Herbalife Limited Q3 2007 Earnings Call Transcript

| About: Herbalife Ltd. (HLF)

Herbalife Limited (NYSE:HLF)

Q3 2007 Earnings Call

November 7, 2007, 11:00 AM ET


Brett R. Chapman - General Counsel and Corporate Secretary

Michael O. Johnson - Chairman and CEO

Gregory L. Probert - President and COO

Richard P. Goudis - CFO


Simeon Gutman - Goldman Sachs

Rommel T. Dionisio - Wedbush Morgan Securities

Karen Howland - Lehman Brothers

Chris Ferrara - Merrill Lynch

Scott VanWinkle - Canaccord Adams


Good morning and thank you for joining the third quarter 2007 Earnings Conference Call for Herbalife. On the call today is Michael Johnson, the Company's Chairman and CEO; Greg Probert, the Company's President and COO; Rich Goudis, 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 and Corporate Secretary

[Technical Difficulty] 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 complete discussion of risks associated with these forward-looking statements in our business.

In addition, during this call certain financial performance measures maybe 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 SEC those non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investor in evaluating 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 third quarter press release containing a reconciliation of these measures.

I will now turn the call over to Michael.

Michael O. Johnson - Chairman and Chief Executive Officer

Thanks Brett. Good morning everybody. I am fired up on Liftoff this morning and I have got to lot to say. So buckle your -- fasten your seat belts as they say. It's a great morning; it's great morning to be part of Herbalife. Welcome to our third quarter earnings call.

Before we update you on the third quarter, let me comment on the events that adversely affected our stock in the last few days. On Monday, an individual who claims to be a fraud investigator issued report that put in question our integrity, our marketing plan and our ethical fiber as such. This rattled your confidence; it rattled the investor confidence in our business model, our management team and our company. I am here to fix that right now. When concerning how we best respond to this report, we debated getting into the sand box and trading tit for tat or taking the high road, I have every intention of taking the high road.

Herbalife is a great company, a company of which I am personally very proud. When I left Disney four and a half years ago to join Herbalife I found the company that needed improvement and it lost its founder in 2000 and had several CEOs and senior management changes in three years. The company had new owners; who were looking for new leadership. It was a company, which was very tactical which lacks strategic direction. We had a senior management team that was not united in purpose and our distributor employee confidence in the long-term future of the company was frankly in doubt.

I have often told investors when I joined Herbalife I've viewed this company as a company of yesterday, today and tomorrow. Only one can change history, my focus was firmly on the future of our company. I immediately set out to build a strong leadership team, develop the growth strategy. We established distributor confidence and add to the integrity of our products, our business opportunity, our brand and our company image.

Let me take a moment to summarize what we collectively with our distributors, employees, our nutrition advisory board and our Board of Directors have accomplished in the past four and a half years. We've restored growth at Herbalife, double-digit top line growth in the past 36 months. Through specific strategic initiatives leading this year's growth was the U.S. so how old this market? Its 27 years old. It grew 20% in the last quarter.

Let me share with you some global comparisons to 2003. Today we have current... we currently have 1.7 million distributors, that's an increase of 58%. We have more distributors moving up the marketing plan than ever before. This is one of the many ways we define success. Our supervisor growth is up 52%, our GET team growth up 51%, our MILL team growth it's up 51% also. Our PRES team growth is up 40%, we have added eight new Chairman's Club, an increase of 33% and we now have two members of our founder circle. We developed strategies to strengthen retailing, retention and recruiting which you have heard us call the 3Rs. We modified the marketing plan to improve, supervise and retention. And the result has been an improvement in the retention from 28% in 2003 to 42.5% in 2007.

We initiated a sharing of best distributor practices worldwide. The company invested in those practices which we call DMOs to focus on retailing and retention. Most popular of these DMOs are Nutrition Clubs, which many investors on this call have visited over the past several months or even years. We are more balanced today among the 3Rs than at anytime in the company's history. And that is thanks to our leadership of our distributors who have globalized the successful DMOs.

And for distributors who decide to leave our company we have an industry leading policy to accept product returns for up to one year. Our buyback rates are approximately 1% of net sales. We have invested in staff to strengthen our internal controls policies and procedures. In today's world operating with integrity is not nice to have, but it's required.

We have been SOX compliant each year that we have been public. We have a distributor whistle blower hotline which handles complaints, I and against our distributors. We have minimal activity on this line, but each complaint is investigated and we review the results quarterly with our audit committee. We have a worldwide ethical business practice group that monitors distributor activity and proactively responds to questionable business practices. We have a worldwide internal audit staff that reports directly to the audit committee of the Board.

We have improved enough grade of the science behind our products along with its standard product training and coaching with the assistance of highly regarded professionals. Our Nutrition Advisory Board, we have built a global network of scientists and doctors, one of them who is a Nobel Laureate with impeccable credentials that assist our R&D team in reviewing and developing new products along with teaching our distributors about the science behind our products. At UCLA, we have a strong affiliation where we have established the Mark Hughes Cellular and Molecular Nutrition Laboratory at the Center for Human Nutrition.

At the University of Mississippi, we have a partnership, who will assist us in the development of future botanical and herbal products. And we currently have six clinical trials underway at various universities throughout the world. We have introduced new products with great science. They compete well in the marketplace. Let me name a few. Niteworks, it's a core heart health and a core heart helpline developed by a Nobel Laureate. Liftoff, an excellent energy drink that's been consumed this moment by people around this table and around this world and it competes head-to-head at retail with many of the best energy products, best effects which helps boost immunity. H3O, a fabulous hydration product, a new kid's line for kid's nutrition; skin activator and a complete new Neurofusion line, that's a line of personal care products fortified with vitamins.

We have built a tremendously talented management team which I am very proud of. It's comprised of Executives from some of the largest paying companies in the world. This is a team of high moral fiber, strong business ethics. And lastly, we created a company vision, mission and value statement that provides all of our employees and distributors with a fixed moral compass.

Now let me address some of the more specific points in this report. The report specifically states that our company is operating improperly in the Peoples Republic of China. And that our global marketing plan and distributive practice are designed for failure. Let me reiterate the facts as we've previously disclosed. We have strong confidence in our direct selling business model on a global basis. We operate in compliance with all applicable laws in 65 markets throughout the world and our business model has stood the test of time for 27 years.

As we have discussed in previous calls, the operating environment in China is difficult and different. In China, the regulations require a differentiated business model and compensation plan. As such, we modified our marketing plan to an employee retailer model. This was done with the assistance of a highly regarded Chinese law firm to ensure compliance with Chinese regulations. As part of our thorough review of our applications for a direct selling license, our operating model and compensation plan was reviewed in depth with Chinese government officials. Based upon this in depth review, in March 2007 Herbalife received a license to conduct direct sales in Nanjing and Suzhou.

Subsequent to receiving this direct selling license, government officials reviewed and audited our operations over a three-month period and ultimately approved the expansion of our direct selling license to the entire Jiangsu province in July. While we made from time-to-time have employees or distributors who do not probably follow our company policies, we firmly believe that our business operations comply with all laws and regulations. And we demand of our employees and distributors to do the same.

We have a very strong internal controls and systems which are intended to ensure that our employees follow our company's policies and procedures. We have a very strong ethical business practice department that is responsible for enforcing distributor compliance of all of our business practice rules. In both cases, when we find cases of non-compliance we take swift, swift and decisive actions to correct the situation. As Chairman of Herbalife, I expect our employees and distributors to follow our vision, mission and values, to operate worldwide with the highest level of integrity.

In the same report, the age old MLN stereotypes were mentioned regarding earnings claims, specifically suggesting that 82% of Herbalife's compensation is paid to less than 1% of our distributors. Let's go through the numbers. About 1.7 million distributors, approximately 25%, so 419,000 have attained the level of supervisor. Supervisors are those distributors who conduct part-time or full time business with Herbalife. In 2006, the company paid royalty overrides of $675 million to this group. We proactively published the average earnings for our various supervisor team levels on our website. Of the remaining 1.3 million distributors, based upon average order sizes, we believe that 58% are discount buyers, the 22% are small retailers and customers and that 20% are potentially future supervisors. Let me repeat that; 1.3 million distributors based on average order sizes, we believe that 58% are discount buyers, 22% are small retailers and 20% are potentially future supervisors.

Additionally distributors and supervisors collectively earn retail discounts of $1.5 billion in 2006 reflecting their potential retail mark up. Network marketing is a very challenging business. Success of the Herbalife distributor can be broadly defined. It could be some one who achieved their desired rate loss, to some one who earned a little extra income to make their needs or someone who is making a full time living building the sales organization.

Then lastly, there was a question regarding the language contained in our extension request for our 10-Q filed in November of 2006. The delay in our filing last year related to review in conclusion of an internal investigation. We modified our language slightly to appropriately reflect the specific reason for the delayed filing. This process in language is reviewed our audit committee and outside auditors. You know its unfortunately we have spend this much time on a report of this nature, but now it's time to move on and move on to the more important topic for today's call, which is the review of our earnings performance for the company and our positive outlook for 2008.

This has been frankly another great quarter. Let me share some highlights with you. We achieved net sales of $529.5 million, an increase of 11%, our 15th consecutive quarter of double-digit sales growth. Our operating profit margin expanded 125 basis points to 14.8%. The operating profit margin expansion reflects the operating leverage in our business model along with the benefits of our realignment for growth initiative will begin in 2006.

Over the quarter we repurchased 1.7 million shares, which created $0.01 of accretion. We set new records for net income and EPS. Our net income increased 27%, our EPS increased 32% compared to the third quarter of 2006. We announced our third quarterly cash dividend of $0.20 per share maintaining the dividend yield of approximately 2%. In the quarter, our distributors set new records. For the first time in our 27-year history, a distributorship achieved a 70K level of our marketing plan. This record was achieved by distributor of Mexico who created Nutrition Clubs, a method characterized by strong consumption and daily retailing. What this means is this distributorship achieved 70,000 royalty points for three consecutive months. That equates to approximately 1.4 million value points each month for three consecutive months.

That's a tremendous accomplishment, that's a lot of retailing and a lot of consumption. As a result of this success, many of distributor levels, excuse me, as a result of the success of many distributor leaders, we are now working with our distributors to add new recognition levels of 80K, 90K and 100K in anticipation of continued growth and sustained positive momentum by many of our top distributors. These recognition levels are very important as motivational components of our business. And another distributor... another important distributor milestone in the quarter was the addition of our 32nd member to our Chairman's Club. In October, we welcome Nani and Judith Rancel. This is the first distributorship from our Spanish speaking South American region to join the Chairman's Club. They have built a tremendously successful business based on a mix of DMOs. Their success is reflected in the strong growth throughout our South American region and a recognition that all of the various distributors DMOs can work.

During the third quarter of 2007, we met with over 60,000 distributors during our extravaganzas all over the world and had record breaking attendance at several events. These large events are important for many reasons. For me, these events are the venue I have the opportunity to address our distributors directly and reinforce the four pillars of operating with integrity and confidence at Herbalife. We do it through product, business opportunity, our brand and our image and it provides the following forums for us. The forum to introduce and train new products, to offer distributors coaching and training from our doctors, creating an environment for sharing of best practices from the many successful distributor leaders. It's a source of community where distributors can meet, network with each other. This provides a form of distribution recognition that is very important. Another source of inspiration, the motivational speakers like our very own Jim Brown, Volleyball legend Karch Kiraly, his wife is now a distributor and from the stories our distributors share about their personal experience.

Strong ticket sales are good quality to measure of our distributor excitement momentum. Our business is a momentum business. In the positive momentum, momentum is working in our favor. It's working across all parts of our business as our distributors have tremendous confidence in our products, the business opportunity, our brand and our image.

For our products we realized that obesity continues to be a global threat. Our products are developed in distributor programs are created to fight this mega trend and the best weight management nutrition products in the world. These products are built on a foundation of strong science. In fact as I mentioned before, we have six clinics underway.

Over the past few years, we have been customizing delivery of these products to strategically support various distributor DMOs. For example, in July, at the North American extravaganza, we launched our new kids line in H3O, our hydration product. Our kid's line addresses both the children's health and childhood obesity epidemic by offering the nutrient filled snacks and supplements and it opens up a product and business opportunity for stay at home moms. H3O is a key product addition that supports our brand alignment with healthy active lifestyle as well as supporting the emerging DMO such as wellness coaching and sampling.

At our European extravaganza in Cologne, we introduced single serve formula one packets to support the emerging sample and wellness DMOs as well as the second shake per day opportunity for Nutrition Clubs. In Brazil, we launched the first part of our strategic outer care product line in a world team school in August. This line is called Soft Green and all products contain green tea. The phase one launch included a hand moisturizer and liquid soap with three additional products to be introduced at Brazil... at our extravaganza coming in December. This line was developed locally in Brazil in conjunction with our corporate R&D team in a strategically priced to compete in the marketplace.

Herbalife for life is our underlying platform for our product strategy. Balanced nutrition, personalized for a healthy active lifestyle. Historically, the product platform for our company was weight loss. What is above is that our distributors have broadened the message from weight loss to weight management and with that shift comes the communication and coaching for good nutrition and are living a healthy active lifestyle. This is evident in the emergence of DMO such as Nutrition Club DMO, Wellness Coach and others.

Looking forward to 2008, we will continue to pursue product and packaging innovations and line extensions that help our distributors fight the mega trend of obesity and support the message of Herbalife for life. So our business opportunity for 27 years, this opportunity at Herbalife has been an industry leader. The global nature of our marketing plan and our commission payout has provided millions of individuals the opportunity to improve their way of life through a spectrum of income ranging from part time to full time.

And one of the questions I have been asked about in the recent month is how will macroeconomic trends affect our business? That's a fair question, as many product-based companies have expressed concern about changes in consumer spending especially in the U.S. and my response is that we are a unique business. Prior to our IPO, we studied historic sales performance, trends to better understand if there was a correlation between our performance and macroeconomic trends. Our analysis did not identify a correlation, a qualitative rational symbol in both strong and weak economic times, people want access to highly efficacious products and they want opportunity to earn supplemental income. The Herbalife experience is a unique combination of health and wealth.

We are proud of that fact that we have a great by opportunity and our distributors have improved upon traditional business by developing and sharing the best practices with new distributors coming into this business. Our independent distributors are our competitive advantage. Retail shelves can coach or mentor you or help you to achieve your health and wellness goals. Our distributors can and they do. Our distributor DMO have evolved along with our products to create a more successful business opportunity for our distributors. For example, our Nutrition Club DMO, which has a strong...which is a strong retailing DMO is successfully being implemented by our distributors worldwide.

In many markets, we now have the solid base of the original in home Nutrition Clubs originally created in Mexico. Our innovative distributors have modified this initial method creating what is called Central Clubs. In the U.S., Central America, South America, and Taiwan just to name a few countries. In these Central Clubs, several distributors work together at a third party location to leverage the resources to serve a larger customer base. Central Club's tend to have larger memberships and are open through out the day, and into the evening. And in the some markets such as the U.S. and Taiwan, we are beginning to see yet another club innovation, which we call Commercial Clubs. These clubs are usually located in business locations and target customers on the way to, or from work. We believe, we will see a continued evolution of this highly successful club and the adaptability of this core DMO in markets such as Russia, and Brazil.

The third quarter was packed with exciting news about the sponsorship of the LA Galaxy. As we focus on the brand, we realize that the more than 1 million Galaxy apparel items with the Herbalife logo have been produced and distributed through out the world. That means 1 million walking and talking billboards for our brand creating more positive brand awareness than ever before and aligning our brand with a healthy active lifestyle. This awareness is providing more door openings opportunities for our distributors to talk about our products and business opportunity with prospective customers and distributors.

We believe the brand impact was well beyond Los Angeles. The largest crowd ever for an MLS game was when the Galaxy played New York in front of a crowd of over 66,000 fans. When the Galaxy play across the U.S., it is very typical to see a photo of David Beckham, or any Herbalife jersey in the front of local news paper such as the Washington Post and the New York Times to name a few. The Galaxy are scheduled to play in exhibition games in Canada, Australia, and New Zealand in the next few weeks. In 2008, we look forward to added brand awareness when the Galaxy will play 30 to 35 games including a more robust international schedule.

Our distributors have capitalized on this branding opportunity, reflecting once again there ingenuity in innovation. And the recent example of this lies in South Florida, where one of our President's Team members partnered with the local youth soccer association, AYSO to sponsor the bulk of its own Saber Youth Rec League. They put the brands on every jersey, so thousands of kids in bulk return are just like the Galaxy with Herbalife and blazing across their chest. Our brand investment in LA Galaxy and numerous other sporting events and various events throughout the world has helped improved our brand image, but more important are the actions of our distributors. We constantly tell our distributors it's how they use our products, and become products of the product, and share their personnel testimonials. It's how distributors create successful businesses, servicing our customers, and personal coaching recognition and support. It's how our distributors strengthen their image in their local communities. And the way our distributors do this successfully is with integrity, its at the root of every successful distributor.

It's been another great quarter, but as I have said before, we are just getting started in Herbalife. There is more worldwide need for good nutrition than ever before. The obesity epidemic continues to grow. According to the World Health Organization, sadly, there are now more than 1 billion overweight adults globally, with so much room to improve the lives of others.

And now I will turn it over to my partner Greg, who is our President, and COO to discuss the recent business trends and insights into 2008.

Gregory L. Probert - President and Chief Operating Officer

Thank you, Michael. Before I start with my prepared remarks, I would also like to congratulate our distributors and our employees for the record they set during the third quarter and more importantly for their unity, and team work which has created tremendous excitement, and positive momentum throughout our business. Well done everyone.

Now, let me provide you with an update for our key markets; the U.S., Mexico, Brazil, and China and elaborate more on infrastructure investments for 2008. The U.S., a market which we have operating in for 27 years had a strong quarter with net sales up 20% compared to third quarter 2006. These results marked the fifth consecutive quarter of 20% or better growth. The U.S. growth continue to be driven by our Latino distributors who now represent 61% of total sales growing at 37% year-over-year. Growth in this segment is driven by both our traditional business coupled with adoption of the in-home Nutrition Clubs, and the emergence of the Central Club concept. The non-Latino segment, which increased slightly over 2006 comprised 39% of the U.S. sales in the quarter. The emerging sampling DMO has been the catalyst for growth in this part of the business.

Distributor trends for the market were positive with new supervisors up 15% compared to last year. More importantly, the total number of supervisors increased 15% sequentially from second quarter 2007. The U.S. had either double or triple-digit growth in all of the top ten metro areas and of the top 25 metros collectively grew at 34%. Even after 27 years, the concentration in top metros means we still have tremendous expansion and penetration opportunities across the United States.

Looking towards 2008, there are several initiatives in place to support growth in the business. We will enter into our second year of the LA Galaxy jersey sponsorship and look forward to even more distributor led grassroots branding efforts to multiply our branding investments. We are developing initiatives to target the college market where the distributors will be able to sample products like Liftoff as well as share the business opportunity. We will invest incrementally in our Latino segment. Our efforts are focused on ensuring positive momentum and collaborative leadership with promotions like Change your Pin and separate training and recognition events.

We are also evaluating infrastructure expansions including opening additional walk-in centers in cities where there are no established Latino distributor base.

Now let's turn to Mexico. As anticipated Mexico experienced a net sales decline in the third quarter, down 13% from last year reflecting the most difficult comp period in 2007. While this is a bit below our initial expectations, we believe the record attendance at the Mexico City Extravaganza in late September and contribute to some of the softness late in the quarter. The action plan laid out to you in January has essentially been completed, now we are beginning to see early signs of success. The first part of the planned infrastructure enhancements has led to distributor penetration in new markets. The states with local sales centers are growing 47% over 2006 and 25% of total volume in Mexico now comes from the new centers. Some of this is a shift in business from older or more congested centers and some of this growth represents new penetration in these local markets.

The second part of the action plan was to improve compliance through additional and more extensive distributor training. In our most recent field audits we are seeing better compliance as a result of this commitment from our distributor leaderships to train that organization downlines. This training has been focused on both Nutrition Club operations and the Herbalife rules and code of conduct. We expect that future growth in Mexico will come from expansion of service centers into new markets along with a stronger, better trained distributor base that can more deeply penetrate the marketplace. Additionally, there were a number of large training initiatives in the country in the quarter including STS programs in 40 cities throughout July and August.

And finally, we are seeing excitement momentum in the market. As we mentioned, the Mexico extravaganza had record breaking attendance and as a preview of the fourth quarter, the volume is trending up 6% sequentially from September and IDT sales which are new distributor kits for October are trending up 21% sequentially. Both are good indicators of positive momentum coming out of the September extravaganza. 2007 was the year to fix many of the growth pans that resulted from triple-digit growth during much of 2005 and 2006. I am very confident that we will leave 2007 with a stronger management team, a better trained distributor organization along with positive distributor momentum that should lead to success next year.

Looking towards 2008, our local promotions are focused on stimulating recruiting with rewards based on new supervisory recruitment and encouraging the opening of new Nutrition Clubs. Other key initiatives of 2008 include branding efforts, the advertising on OETV with a product placing program as well as a soccer stadium sampling program that will reach over 1.3 million consumers.

Now Brazil, Brazil continue to transition into a more balanced mix of the 3Rs; retailing, recruiting and retention. There are two key initiatives in place to support this transition; conversion to this customer club DMOs and product in pricing. Our short-term efforts are focused on supporting our distributors conversion to this new DMO developing success builder supervisors with Nutrition Clubs being an integral part of that plan. Distributors who have been working with Fit Club DMO for more than a year are gaining traction with volume point up 6% and as we have seen from other markets the transition in Nutrition Club does take time and that has been the case for Brazil as well. As Michael mentioned earlier Brazil is one of the countries where our distributors having success with the Central Club concept.

In our support to distributor leadership approach, we focused resource against severe training, sales tools and affordable product. Training for the quarter include a realtime school in July with over 3500 distributors in attendance and Nutrition Club training in Sao Paulo in August with over 3000 distributors in attendance. Sales to those include Nutrition Club sales aids and manuals as well as a new product catalog that supports all the DMOs. These programs have been well received by distributors. For example, the new product category launch in July at the World Team School sold at a rate seven times faster than the previous catalog number.

Additionally, distributor leaders who returned to Brazil are successfully opening in Peru in December 2006. Peru realized third quarter net sales of $8.2 million and over $17 million in 2007. To address price and improve our support to distributor retailing, we created Soft Green, which is comparably priced personal care line. The outer care market in Brazil is ten times larger than the inner care market and this new line provides the distributors with the opportunity to better penetrate this market. The new product line is strategically priced to compete against other leading brands.

Phase two of this line will be introduced in December and includes a shower gel, a body lotion and bath oil. In October, we made selective price reductions in our existing outer care line taking advantage of favorable exchange rates coupled with the shift to local product sourcing.

2007 has been a major transition year for our Brazilian distributors. They have made the conscious effort to shift their efforts towards DMOs that will provide a better balance of the 3Rs and therefore increase their business annuity. I am confident that we will continue to build positive momentum as we head into 2008. A great catalyst for this momentum will be a large distributor event in December where we will host a Brazilian extravaganza in Rio de Janeiro with anticipated attendance of 11,000 distributors. For 2008 the market will continue to make this transition to a more balanced model with an increased focus on retailing and retention. We will continue to support this with education, sales materials and products. Additionally, we will continue our expansions to larger personal care market and develop more product role play to allow us to be more price competitive.

Now let's turn to China. China continues to be an opportunity for us. Net sales were up 89% during the quarter and new supervisor growth was 150%. Due to the third quarter we have opened a total of 90 retail stores in 29 provinces. In October we hosted a World Team school with 3500 distributors in the City of Xiandao. Government relations in China are important aspect to having successful legitimate business.

Our strategy has been to have a very proactive government relations program in China. During the quarter Herbalife participated in a government hosted meeting with SAIC and MARCOM officials with the government announcing increase enforcement on direct selling. Our participation is in fact was viewed favorably by the government as an example of our continuing efforts to maintain strong relationship with government agencies who are enforcing the direct selling regulations.

The management changes in the region during the quarter were well accepted by distributor leaders. In August, Paul Noack, our Chief Strategic Officer and I met with both SAIC and MARCOM officials to communicate that changes in Herbalife management would not effect our favorable relationships with the government.

During 2007, we continue our expansion in this market. As you know, we received our first direct selling license in two cities in March and after thorough review which included field audits by the government, we received our first provincial license in July. And we have submitted our application for direct selling license in five additional provinces.

Our efforts in 2008 will focus on further provincial expansion coupled with investment in our infrastructure to ensure we provide employees, distributors and retail customers with business plan training, a premium customer service and world class products. We will also invest in strong government relations, ethical business practice oversight and expansion of our store and manufacturing infrastructure in an effort to support future growth in this market.

Now let's talk about infrastructure. Over the next 18 months we will complete the global roll of Oracle ERP System. This global roll out plan constitutes the majority of our projected CapEx spending in 2008. The key components include the roll out of vertical order management module globally as well as necessary software hardware and database upgrades to write better, more integrated information for our business. We are making this investment in order to better support distributor operations, improve customer service, support our emerging customer initiatives, improve up on our business analytics and support new country openings.

This is a critical internal initiative which we must complete in order to achieve our long-term growth goals. And now let me turn the call over to Rich to discuss our financial results.

Richard P. Goudis - Chief Financial Officer

Thanks Greg. Let me walk you quickly through the financial results that were contained in yesterday's press release and our 10-Q and then provide our financial guidance for 07 and 08. And then we'll open up the call for your questions.

Net sales are $529.5 million in the third quarter were 11.1% up versus the third quarter of 2006. We experienced strong sales growth in our top ten markets which were up 11% versus 2006 led by double-digit growth in the U.S. up 20.4%, Taiwan up 23.6%, Chin a up 89.3%, Italy up 15.8% and Venezuela which is up triple-digits. As a whole, our top ten markets comprise 69% of our business, up from 68% in 2006. Reflecting the global nature of our business, changes in FX rates provided a benefit of 370 basis points in the reported growth rate.

Gross profit in the third quarter was $223.7 million or 80.0% of sales, reflecting an improvement of 39 basis points compared to 79.6% in the third quarter of last year. The increase from the year-over-year was primarily the result of increase in China sales as a mix of our business, which was 20 basis points, lower transportation cost coupled with the realization of vendor cost savings 12 basis points and price increases in several of our markets, which was 7 basis points.

Royalty expense for the third quarter of $186.5 million or 35.2% of sales improved 19 basis points compared to 35.4% in the third quarter of last year. Improvement over prior year was primarily due to the impact of China royalties which are partially contained in SG&A due to the employee model we used for China. Normalizing for China royalties, royalty expense was 36.8%, 55 basis points higher than the 36.2% in 2006.

SG&A expense for the third quarter was $158.9 million, an increase of $12.8 million versus 2006. As a percent of sales, we experienced an improvement of 66 basis points of 30.0% compared to 30.7% in the third quarter of last year. The dollar increase was primarily attributable to higher labor and benefit expense including our China distributor royalties containing SG&A and adoption of FAS 123R, as well as an increase in sales event as we hosted one more large extravaganza in the third quarter 2007 compared to the third quarter 2006. Once again, normalize for China royalties of SG&A as a percent of sales improved 162 basis points compared to the 28.2%, excuse me, 228.2% compared to 29.9% in 2006.

Third quarter operating income was $78.3 million or 14.8% of sales and improvement of 125 basis points compared to 13.5% of third quarter last year. Third quarter interest expense of $2.7 million versus $25.9 million reported in the third quarter of 2006. Once you exclude the 2006 expenses for the debt refinancing, interest expense was essentially the same up about 200,000 or lower than a year ago?

Our third quarter effective tax rate was 36.0% versus 31.5% reported rate for the third quarter of '06. However, excluding the 2006 tax benefits in the third quarter, third quarter 2006 effective rate would have been 38.1%. Excluding these outstanding issues from a year ago and a third quarter 2007, we realized a 200 basis point improvement in our effective tax rate.

Net income on a reported basis was $48.3 million in the quarter compared to $26.5 million in the third quarter of '06. Excluding certain items from 2006 as I just mentioned and contained in our press release issued yesterday, net income was $38.1 million in the third quarter last year representing an apples-to-apples increase of 27%. On an as reported basis, third quarter diluted earnings per share was $0.67 versus $0.36 reported in 2006. Again excluding the certain one-time items just mentioned third quarter '06, diluted EPS was $0.51. So, based on this third quarter '07 EPS increased $0.16 or 31.6% year-over-year.

So, in summary for the P&L, our third quarter net sales were up 11%, net income was up 27%, and our adjusted EPS growth rate was 32%.

Now turning to the balance sheet, we had net debt of $67 million as we ended September with $228 million in debt, $149 million of which was our term facility and $161 million in cash. During the third quarter, we used $14 million in excess cash to pay the second quarter dividend, and $16 million in excess cash along with $49 million revolver to repurchase $65 million of our company stock.

Year-to-date inventories declined $19.5 million reflected in the burnout of inventory which was currently build last year for Mexico. From an efficiency standpoint, our days on hand improved to 123 days, down from 11 days from December of '06, and our inventory returns was 3.0 in the quarter.

CapEx of $9.2 million for the quarter primarily reflects $5.5 million investments for our IT infrastructure coupled with $3.7 million in leasehold improvements primarily related to our corporate relocation to Torrance. In August, we announced that the Board of Directors had approved an increase in our share repurchase authority by $115 million. During the third quarter, the company repurchased 1.7 million shares of its common stock through open market transactions at an average price of $39.23 for an aggregate cost of $65.1 million. The company used excess cash along with debt to fund the repurchase. Since our share repurchase program was authorized in April of 2007, the company repurchased 5.2 million shares at an aggregate cost of $204 million. In August, we closed a $150 million additional credit facility to assist with our ongoing share repurchase program. Reflecting the strength of our credit, the facility was 100 million over subscribed.

And finally, let me reiterate our fourth quarter and full year 2007 guidance. Due to the strong performance in the third quarter coupled with the recent business trends, for the balance of the year, and anticipate for the balance of the year, we anticipate fourth quarter EPS to be in a range of $0.72 to $0.74 and full year 2007 EPS to be between $2.62 and $2.64. We are also reaffirming our top line net sales guidance of 9% to 11% for the fourth quarter. For the first time, we are providing guidance for 2008 in consistent with what we conveyed last year, we are limiting our guidance to top line and bottom line along with CapEx.

Net sales top line growth rate we expect to be in a range of 7% to 10% versus 2007. We anticipate our fully diluted EPS would be in a range of $3.17 to $3.23 and our CapEx would be in a range of $85 million to $95 million, primarily reflecting the Oracle workout. Please note that this guidance excludes cost expected to be incurred relating to our realignment for growth initiatives, and the tax adjustments made in the first and second quarter as noted in our press release. Our guidance also includes the accretion from the accretion recent share repurchase of $5.2 million. And the expectation that we will conclude the currently authorized $415 million share repurchase throughout 2008.

Before we go on to and open the call for questions, let me just comment on... I wanted to address the disclosures we added on page 38 of our 10-Q filed with the SEC last night. While the disclosure speaks for itself due to several investor calls this morning, let me take a moment to elaborate a bit more.

Number one, this is a voluntary request, not a formal order by the SEC. Number 2, the SEC request additional information from companies. Number 3, we talked with the SEC and informed that we will fully cooperate with their request regarding the production of documents related to the personal use of Herbalife products by the company's distributors and the company's related policies and procedures. And fourth, the SEC did not disclose the reason for the inquiry, but it might be safe to assume that it relates to the most recent fraud discovery and memo circulated to the SEC last week.

And, finally I want to be reinforce that the company had no obligation to disclose this matter. But in the sprit of full disclosure and our commitment to best practices in corporate governance, we added the information on this voluntary request to our 10-Q yesterday. With that let me open it up for questions.

Question And Answer


[Operator Instructions]. Our first question comes from Simeon Gutman.

Simeon Gutman - Goldman Sachs

Hey for Michael and Greg. How do you insulate this business model from reputation challenges, and we spoken about it in the past. It may be from past experience you can elaborate, and then, is it something that... is it something that seeps into the distributor base?

Michael O. Johnson - Chairman and Chief Executive Officer

Well, it's Michael. Simeon, good morning. It does not slip into the distributor base at all. It's... there is thousands of people getting checks right now globally. They don't care or are concerned with their sort of good nutrition, business opportunity, and building a future for themselves, and so it doesn't slip into there. Our business models are incredibly strong. It takes a moment for a corporate, because we get, we have to respond to things like this. We can't stand being dragged down in the dirt with this kind of stuff, and I said before, we won't be dragged down any more of it. We have a lot of time spent, hours spend, and some day in here everybody I am staring at has been here to 1 to 2 in the morning preparing for this call making sure that we are giving you adequate information in finding exactly how our business model operates. We are trying to be extremely professional, and rise above this. This industry unfortunately has players in it who tend to spoil the image of it.

Direct selling is a wonderful model. It is a model for people to have some income at home, large, small, whatever they desire to do. We've got great products. We have a great business opportunity. We got great distributors and we are very proud of what we are doing, $100 billion industry that we are living in. And unfortunately, there is winds that are from the past that blow through every now and then. And frankly, to be forced to be responding to them kind of bothers us, but for our investor confidence, for our distributor confidence, we do it. Right after this, we will be on a phone call with our distributor leaders to go through this call, to go through the quarter, to talk to them about what we have talked to you about, about the past, the present, the future of the company and frankly we will use this moment just to make sure everybody takes the inventory and stock, and what they are doing, and how they are conducting their business.

So we use this as platform, as a learning, as a mechanism, and our distributors are frankly little tougher about this than may be we are because they have been going through this for a long time. They have been hearing about the ills, and the wills of this industry, and they sit there and watch people benefit from this. They see lives change. They hear testimonials, they watch weight decrease, they see complete changes in people's personal conditions in lives both health, and wealth, and they are confident. And so they have ... they have a ground that they stand on, we stand on the ground of high ethics, of strong moral fiber and we are going to be on the high road forever. So this is a moment where leadership is important not only in our distributors, but at corporately and frankly, with our investors too. So Simeon, I hate to be long-winded there, but it was an important question. Thank you.

Simeon Gutman - Goldman Sachs

No problem. And I mean are there incremental conference calls that you will be pursuing aside from the most senior level of leadership down or will it just start at that point and then go for the rest?

Michael O. Johnson - Chairman and Chief Executive Officer

We're just going to do it with the Chairman's Club. They will work it down. This is where their leadership comes into play and they show what they are all about and they are about strong leadership in their organizations. And, as I said before, they have been through these types of moments, and they are probably stronger at it, and better at it than we are.

Simeon Gutman - Goldman Sachs

Okay. And back to Mexico. Can you talk about what the response has been so far from the new Nutrition Club promotion and then related to that in the 7% to 10% top line growth assumption for '08, is it fair to think that Mexico at least at this point in time is sort of a mid to a low single-digit grower in that context?

Richard P. Goudis - Chief Financial Officer

Yes Simeon first, I think the response to promotions is too early to tell. We said it's a long-term promotion. It's actually a multiyear promotion and yes, we expect right now that given the run rates and the trends we see in Mexico, that Mexico should finish up very slight single-digits in the fourth quarter and that we hope we build continually and sequentially on that throughout 2008.

Simeon Gutman - Goldman Sachs

Okay and then as far as CapEx for actually looking past '08. Is this step up a temporary event for '08, and does it moderate in '09?

Richard P. Goudis - Chief Financial Officer

Yes, you actually have two stepups in '08, the majority of which is the complete roll out of Oracle over the next 18 months, and then another step up if we will is we will be actually moving to LA Live, which is kind of like the Time Square to west next year. And there is a little over, I think $10 million to $12 million in CapEx for that and so once we get through '08, we will move facilities, all our major facilities here in the U.S., which we have been in 20 years will have moved over the last '06, '07, and '08. In '09, we get down to a normal run rate, I think both in terms of information technology investment, as well as facilities.

Simeon Gutman - Goldman Sachs

Okay. And just lastly, I guess for you Rich. Have you guys ever thought about just more frequent updates on the business, I don't know in terms of monthly sales, but especially in the context of just more quarterly updates on the health of the business?

Richard P. Goudis - Chief Financial Officer

It's a good question. I think, we are pretty proactive with the investment community. We don't miss investor conference and we don't really miss the request to go out in market with people like yourself. I think, we do a very good job reporting on a quarterly basis and in effectively what we are doing now is really almost a mid quarter update. And I don't think you will see us changing that method.

Gregory L. Probert - President and Chief Operating Officer

We have an Investor Day coming at the end of this month.

Simeon Gutman - Goldman Sachs

Okay great, thanks guys.


Our next question comes from Rommel Dionisio.

Rommel T. Dionisio - Wedbush Morgan Securities

Yes, good morning from Wedbush Morgan. With regards to the U.S. business, first of all, great performance in the quarter. The Latino business has obviously been, excuse me Latino distributor force has obviously been the key driver and I think Nutrition Clubs have been a big part of that. Can you talk about the non-Latino force? I know you talked about sampling helping that business. But is there a thought to really certain begin to push Nutrition Clubs to that segment of the U.S. distributor force going forward?

Gregory L. Probert - President and Chief Operating Officer

Right. This is Greg.

Rommel T. Dionisio - Wedbush Morgan Securities

Hi Greg.

Gregory L. Probert - President and Chief Operating Officer

There are a couple of answers to that question. There is a lot of focus on the Anglo business, as well as Latino. As you said, it's about 39%, 40% of our business, and a couple of things and couple of initiatives in there. One is the weight loss challenge. So, lot of our distributors are doing something we are basically think of the biggest loser on TV. It's really where they are challenging and coming together in groups, and mentoring and coaching, and encouraging each other to lose weight and coming together again in a soulful environment, so it's a little, it's different in execution from the Nutrition Clubs, it has all the same benefits. We have a sense of community, you have mentoring, you have encouragement, you have product results, and so that's one of the things we are seeing. As I said in my prepared comments that we were looking at penetrating the College segment and really trying to recruit, and bring new younger customers, and younger distributors into the business. We have launched a generation age initiative a few years back in the U.S where we had brought in distributors under 30 and now we are going down and a little bit lower actually on the colleges. And we think it is a great product opportunity in college. We think it's also a great part time business opportunity to earn some money while you are in college and we thought if we can get people on to the product in college, they can become Herbalife for life product users.

We have clubs emerging in the Anglo segment, the Central Clubs as well as in-home Nutrition Clubs, and so we have Kansas City we have, one of our distributor leaders is very, very successful at building Anglo clubs. And, so I think if we look at it a lot of the things that are working in the Latino business are moving over into the Anglo business and we expect those are starting to take root. It will take a little bit of time, so they will take a couple of quarters to see that. And again as I said the sampling DMO is very vibrant, and again getting more and more people on to the products and make sure that we have customer retention.

Rommel T. Dionisio - Wedbush Morgan Securities

Thank you, Greg and congratulation on the quarter by the way. Good performance again.

Gregory L. Probert - President and Chief Operating Officer

Thank you.


Our next question comes from Karen Howland.

Karen Howland - Lehman Brothers

Good morning, thanks for taking my call. Looking at the volumes that have in the European region, Middle East and Africa, I have noticed on a two year basis they have continued to decline, just wondering, what sort of initiatives you have in place there to reverse that trend?

Gregory L. Probert - President and Chief Operating Officer

I think there is a couple of things and relatively EMEA is a big, big market and we are trying to break it down into what's happening at a market level. And I feel there are some very strong successes in EMEA if you look at the Italy and now Russia is actually showing some pretty good growth, it is up 17%. We believe in Eastern Europe that we have a chance, Eastern Central Europe as well as Russia we have a chance to grow, that's one of our markets while I think we have under penetrated and frankly underperformed in the past and we just as we now to take a couple of weeks ago we just brought on a new executive to run our Central and Eastern Europe business which includes Poland and Czech and Slovak Republics and few other markets.

I think that's happening. You see some of the DMOs going into Europe that have worked in other parts, typically the sampling DMO, our biggest check in Spain, our biggest check in France are actually using that DMO now. So again, we are seeing that DMO moving toward through Europe obviously the Nutrition Clubs, the Central Clubs are moving and with the Wellness Evaluation and Wellness Coaching which actually started in France is now moving through out Europe. So I think Europe has a few markets that are down, a lot of markets that are very strong and so we think that EMEA will start to turn... has turned the quarter and will start to increase again I think a couple of quarters, but I think we are very, you are talking and partially optimistic about EMEA.

Karen Howland - Lehman Brothers

And the initiatives that you are talking about the Nutrition Club Reserve, Wellness Coaching that have been going throughout, does this assuming that has been gain traction of course the last quarter or recently we have seen?

Gregory L. Probert - President and Chief Operating Officer

Yes I think the wellness is probably a little further long, I think Nutrition Clubs and really emerging. Again like any Nutrition Club, it has to be acculturated and has to be adjusted for the particular market. So you saw a bit typical in the Central Clubs in South America and U.S. it is both in-home clubs and Central Clubs and now Commercial Clubs are... that's starting to gain some traction but I think, its still several years away. If you remember the Nutrition Clubs took many, many years to get traction in Mexico. I think one another concept that's emerging in Russia under our leadership there is it's early the Breakfast Club and that's again a iteration of the Nutrition Club concept from Mexico that's being acculturated and adapted for that market and we think that's one of the reasons that our Russian market is up 17%.

Karen Howland - Lehman Brothers

Thanks for that color. And then, I think just probably is a obvious question but, that stock with the current level that it is out there, are you guys are the pacifiers of the, for your share buyback?

Michael O. Johnson - Chairman and Chief Executive Officer

Yes, we've precluded for being in the market for at least another couple of days, and after that we'll just continue to monitor the performance and we would agree with you.

Karen Howland - Lehman Brothers

Thanks so much.


Our next question comes from Chris Ferrara.

Chris Ferrara - Merrill Lynch

Hey guys. I just want to follow up on that buyback question I mean, can I guess, can you talk about what the tax consequences if any, there are associated with really, I mean really pushing the authorization and the buyback given what's happened to the shares and if there are any, I mean is that part of the consideration and are you guys meeting with the Board to discuss these things any time soon?

Michael O. Johnson - Chairman and Chief Executive Officer

Well Chris we have little over $250 million in additional authority or capacity if you will on our buyback. So I don't think we have anything that governs us in the near term and we'll monitor the situation closely and this is business that generates a tremendous amount of free cash. We don't believe that the buyback over the next year would have any adverse impact that we are aware on of effective tax rate and again we are looking at the stock right now. We are disappointed at where it is and we think on a value basis, the stock should be significantly higher and it provides a great opportunity for us and others to take advantage of where the stock is.

Chris Ferrara - Merrill Lynch

Got it. And then I just want to ask, I think, I guess one of the big tiers in the marketplace today like no big surprise sort of the SEC related voluntary document request. Obviously as you guys said that it's untraditional I know, your concerns and I guess investors worst fears to that there is some systemic issue in your model, right with distributors making initial buying, never use the products, put them in their garage and then recruit team of downline to basically do the same thing only to just generate commissions on the initial buying. So can you just address the concern that there are garages around the world filled with unused Herbalife product like understanding of course you don't have complete clarity. But even anecdotes that help people get pass that would be, would be great.

Gregory L. Probert - President and Chief Operating Officer

So Chris, let me just start with this first, there was another one of our peer group, peer companies had a similar issue back in the first and second quarter and it was the same routine, the same investigator and followed by an SEC inquiry. So I think that seems like to be just what happened. Listen, these models have stood the test of times by the review by attorney generals. We here, I think you've been here; you've actually walked through some of our analytical business practice group and our distributor relations group. We have, we believe are the leading controls in place that ensure that we operate at the highest level of whether it's a law or regulation and we have a very strong oversight group that ensure that distributors comply with that.

Michael O. Johnson - Chairman and Chief Executive Officer

Yes, let me jump bit on that, as far as product in garages, our fastest growing DMO is Nutrition Clubs. There is daily consumption of retail of this product. We see it fired Mexico for three years. It's now starting to fire other marketplaces, that is not... there is no garages in that. The garage is Nutrition Club in throughout the world. So you have that. If we have places or if there are you know excess inventory moments we have the ability to buy that product back. The distributor has the ability to return that product. So there is no need for a garage to fill up any way. Somebody has come into this business and decided that this is not for them or they have been out of meeting and got excited by the moment and then all of a sudden they get home and there is whatever disagreement on business direction in the household, they have the opportunity for buybacks. Our buybacks are 1% in this company. The way the inventory flows and moves throughout the world, we are pretty confident that this is not a plan that takes place as the one that you expressed.

We are just recruiting on top of recruiting. We constantly and constantly go after any type of situation with that could incur, we don't see many of them but we also foster through the sampling program, smaller packages of sampling. Try the product first, see if its something you are comfortable with before you make a larger investment and see it if this is a business opportunity that you are comfortable with that you can do. Get on to products; get your own personal success story. These are all things that you become a successful Herbalife distributor because your own personal testimonial. Frankly, our best and most... strongest advocate for this company are people who have lost weight on a product or who reached a healthier, more active life style and become testimonials for the product themselves. So, this is again, are there problems? You bet. Are there strong opportunities in this company? They are much bigger than any problems that we have.

Chris Ferrara - Merrill Lynch

Thanks a lot guys.


Our next question comes from Scott VanWinkle.

Scott VanWinkle - Canaccord Adams

Hi gentlemen, a couple of questions. First on Michael's comments about segmenting those 1.3 million distributors; that was from your analysis based on volumes to the distributors. What happens when you ask the leadership or you do survey work. Do you find the same type of segmentation of who you... how you would classify distributors?

Gregory L. Probert - President and Chief Operating Officer

Yes Scott. This is Greg. Yes, we do. Directionally, we hear the same thing, so anecdotally, it supports what we have sort of quantified internally and it makes really common sense. If you are coming into the business as a customer and you join up with the distributor, that entry price point is roughly $50 to come in and you get a 25... at least a 25% discount and you are buying a couple of hundred dollars a month to get on the ShapeWorks program for example. The payback of that entry fee is on your product discount is a couple of months. It's actually one month, so under that model this makes a lot more sense to sign up as what we call it discount buyer and that's probably 1 million of that 1.7 million distributors are actually discount buyers. The good news is by becoming a distributor they also have the ability to buy directly from the company, in addition to getting that discount, so that's new information that we have broken out for you before, but we think it's important to understand that they are not in this for the business opportunity. They are in for the product and their entry cost is minimal.

Scott VanWinkle - Canaccord Adams

Okay. Is there a difference between those three segments and turnover rates? The discount buyer may stay on a little longer where may be a future supervisor decides he is not going to make it and jumps off the program faster?

Gregory L. Probert - President and Chief Operating Officer

Yes Scott, we don't track that. And one of the things that we hope to do in the future when we get our systems Oracle rolled out in some of our BizWorks 2.0 is to be able to really penetrate that database and data mine that do some CRM on those. But right now, we don't track that. We only track retention for the supervisors as we said in Michael's prepared comments about 419,000 supervisors of the 1.7 million, and our retention rate is 43%. So those people, once they get to supervisor, stay in the business, and have pretty good average earnings. And again that's one of the things, we look at the turnover rate to that one million customers is they tend to come in, and out of the business. They come, and get their product results, go out, and come back in, and in future we hope to do a better job of data mining that segment.

Scott VanWinkle - Canaccord Adams

And the second question was around the Nutrition Clubs. Are there any different rules in place for a Commercial Club versus a traditional Nutritional Club given the fact that there is probably higher volumes, and higher infrastructure investment on the part of the distributor?

Gregory L. Probert - President and Chief Operating Officer

Yes, we have fairly extensive rules and manuals on all the club types, so as they evolve, we adapted, and for instance one of the things with in-home clubs is we call it good neighbor policy, is that if you are doing this in your home, you don't have too bigger club. If you are opening a larger club, do it more as a Central Club, or Commercial Club, and we want make sure that all of our distributors are compliant with local laws and regulations, so we spend a lot of time doing that, and a lot of time with the leadership making sure that they are training those rules and regulations to their downline, and we really are very proactive to make sure that we don't have that issue in Mexico where we grow so fast that those rules and regulations, and it is good business practices will not pass down fast and we want to make sure that proactively address that in other markets.

As we said earlier, in Mexico, we do well and perform audits of the Nutrition Clubs, and, really with the goal of making sure that the training is taking place so the leadership are responsible for training. If your remember, one of the things was they go out and train and so far all their clubs, and the certificate to us, and we go out and on a random basis, we make sure that they are actually doing that, and again its less about finding someone doing something wrong and it is about training them to be compliant.

Scott VanWinkle - Canaccord Adams

Thank you


[Operator Instructions]. There are no further questions at this time.

Michael O. Johnson - Chairman and Chief Executive Officer

Okay. Well, first of all, we would like to thank everybody for participating today, kind of an interesting summary we've looked at, which was it took 16 years for this company to get to $1 billion in retail sales, and that's retail sales, we are not talking about net sales. Eight years to get to $2 billion and 2 years to get to $3 billion. The distributors, the employees who really, they make up team Herbalife. Greg and I are really excited about the future of our company. You heard it today on the call. You heard about these DMOs, their successful operations globally, things that are growing, and people responding frankly to this global weight loss dilemma. The growth potential and the returns to shareholders will continue to grow in this company. They will get bigger and better.

I hope to see many of you on November 28 at our Investor Day. We will take you through our Nutrition Club, you will have a chance to visit it, as well as a new Central Club here in LA. We are excited, because we can give you a tour of our new Torrance facility including a science lab and a distributor call center. You'll get to hear more insight shared by many of our executives on the company. We will highlight more on our key initiatives for 2008. Then we will have our research and development team give you more insight into our products. I hope you all have a blessed and wonderful Thanksgiving. Thank you for participating on our call today.


Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.

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