What’s in a name? Herbalife’s 3.2 million distributors may soon find out.
Herbalife CEO Michael Johnson said the nutritional supplements company will start classifying the vast majority of distributors as “members” to thwart criticism of its business model.
Johnson, speaking during the company’s quarterly earnings call this morning, said the new name reflects the reality that most distributors are just customers seeking a discount on protein shakes and other products.
Hedge fund activist Bill Ackman has called the company a pyramid scheme, arguing that most Herbalife distributors do not profit, among other criticisms. Ackman has placed a $1 billion short bet against the company, believing regulators will shut it down.
In a press release yesterday calling the company’s income growth “weak,” Ackman estimated that 2.9 million out of the company’s 3.2 million distributors — 90 percent — fall into the new category. He estimated that 98 percent of them leave the company within a year.
Johnson said that the change — which had been promised and delayed for months — will begin “immediately” in the US and should be completed with a few months. It will take several quarters to implement globally.
“Herbalife is a sustainable, financially strong company with a robust consumer base,” he said during the company’s second-quarter conference call today.
Herbalife declined to say whether “members” will be required to sign the same contracts that all distributors now must sign.
For example, distributors are forbidden to speak to the media and cannot solicit fellow Herbalife customers to buy products of other multi-level marketing companies.
In recent months, several consumer groups and lawmakers have expressed concern about the company’s business practices and have asked the Federal Trade Commission to investigate.
Johnson said the name change is directed to those groups — what he called “special interest groups here in America who have been badly deceived about how our business works.”
During the call, Herbalife President Des Walsh said current distributors will keep their designation, and only new recruits will be called members. When members qualify as a “sales leader” — which requires a bigger investment — “they’ll become a sales leader.”
Walsh said the new name is “effectively no change,” reinforcing criticisms that the move is more window dressing than anything else.
Herbalife shares, which closed at $60.57 yesterday, soared in after-hours trades to as high as $64.95 on the company’s better-than-expected per-share earnings.
Herbalife shares dipped briefly into negative territory this afternoon after the call. The shares are up about 1 percent at $61.20.
mcelarier@nypost.com