Lane Research

Douglas Lane

Independent Insight Provider

Lane Research is a boutique fundamental equity research firm focusing on companies that employ a direct to consumer business model. This is an area where we have had extensive experience over the years, going back to the mid-1990s when Amway Asia Pacific, Amway Japan and Nu Skin originally listed on the New York Stock Exchange. We think Direct Selling in particular supports many favorable consumer macro-trends such as leveraging today’s technology to advance social selling and workplace flexibility, and the move towards shopping away from a fixed retail location. Our proprietary financial modeling coupled with our decades of experience and contacts within this unique business model leave us well positioned to provide alpha to investors interested in the space. Lane Research does not have any trading or investment banking operations, fully aligning our objectives with our clients.

Experience includes:

-9 equity analyst awards, including Starmine's #2 stock picker in 2011 for Household Durables & #1 earnings estimator in 2010 for Personal Products, and The Wall Street Journal's #1 stock picker in 2004 & 2006 for Household Products. 

-Financial TV appearances including CNBC and Bloomberg

-Quotes in financial publications such as Wall St Journal, Investors Business Daily and Barron's, and newswires such as Reuters and the Associated Press

-Chartered Financial Analyst since 1992 and member of the CFA Society Boston

-FINRA Series 7, 63, 86 & 87

Thematic (Sector/Industry)

After 4 quarters of largely favorable currency comparisons for the Direct Selling companies we follow, <a href="https://www.smartkarma.com/entities/4527" target="_blank" data-smartkarma-citation="entities:4527:1">Avon Products (AVP US)</a>,  <a href="https://www.smartkarma.com/entities/6216" target="_blank" data-smartkarma-citation="entities:6216:1">Herbalife Ltd (HLF US)</a>, <a href="https://www.smartkarma.com/entities/10036" target="_blank" data-smartkarma-citation="entities:10036:1">Medifast Inc (MED US)</a>, <a href="https://www.smartkarma.com/entities/12451" target="_blank" data-smartkarma-citation="entities:12451:1">Nu Skin Enterprises Inc A (NUS US)</a>, <a href="https://www.smartkarma.com/entities/7022" target="_blank" data-smartkarma-citation="entities:7022:1">Tupperware Brands (TUP US)</a> and <a href="https://www.smartkarma.com/entities/15961" target="_blank" data-smartkarma-citation="entities:15961:1">Usana Health Sciences (USNA US)</a> , with the strengthening of the dollar this year it looks like the 2018 3Q foreign exchange impact will return to being a headwind for these largely international companies.  However, there could be large differences in the magnitude of the headwind among the companies we follow depending on geographic mix.

After 4 quarters of largely favorable currency comparisons for the Direct Selling companies we follow, Avon Products (AVP US),  Herbalife Ltd (HLF US), Medifast Inc (MED US), Nu Skin Enterprises Inc A (NUS US), Tupperware Brands (TUP US) and Usana Health Sciences (USNA US) , with the strengthening of the dollar this year it looks like the 2018 3Q foreign exchange impact will return to being a headwind for these largely international companies.  However, there could be large differences in the magnitude of the headwind among the companies we follow depending on geographic mix.

Direct Selling Sector Analysis: Currency Exchange Moves to Headwind in 3Q

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

China is about ~20% of HLF global sales.  We have been stunned by the incredible disconnect between the stock’s incredible overperformance (~50% YTD, vs SPX down ~3%) vs. the structural deterioration of fundamentals in the company’s fastest growing market.  Financial engineering is a major source of the stock rally in our view.  However, buyback effectiveness is likely to diminish, and future stock performance will depend more on earnings growth not share buyback.  We believe that as the “celebrity” hedge funds exit the name; the fundamentals will become more important now than before.

China is about ~20% of HLF global sales.  We have been stunned by the incredible disconnect between the stock’s incredible overperformance (~50% YTD, vs SPX down ~3%) vs. the structural deterioration of fundamentals in the company’s fastest growing market.  Financial engineering is a major source of the stock rally in our view.  However, buyback effectiveness is likely to diminish, and future stock performance will depend more on earnings growth not share buyback.  We believe that as the “celebrity” hedge funds exit the name; the fundamentals will become more important now than before.   

Herbalife China: RMB Appreciation Tailwind for All MNCs; Fundamental Slowdown Irreversible

According to our surveys of <a href="https://www.smartkarma.com/entities/6216" target="_blank" data-smartkarma-citation="entities:6216:1">Herbalife Ltd (HLF US)</a> China distributors, we estimate that volume points declined by ~25% and ~10% year-over-year in Q1 2018.   (Exhibit 1 &amp; 2) Latest corporate developments:<ol><li>Cash bonus to distributors who -achieve VP targets, to prevent a collapse of sales, at the expense of profit margin.  This is the first time ever that HLF China has adopted a cash bonus policy.  The program was effective on Feb 1st and is set to expire on June 30th (5 months).  The expiration…</li></ol>

According to our surveys of Herbalife Ltd (HLF US) China distributors, we estimate that volume points declined by ~25% and ~10% year-over-year in Q1 2018.   (Exhibit 1 &amp; 2) Latest corporate developments:Cash bonus to distributors who -achieve VP targets, to prevent a collapse of sales, at the expense of profit margin.  This is the first time ever that HLF China has adopted a cash bonus policy.  The program was effective on Feb 1st and is set to expire on June 30th (5 months).  The expiration…

Herbalife China: Q1 VP Down ~25% YoY, New Cash Bonus Policy to Retain Distributors

According to our <a href="https://www.smartkarma.com/entities/6216" target="_blank" data-smartkarma-citation="entities:6216:1">Herbalife Ltd (HLF US)</a> distributor checks in North, South, Center and East China, HLF China sales dramatically declined by ~20% in January, month-over-month.  A year-over-year comparison for January is not meaningful due to the timing of the Chinese New Year (February 16, 2018 vs. January 28, 2017).  Understanding that December sales were boosted by the favorable Volume Point incentive in China, we were still surprised by the short-lived effectiveness of the stimulus.

According to our Herbalife Ltd (HLF US) distributor checks in North, South, Center and East China, HLF China sales dramatically declined by ~20% in January, month-over-month.  A year-over-year comparison for January is not meaningful due to the timing of the Chinese New Year (February 16, 2018 vs. January 28, 2017).  Understanding that December sales were boosted by the favorable Volume Point incentive in China, we were still surprised by the short-lived effectiveness of the stimulus.  

Herbalife China: Sales Collapsed in January; Government Opening Investigation

2017 was a challenging year for <a href="https://www.smartkarma.com/entities/6216" target="_blank" data-smartkarma-citation="entities:6216:1">Herbalife Ltd (HLF US)</a> China, a market that generates ~30% of the entire company's revenue.  The formal CEO Jerry Li officially departed taking key executives with him onto his next venture, a 25-year old debt-burdened distributor committed suicide followed by investigation by Chinese authorities, scrutiny by the US regulators deepened, number of firm-wide meetings and gatherings sharply declined, and the direct sales market in China was swamped with new entrants competing for quality distributors.  However, in spite of all the headwinds the company was able to pick itself up and finish the year strong, most likely delivering positive growth of Volume Points (VPs) 2017/2016 in China.  A range of effective defensive strategies saved HFL China but what do the longer-term prospects looks like for HLF China?   In this report, we discuss the natures of the challenges for HLF China in 2017.  Our view is that unless HLF China comes up with new products for distributors to sell, given the intensifying competition in the industry, the effectiveness of the stimulus policies implemented first in April and again in November 2017 will be short lived.  The structural headwinds faced by HLF China are only going to get tougher in the long run.

2017 was a challenging year for Herbalife Ltd (HLF US) China, a market that generates ~30% of the entire company's revenue.  The formal CEO Jerry Li officially departed taking key executives with him onto his next venture, a 25-year old debt-burdened distributor committed suicide followed by investigation by Chinese authorities, scrutiny by the US regulators deepened, number of firm-wide meetings and gatherings sharply declined, and the direct sales market in China was swamped with new entrants competing for quality distributors.  However, in spite of all the headwinds the company was able to pick itself up and finish the year strong, most likely delivering positive growth of Volume Points (VPs) 2017/2016 in China.  A range of effective defensive strategies saved HFL China but what do the longer-term prospects looks like for HLF China?   In this report, we discuss the natures of the challenges for HLF China in 2017.  Our view is that unless HLF China comes up with new products for distributors to sell, given the intensifying competition in the industry, the effectiveness of the stimulus policies implemented first in April and again in November 2017 will be short lived.  The structural headwinds faced by HLF China are only going to get tougher in the long run.     

Herbalife China in Transition:  2017 Review

United States

USANA Health Sciences, Inc. develops, manufactures, and markets nutritionals, personal care, and weight management products.  The Company's products are sold directly to preferred customers and distributors throughout the United States, Canada, Australia, New Zealand, the United Kingdom, and Hong Kong.

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Usana Health Sciences (USNA US)

Direct Selling Sector Analysis: Currency Exchange Moves to Headwind in 3Q

After 4 quarters of largely favorable currency comparisons for the Direct Selling companies we follow, Avon Products (AVP US), Herbalife Ltd (HLF...

Douglas Lane

Herbalife China: RMB Appreciation Tailwind for All MNCs; Fundamental Slowdown Irreversible

China is about ~20% of HLF global sales. We have been stunned by the incredible disconnect between the stock’s incredible overperformance (~50%...

JL Warren Capital

Herbalife China: Q1 VP Down ~25% YoY, New Cash Bonus Policy to Retain Distributors

According to our surveys of Herbalife Ltd (HLF US) China distributors, we estimate that volume points declined by ~25% and ~10% year-over-year in...

JL Warren Capital

Herbalife China: Sales Collapsed in January; Government Opening Investigation

According to our Herbalife Ltd (HLF US) distributor checks in North, South, Center and East China, HLF China sales dramatically declined by ~20% in...

JL Warren Capital

Herbalife China in Transition: 2017 Review

2017 was a challenging year for Herbalife Ltd (HLF US) China, a market that generates ~30% of the entire company's revenue. The formal CEO Jerry...

JL Warren Capital

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