Herbalife Releases 2022 Annual Report: A Look at China Figures

As of December 31, 2022, we had approximately 6.2 million Members, including 2.9 million preferred members and 2.0 million distributors in the markets where we have established these two categories and 0.3 million sales representatives and independent service providers in China.

Business in China

Our business model in China includes unique features as compared to our traditional business model in order to ensure compliance with Chinese regulations. As a result, our business model in China differs from that used in other markets. Members in China are categorized differently than those in other markets. In China, we sell our products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary.

In China, while multi-level marketing is not permitted, direct selling is permitted. Chinese citizens who apply and become Members are referred to as sales representatives. These sales representatives are permitted to sell away from fixed retail locations in the provinces where we have direct selling licenses, including in the provinces of Jiangsu, Guangdong, Shandong, Zhejiang, Guizhou, Beijing, Fujian, Sichuan, Hubei, Shanxi, Shanghai, Jiangxi, Liaoning, Jilin, Henan, Chongqing, Hebei, Shaanxi, Tianjin, Heilongjiang, Hunan, Guangxi, Hainan, Anhui, Yunnan, Gansu, Ningxia, and Inner Mongolia. In Xinjiang province, where we do not have a direct selling license, we have a Company-operated retail store that can directly serve customers and preferred customers. With online orderings throughout China, there has been a declining demand in Company-operated retail stores.

Our business and operations in China, which generated approximately 8% of our net sales for the year ended December 31, 2022, are subject to unique risks and uncertainties related to general economic, political, and legal developments. The Chinese government exercises significant control over the Chinese economy, including by controlling capital investments, allocating resources, setting monetary policy, controlling and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies, and issuing necessary licenses to conduct business. Accordingly, any adverse change in the Chinese economy, the Chinese legal system, or Chinese governmental, economic, or other policies could have a material adverse effect on our business and operations in China and our prospects generally.

China reported contribution margin of $335.4 million for the year ended December 31, 2022, representing a decrease of $218.8 million, or 39.5%, as compared to the same period in 2021. The 39.5% decrease in contribution margin for the year ended December 31, 2022 was primarily the result of a 30.4% unfavorable impact of volume decreases, a 7.5% unfavorable impact of sales mix, a 3.6% unfavorable impact of cost changes related to self-manufacturing and sourcing primarily related to increased raw material, manufacturing labor, and inbound freight costs and increased allocated overhead costs due to lower production volume, and a 1.3% unfavorable impact of foreign currency fluctuations, partially offset by 1.1% favorable impact of price increases. (Source: Herbalife 2022 Annual Report)

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