Shares fell as much as 15% in pre-market trading on Thursday after a regulatory filing showed that Herbalife had found "errant information" in the content of some of its 2015 earnings calls.
Herbalife operates through a distribution network of millions of people worldwide for its fitness supplements, who are paid through a multi-level marketing structure. This model has attracted the intense scrutiny of hedge fund manager Bill Ackman.
From the disclosure (emphasis ours):
The Company began tracking this non-financial metric in 2015 in connection with certain marketing plan changes and discussed it for the first time on its second quarter 2015 earnings call. However, database scripting errors led to both (i) the errant inclusion of additional categories of data in calculating the metric for parts of 2015 which were not included in the 2014 and prior period calculations and (ii) quarterly aggregation issues which created variances from period-to-period depending on when the greatest level of activity occurred during the relevant period. The Company did not discover these errors earlier because it had limited visibility into the likely rate of change in this metric upon its first use. The Company has taken corrective action regarding these issues.
For example, the growth of worldwide active members (excluding China) in Q4 2015 was reported as 16.7%, but now the company says the correct value is 3.2%.
In Q3 of 2015, Herbalife quoted 33% growth for new members and North America, but has now revised it down to 1.8%. For the full year, growth was revised down to 3.4% from 8.3%.
There were some upwards revisions as well.
Herbalife shares have had a good year so far, as they're up 5%. They've rallied 81% over the last 12 months.
Here's a chart showing the drop in trading on Thursday:
