Herbalife Ltd HLF
Q4 2010 Earnings Call Transcript
Transcript Call Date 02/23/2011

Operator: Good morning and thank you for joining the Fourth Quarter and Full Year 2010 Earnings Call for Herbalife Ltd. On the call today is Michael Johnson, the Company’s Chairman and CEO; the Company’s President, Des Walsh; John DeSimone, the Company’s CFO; and Brett Chapman, the Company’s General Counsel.

I would now like to turn the call over to Brett Chapman, to read the Company’s Safe Harbor language.

Brett R. Chapman - General Counsel: Before we begin, as a reminder, during this conference call, comments may be made that include some forward-looking statements. These statements involve risk and uncertainty, and as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to yesterday’s earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements and our business.

In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with U.S. Generally Accepted Accounting Principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures.

We believe these non-GAAP financial measures assist management and investors in evaluating and comparing period to period results of operations in a more meaningful and consistent manner. Please refer to the Investor Relations section of our website, Herbalife.com, to find our press release for this quarter, which contains a reconciliation of these measures.

Additionally, when management makes reference to volume during this conference call, they are referring to volume points.

I’ll now turn the call over to Michael.

Michael O. Johnson - Chairman and CEO: Good morning and welcome to fourth quarter 2010 earnings call. We feel Herbalife is uniquely positioned at the intersection of health and wealth. Providing solutions for the global obesity epidemic and opportunities for those seeking additional income. As a result, we had another record setting year that concluded with a tremendously successful fourth quarter.

Our results continue to be driven by an increasingly larger and more global independent distributor organization. We're more engaged than ever before and whoever focus on daily consumption business methods. Congratulations to all of our Herbalife independent distributors who helped the Company set numerous records in 2010, and they have once again positioned us for a strong foundation of growth in the year ahead.

Let we summarize for you a few key performance metrics for the full year of 2010. We have record volume points of 3.2 billion, up almost 14% over 2009, record net sales of $2.7 billion, an 18% increase, record earnings per share of $4.67 on a reported basis, and adjusted earnings of $4.77 per share.

For the first time since 1999, all six of our regions reported year-over-year increases in volume points, and we have record sales leader retention of 48.9% compared to 43% in 2009. This is an important number because we view distributor retention as a key indicator of health in our business.

As you know, once a year Herbalife sales leaders go through a requalification process in order to maintain their sales leader status. As I just mentioned, retention of sales leaders increased to almost 49%. This is compared with 43% in 2009, and 27% in 2002. We see a direct correlation between a country or region's use of daily consumption business methods and increases in sales leader retention.

A great example of this correlation is in Mexico, where the club business began 10 years ago, and its retention rate hit an all-time high in 2010 of 58%. Another indicator of the strength in our business is distributor engagement. This is measured by the average number of distributors ordering each month.

We experienced double-digit growth in our average active sales leader metric in the fourth quarter and for all of 2010. The continued globalization of daily consumption business methods is enabling more distributors to be successful with Herbalife. Not only are more distributors staying in the business more, they are continuing to move up the marketing plan. In 2010, we have upward movement in all levels of our marketing plan.

In just a few minutes, DeS will go deeper with both retention and engaging metrics in his discussion of the quarter and the fiscal year 2010. For the fourth quarter and full year, each of our six reasons experienced both volume point growth and increases in average sales leaders. This demonstrates the broad growth we are experiencing around the world. 2010 was a pivotal year for Herbalife.

We've begun to reap the benefits of several years of hard work in the areas of product, science, and infrastructure. We're very pleased with the progress made in 2010 in our 'seed to feed' strategy. We have made significant renovations, which have given the Herbalife a state-of-the-art manufacturing facility here in California and numerous modifications to Suzhou facility to support our increase in self manufacturing.

Additionally, October we broke ground on our botanical extraction facility, where we plan to create a competitive advantage with key raw materials, while ensuring a high level of control over quality, purity, and traceability of our ingredients. On the product front during the fourth quarter, we introduced two variations of our Formula 1 shake, a Pumpkin Spice seasonal favor in (indiscernible) shake.

We also launched CoQ10 product that extends our heart health line, which is developed in concept with Nobel Laureate Dr. Lou Ignarro.

In early 2011, we released a unique (Indiscernible) and fat reduction product called Prolessa Duo. Prolessa Duo was designed as boost for our Formula 1 meal replacement shake and thus far sales have been beyond our expectations, reflecting how well this product has been received.

In the area of scientific leadership, we're very pleased to announce last month that Dr. Gary Small, an expert in brain health, an healthy aging joint our Herbalife Nutrition Institute and our Nutrition Advisory Board. Dr. Small has authored more than 500 scientific works, as well as several popular books in the area of brain health. He's a frequent guest on national TV programs.

In 2010, we launched multiple online tools through our distributors around the world, enabling online ordering and payments by mobile devices in additional countries, as well as launching smartphone and iPad applications. We'll continue to invest in technology that we believe increased distributor efficiencies and enabled them to better serve their customers.

On brain damage, well, they just keep getting stronger. Together, with our distributors, we sponsored more than 180 teams and athletes in events worldwide. Our distributors are taking an increasingly active role in their local markets sponsorships and community service activities. We've been consistently educating and working with our distributors and employees so that they ultimately understand they are durable life brand.

The perception of Herbalife is based not only on our sponsorships and branding, but most importantly on how well we treat people and how well we represent Herbalife in all aspects of our businesses and our daily lives. Together, we strive to make our brand both recognizable and synonymous around the world with a healthy active life, and the high integrity successful independent business opportunity.

We believe we have a competitive advantage in three areas. Lot of the products that target the global obesity epidemic, the potential for individuals to build sustainable businesses and an increasingly strong brand and image. This is why we believe the momentum in our business will continue.

Now, let me turn it over to Des for specific market updates.

Des Walsh - President: Thank you, Michael. The momentum we are seeing in our business is driven by two key forces; our distributor's commitment to expanding daily consumption business methods around the world, which helps create a long-term stable customer base and the continuing commitment of our distributors to Herbalife’s mission for nutrition.

As Michael mentioned in his comments, the 49% sales leader retention for 2010 was outstanding and we believe that this is directly attributable to the globalization of the consumer focused distributor methods of operation or DMOs. We believe that this almost 6 percentage point improvement compared to the prior year's number is validation, but the changes in distributor business methods are helping more people to be successful in Herbalife than ever before.

We continue to see the expansion in daily consumption business methods as a primary driver of our distributors’ businesses and Herbalife's growth. We believe that the momentum behind this evolution will continue to accelerate as more distributors in more markets has success acculturating daily consumption business methods to their markets.

Our 2010 growth in local currency net sales continued to be fairly evenly split between established and emerging markets. The established markets category, which includes several of our oldest markets, including the U.S. and most of Western Europe accounted for 49% of our local net sales and increased 16% for the year. Volume in the established markets also increased 16% for the year.

The emerging markets group accounted for the remaining 51% of our local currency sales and grew 19% for the year. Volume in the emerging markets increased 13% for the year compared to 2009. We remained very pleased with how balanced our growth is between the two groups and are excited about the scale of the opportunities that we see to grow both simultaneously.

Now, let me provide regional highlights and color on some key regions. The North American region had another strong quarter, posting growth compared to the prior year period in both local currency net sales and volume points, with increases of 11% and 8% respectively.

For the year, the North American region saw net currency net sales increased 16% and volume grew 14%. New distributors increased 5% in the quarter and 14% for the year, one of the measurements that we use to gauge distributor engagement. Average active sales leaders increased 13% in the North American region compared to last year's fourth quarter and annual results.

Sales leader retention in the North American region improved more than 5 percentage points to approximately 49% compared to the prior year. For the quarter, U.S. net sales grew 11% and volume points grew 8% versus the same quarter last year. The general market or our non-Spanish speaking market growth has continued, largely driven by the success that they are having implementing daily consumption in markets around the U.S.

As we discussed last quarter, the Latin market or Spanish speaking market was softer in the fourth quarter than we would have liked, but this type of breather is normal in direct selling, especially after several straight years of strong growth. That said, we believe that we are beginning to see an increase in the engagement level of the Latin distributors in the U.S.

In January, we hosted our Latin Future President's Team Retreat, where the energy level and engagement of the up and coming leaders in the market was readily apparent. We hosted our kick-up meetings in the Latin market seeing over 17,000 distributors in cities around the country and 11% increase in the number of attendees from last year.

Speaking of the Latin market, we recently announced the promotion of Ibi Fleming to Senior Vice President and Managing Director of our North American region. Ibi is a 13-year Herbalife veteran and for the past five years was responsible for the U.S. Latin market, during which time that business grew from 35% of the total U.S. market to a approximately 64% in 2010.

Moving on to Mexico, local currency net sales for the quarter increased 34% and volume points increased almost 27%. For the year, local currency net sales increased 19% and volume grew 14%. For the fourth quarter and full year comparisons, new distributors increased 3% and 6%, respectively.

We are pleased to see average active sales leaders increase over the course of the year. Average active sales leaders grew by 16% for the quarter and 10% for the year compared to the prior year period. This is the fifth consecutive quarter of volume growth and we are pleased to see Mexico beginning to regain the momentum that it experienced prior to 2008.

The strength of the daily consumption model is best illustrated in the fact that 2010 sales leader retention in Mexico improved more than 7 percentage points to almost 58%. For the past couple of years we have been telling investors that Mexico is in a transitional period as we developed a better infrastructure in the country to support the business, including better product access. Also, we have regionalized our sales support staff and reexamined how we structure our promotional activities so that they are working towards the common goal of driving daily consumption and consistent steady volume growth. Mexico has been a fabulous learning experience for the Company and we are now taking these lessons learned around the world.

The Asia Pacific region continues to be a key growth driver for the Company. This region is intent on giving the North America region a run for the honor of being Herbalife's first 1 billion volume point market. During the fourth quarter, local currency net sales increased 21% and volume points grew 24% compared to the prior year period. For the year, local currency net sales and volume increased 27%.

For the fourth quarter and full year, new distributors increased 19% and 33%, respectively. We believe that the growth within the region continues to be driven by the expansion of daily consumption business methods and a high degree of distributor engagement. Average active sales leaders increased 23% in the quarter and 26% for the year. Sales leader retention in the Asia Pacific region was flat with 2009 at approximately 38%.

For the past several quarters, we have been discussing our excitement about the growth we are beginning to see in India. Well, India was again a highlight in the fourth quarter, posting volume point growth of more than 140% compared to the prior year. The business is now taking route in multiple states throughout India, and we are working diligently to ensure that our infrastructure is capable of supporting this level of growth. Local currency net sales in the South and Central American region increased 22% and volume points in the region were up 13% in the quarter. For the year, local currency net sales and volume points increased 19% and 4% respectively.

Average active sales leaders in the region increased 6% over last year's fourth quarter and 3% for the year. New distributors decreased less than 1% for the quarter and were flat for the year compared to the prior year periods. Regionally, we believe that the distributor leadership has begun to see the benefits that increased daily consumption business models bring to their markets and we are pleased to see several markets within the region expand their use of daily consumption in business methods.

As an indication, South American sales leader retention improved 13 percentage points to 47% in 2010. Within the South and Central American region, we can mention the strength that we are seeing in Brazil. Brazil experienced volume point growth of more than 16% in the fourth quarter as nutrition clubs and our traditional business methods both saw growth in the quarter. In Brazil, we have worked to regionalize our sales support team, so they can provide better support to distributors in their markets around the country.

We are taking the business down to a little more localized level, utilizing a city-by-city approach. We are very excited about the opportunity that we believe exists in Brazil and our distributors in that market are just beginning to scratch the surface of the market. We believe that the success that distributors are having in Brazil is well illustrated by the fact that sales leader retention in Brazil was almost 47% this year compared to 25% in 2002.

Turning to EMEA, this is the region where we are now seeing the growth of daily consumption business models focused on the creation of long-term customers. During the fourth quarter, local currency net sales increased 13% and volume points in the region grew almost 9% compared to the prior year. For the year, local currency net sales increased 7% and volume increased 4%.

We are pleased to see the U.K. continue to gain traction with the Weight Loss Challenge concept and the Nordic countries are seeing growth with distributor offices called Lifestyle Centers. New distributors for the fourth quarter and full-year increased 9% and 12% respectively. Average active sales leaders in the region improved over the course of the year and were up 5% in the quarter and 3% for the year. Sales for the retention EMEA improved almost 7 percentage points to approximately 59%.

Within EMEA, we are particularly pleased with the progress we're seeing in Russia. As we have told you previously, Russia was the market where we initially tested the marketing plan changes that eventually we rolled out globally last October. As the market that has had the 12 month sales leader qualification in place the longest we continue to be very pleased with the changes we are seeing in the business.

We saw a very solid double-digit volume point growth in Russia during the fourth quarter and for the year compared to the prior year period. The Russian sales leader that qualified under the longer 12 month process are over 50% more active following their qualification then those that qualified under the traditional one or two month plan. The success that Russia is experiencing is evident in both their volume growth and sales leader retention.

This market has begun to gain traction with volume growth of 30% for the year and 2010 sales leader retention of almost 70%, which is the highest among our larger markets. We continue to believe that Russia has the potential to be a very significant market for us. The longer qualification process has been a game changer in Russia, and we believe that the success being seeing in this market could be a leading indicator to what we could experience in other markets as the 12-month qualification takes root in markets around the world.

Now let’s turn to China, where local currency net sales increased 22% and volume points increased 29% in the fourth quarter compared to the prior year period. For the year, local currency net sales increased 20% and volume increased 25%. It is almost two years ago when we began to introduce the club concept into this unique market because of the strong success the clubs were demonstrating in neighboring countries. As we have seen in other markets, the acculturation process typically takes up to 24 months before we begin to see what we believe to be strong sustainable growth.

We believe that our sales leaders in China are making progress acculturating the concept to daily consumption, and we are now seeing clubs open in locations that are more like those which have been successful and duplicable in other markets. As we have been discussing with you for the past several quarters, we believe that there is an ongoing transformation within our business. The daily consumption model has taken hold in some of our largest markets, and it continues to expand into more of our existing markets every day. A fascinating aspect of the growth in daily consumption is various forms that it is taking on around the world.

Nutrition clubs are now just one iteration of the daily consumption business methods being successfully leveraged by Herbalife distributors around the world. While we talk about the localization of daily consumption across the globe, it is important to understand that we believe that we are in the early stages of their growth in most of our markets.

In closing, let me congratulate our distributor leadership for the success that they have achieved in the fourth quarter to increase focus on creating long-term customers, with sustainable business methods and increased meeting activity to welcome, train and activate new distributors around the world.

Now, let me pass the call over to John to review the financials.

John DeSimone - CFO: Thank you, Des. As Michael stated earlier, our growth was very broad-based, with all six regions reporting gains for the quarter versus the prior year period. Reflective of this broad strength, yesterday we reported net sales of $738.4 million, an increase of 17% compared to the fourth quarter of 2009. Local currency net sales increased by 18.9%, reflecting a 190 basis point negative foreign currency impact.

For the full year 2010, net sales of $2.7 billion grew 17.6% and 17.4% on a reported and local currency basis, respectively. Since Des has already walked through the details of our volume growth, I’ll move on to gross margin.

For the quarter, on a reported basis, gross margin was approximately 150 basis points higher in the same period a year ago. Approximately 70 basis points of this increase resulted from Venezuela-related items. The remaining 80 basis points increase in gross margin was due to changes in foreign currency rates, the impact of price increases and from cost savings, driven by our seed-to-feed initiative.

We began to see a small gross margin benefit from the ramp-up of our Lake Forest manufacturing facility, which began a few months ago. The moving of U.S. production into this facility is currently ongoing and we expect it to continue into about the middle of this year at which point we'll begin manufacturing certain foreign production based on licensing lead times

Moving onto SG&A, as a percentage of sales, SG&A improved by 20 basis points compared to a year ago. However, the comparison is burdened by 45 basis points from the timing of a large distributor event, which occurred in Q3 last year but Q4 this year. As an additional note, this quarter currency had very little impact on SG&A as a percentage of sales compared to last year's fourth quarter.

Turning to operating margins, on a reported basis, operating margin improved by approximately 100 basis points. This improvement was primarily a result of the previously discussed changes in gross profit and SG&A. Partially offsetting these benefits was approximately 40 basis points negative impact to operating margin from the translation of results as on a weighted average basis the dollar was stronger this quarter than the fourth quarter of 2009.

I'd now like to make some comments regarding our effective tax rate, which showed a significant improvement compared with the year ago quarter and compared to our previous guidance. As you know, the fourth quarter tax rates always include a true-up to the full year rate for the results of the prior three quarters. Accordingly, I will discuss the tax rate improvement in the context of the full year.

For 2010, the effective tax rate improved by approximately 650 points on a reported basis and 520 points on an adjusted basis compared to 2009. Much of this improvement was expected and included in our previous guidance. However, our actual 2010 effective tax rate of 26.5% was 200 basis points better than the midpoint of our guidance range.

Approximately one-half of this benefit or 100 basis points was generated from the implementation of tax strategies that we expect to be ongoing and as such, has been reflected in our new guidance for 2011. The other half was related to one-items, which we do not expect to continue.

Now, turning to our Q4 earnings relative to the guidance we provided for the quarter. Earnings per share of $1.31 was $0.20 better than the high end of our guidance range provided in November. About half or $0.10 of the upside was a result of sales growth as volume points exceeded the high end of our guidance range by approximately $20 million. The other half of the upside was a result of the previously mentioned lower than effective tax rate.

Compared to the prior year, EPS for the quarter of $1.31 was 49% higher than the reported number and a 34% improvement from the adjusted fourth quarter 2009 EPS of $0.98. This $0.33 improvement over the adjusted Q4 results was driven by volume, which benefited EPS by $0.22 and also from a $0.19 benefit from the lower tax rate. These two items were partially offset by a $0.05 negative impact due to currency and a $0.03 negative impact from the timing of the distributor meeting noted earlier.

With respect to cash flow, for the full year 2010 the Company generated cash flow from operations of $380.4 million, an increase of 33.4% compared to 2009 and we paid $53.7 million in dividends, invested $68.1 million in capital expenditures and repurchased a $150.1 million in common shares of which $50 million was repurchased in the fourth quarter.

The Company has reduced its net debt by $111.9 million from the December 2009 levels with total debt at less than 0.4 times trailing 12 months EBITDA.

Now, let me discuss our guidance for 2011 both for Q1 and the full year. For the first quarter, we expected volume growth of 14% to 16% and net sales to increase by 18% to 20%. EPS is expected to be between a $1.17 and $1.21. For the full year, in terms of EPS, we are raising our guidance range by $0.15 to both low and high end of the range previously provided, resulting in a new 2011 guidance range of $5.15 to $5.40 per share. The increase is mostly a result of changes in foreign currency rates and a lower effective tax rate.

Additionally, while our expectations for growth in volume points for 2011 remained unchanged from previous guidance at 8% to 10% above 2010, the absolute value increased as 2010 finished higher than previously projected. The 2011 volume points guidance reflects our belief in the strength and the momentum of the business as we build on the 16.5% volume point increase experienced since the beginning of the second quarter of 2010.

Before ending the prepared remarks, I'll comment briefly on the pending stock split. As announced yesterday, our Board of Directors approved a two-for-one stock split subject to shareholder approval. This decision demonstrates our confidence in the Company's future. It also improves the liquidity of the stock and makes the stock more accessible for distributors and consumers.

We will now open the call for your questions.

Transcript Call Date 02/23/2011

Operator: Tim Ramey, D.A. Davidson.

Tim Ramey - D.A. Davidson: I guess my question really revolves around development of the daily consumption model going further you seem to be hitting really high-teens growth rates. Are we likely to see this sort of get into groove and be in the high single-digit range going forward or you still think the acceleration of the adoption of the model is the driving factor?

Des Walsh - President: So, Tim we obviously are just very excited about what we see with the adoption of all daily consumption methods around the world. We see strong growth and we continue to see that happening both in new markets and in markets, where frankly the model is already established. So, we see that continuing and you'll see that expectation included in our guidance.

Operator: John San Marco, Janney.

John San Marco - Janney: The strength in Mexico really jumps out indeed both for the year and the quarter. I'd like to hear your take on what you think the biggest driver is there and whether there are things you are doing differently there that you can replicate in Latin America to accelerate that segment?

John DeSimone - CFO: So, as always there is never one thing that contributes to growth in the market. So, firstly, I guess all the way to the distributor, dealership and engagement and that has been usually strong in Mexico. In addition to that I think we've improved product access by improving our own infrastructure and then through relationship with the third-party. We've now made it easier for our distributor to access products on a daily basis. Another element is training both for frankly our Company employees and also distributors have significantly improved their training programs for new distributors coming into the business. Then, I think the last thing is that one of the things that we've done in Mexico and that we're now doing in other markets is that we've taken a regionalized sales approach. So, we now have sales people on our staff closer to distributors in the region, working with them day-by-day and we think that's also a factor. So, again a number of different factors and the answer is – second part of your question is, yes. We are taking our learnings from Mexico and we are applying them now in other markets, and I think we're going to see the impact of that. We are seeing it already in Brazil. I think we're going to see it in Russia, in India, in the U.S. and in other countries as we continue to expand that regional sales concept.

John San Marco - Janney: Just sticking on the subject to access, is there any update you can provide on what your plans are, where you are in the planning process with respect to India?

Des Walsh - President: So we are adopting a similar approach. So, two aspects to that, one is expanding the creation of our own sales centers on a regional basis and then secondly, we're actually looking at partnering with another retailer to create a similar situation which we have in Mexico. The one difference in India is that unlike in Mexico, there was no one national retailer and so what we are instead focusing on is finding regional retail partners. Just to emphasize in those locations, our product is not available in the retail part of the story, it's available in the warehouse and again functioning effectively as a pick-up center for our distributors to be able to pick up product locally.

John San Marco - Janney: I'm sorry those partnerships are already in place or…?

Des Walsh - President: They are actually in discussion as we speak with one key player and in evaluation process with some others and we anticipate test of that beginning very shortly in India.

John San Marco - Janney: I guess I mean 140% volume growth is a nice problem to have, but I'm wondering if it surprised you a little bit and there is a lot more urgency to get this done now. Is there any risk that the level of distribution you do have is insufficient this year and we'll see India decelerate?

Des Walsh - President: We are actually trying to learn from experience in Mexico, because obviously a number of years ago the growth got ahead of us. Obviously, what we are now doing is, we are very focused on India, we’ve got a very strong team there, we’ve got a key strategic initiative to increase access to our products and so we are very fully engaged against that.

Operator: (Pierre Oustinow, Jefferies & Company).

Pierre Oustinow - Jefferies & Company: Want to look at more of a product specific question. Targeted Nutrition in particular looked very strong this year, was by I think 27%, 28%. How much of that growth would you kind of attribute to new products be it Aloe extensions or the CoQ10 product you talked about and how much of that growth is just a distributor-based, may be perhaps especially in daily consumption, just being more effective upsellers of those products?

John DeSimone - CFO: So new products haven’t driven growth and they tend to only drive growth in long term with us. In our model, it's not traditional food, drug, mass type consumer products. We get this big bang with the new product launch, but it does drive engagement and we have had some line extensions that also has helped with targeted nutrition, but primarily it's clubs selling more product in addition to just the way management products that we've been selling in the past.

Pierre Oustinow - Jefferies & Company: Along that line, exiting 2010, about how much of your sales do you think are going through daily consumption models be it clubs or otherwise?

John DeSimone - CFO: It's an estimate. Our estimate at this point is about a third of the business which is where it was about three months ago.

Pierre Oustinow - Jefferies & Company: Just one quick on forecasting 2011. So, if we're looking at a top line growth rate of 13% to 15% and I think at $5.15 to $5.40 versus $4.77, it's a little bit less than that. I know the tax rates are little bit headwind to you, but is there any reason with that kind of sales growth that we shouldn't look for at least a flattish operating margin in 2011 if not a little bit of expansion?

John DeSimone - CFO: There is no interaction of margins assumed in our guidance, which I think, answers your question.

Pierre Oustinow - Jefferies & Company: It certainly helps, yes.

John DeSimone - CFO: (indiscernible) I shouldn’t say. I am not trying to be cryptic, but...

Pierre Oustinow - Jefferies & Company: No, if we can use 2010 as at least the base point, that's helpful. I appreciate that.

Operator: Bret Jordan, Avondale Partners.

Bret Jordan - Avondale Partners: A little follow-up to the last question on percentage of sales in daily consumption. Do you have a feel like for how many points of sale you have and the growth rate of daily consumption, door funds? Is the volume increasing in existing doors or are the number of doors increasing faster?

John DeSimone - CFO: So, on a worldwide basis we estimate it's about 64,000 to 65,000 locations, and we don't really have visibility to average sales per location other than to say that when we look at the overall picture we see obviously continue strong growth even in those markets where the number of locations is stable and I guess the other thing of course we want to emphasize is that our traditional business is just as strong as ever even in those markets that have actually adopted the clubs as a common DMO and for us that's very significant because obviously one of the strengths of Herbalife is not only the strength in terms of the number of markets that we are in, but also in terms of the strength, in terms of the number of ways in which our distributors do the business. So, although we continued obviously to be very much focused on growth in the clubs, both in those markets they are strong and those markets where they are currently being adopted. We are also obviously very focused on our traditional business and what we are seeing of course is that our stronger brand is helping open doors in both traditional and efficient business around the world.

Bret Jordan - Avondale Partners: So you won't go to comp store sales numbers next quarter?

John DeSimone - CFO: No, we can't.

Bret Jordan - Avondale Partners: A question on Venezuela, it looks like after the quarter you got some mid capital out of Venezuela or in the process of extracting, is the balance of the exposure in Venezuela going to stay there just to run the business on a working capital basis or you think you can take more out?

Michael O. Johnson - Chairman and CEO: When we are not in control of it we can take out. So, I can't answer that question. I can tell you it's not so much taking out as much as converting to dollars. The business in Venezuela is just into dollars. We were able to convert $16 million of the $25 million that we had on our books into U.S. dollars, our ability to get access to dollars in the future is still unknown, and this wasn't a structured conversion. This was a special bond offering in which we're allocated our fair share of that and the allocations are not in our control. So, what remains in country is needed for working capital that doesn't mean that that number won't grow over the next few months.

Bret Jordan - Avondale Partners: So, you have no visibility on converting the Bolivar exposure you've got to dollars?

Des Walsh - President: None beyond what's already been accomplished in Q1.

Operator: At this time there are no further questions. Gentlemen, are there any closing remarks?

Michael O. Johnson - Chairman and CEO: I'd just like to on behalf of our distributors, our employees worldwide say, thank you for your continued support and congratulate all of them on a year well done. We're looking forward to talking to you again in the quarter. We've got a great momentum in our Company right now and we're very, very, very excited about the future. So, thanks for your participation and thanks for your support.

Operator: This concludes today's program. You may now disconnect.