The increase in royalty overrides as a percentage of net sales for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily due to lower net sales in China as a proportion of our total worldwide net sales. The majority of service fees to our independent service providers in China are included in selling, general, and administrative expenses while Member compensation for all other countries is included in Royalty overrides. The decrease in royalty overrides as a percentage of net sales for the nine months ended September 30, 2024 as compared to the same period in 2023 was primarily due to favorable changes in mix of products and countries. Generally, royalty overrides as a percentage of net sales may vary from period to period due to changes in the mix of products and countries because full royalty overrides are not paid on certain products and in certain countries.

Previous wording

Selling, general, and administrative expenses were $502.3 million and $460.5 million for the three months ended June 30, 2024 and 2023, respectively, and $994.5 million and $936.4 million for the six months ended June 30, 2024 and 2023, respectively. Selling, general, and administrative expenses as a percentage of net sales were 39.2% and 35.0% for the three months ended June 30, 2024 and 2023, respectively, and 39.1% and 36.5% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Selling, general, and administrative expenses were $444.0 million and $455.3 million for the three months ended September 30, 2024 and 2023, respectively, and $1,438.5 million and $1,391.7 million for the nine months ended September 30, 2024 and 2023, respectively. Selling, general, and administrative expenses as a percentage of net sales were 35.8% and 35.5% for the three months ended September 30, 2024 and 2023, respectively, and 38.0% and 36.2% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

The $41.8 million increase in selling, general, and administrative expenses for the three months ended June 30, 2024 as compared to the same period in 2023 was driven by $46.1 million in higher labor and benefits costs, $11.1 million in higher professional fees primarily from expenses related to the Digital Technology Program, partially offset by $8.9 million in lower Member event and promotion costs, and $5.3 million in lower advertising and sponsorship costs. The increase in labor and benefit costs includes higher expenses related to the Restructuring Program, higher employee bonus accruals, partially offset by lower expenses related to the Transformation Program.

Current wording

The $11.3 million decrease in selling, general, and administrative expenses for the three months ended September 30, 2024 as compared to the same period in 2023 was driven by $10.1 million in lower non-income taxes, $7.3 million in lower China service provider fees due to lower sales in China, and $4.0 million of gain on sale of the Company’s land, building, and related building improvements of its office building in Torrance, California, partially offset by $11.4 million in higher labor and benefits costs. The increase in labor and benefit costs is primarily due to higher employee bonus accruals.

Previous wording

The $58.1 million increase in selling, general, and administrative expenses for the six months ended June 30, 2024 as compared to the same period in 2023 was driven by $55.5 million in higher labor and benefits costs, $25.6 million in higher professional fees primarily from expenses related to the Digital Technology Program, partially offset by $12.7 million in lower Member event and promotion costs, $8.5 million in lower advertising and sponsorship costs and $5.6 million in lower foreign exchange losses. The increase in labor and benefit costs includes higher expenses related to the Restructuring Program and higher employee bonus accruals, partially offset by lower expenses related to the Transformation Program.

Current wording

The $46.8 million increase in selling, general, and administrative expenses for the nine months ended September 30, 2024 as compared to the same period in 2023 was driven by $67.0 million in higher labor and benefits costs, $26.2 million in higher professional fees primarily from expenses related to the Digital Technology Program, and $6.6 million in higher depreciation and amortization expense, partially offset by $13.2 million in lower Member event and promotion costs, $7.6 million in lower China service provider fees primarily from lower sales in China, $7.2 million in lower non-income taxes, $6.9 million in lower advertising and sponsorship costs, and $4.0 million of gain on sale of the Company’s land, building, and related building improvements of its office building in Torrance, California. The increase in labor and benefit costs includes higher expenses related to the Restructuring Program and higher employee bonus accruals, partially offset by lower expenses related to the Transformation Program.

Previous wording

The $1.2 million of other operating income for the three months ended June 30, 2023 consisted of $1.2 million of government grant income for China (See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q).

Current wording

The $5.0 million of other operating income for the three months ended September 30, 2024 consisted of $5.0 million of government grant income for China (See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further discussion). We did not recognize any government grant income related to our regional headquarters and distribution centers within China during the three months ended September 30, 2023.

Previous wording

The $10.1 million of other operating income for the six months ended June 30, 2023 consisted of $10.1 million of government grant income for China (See Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q).

Current wording

The $5.0 million of other operating income for the nine months ended September 30, 2024 consisted of $5.0 million of government grant income for China. The $10.1 million of other operating income for the nine months ended September 30, 2023 consisted of $10.1 million of government grant income for China.