Herbalife Fudges New Member Data, Stock Plunges

(RTTNews) - Shares of Herbalife Ltd. (HLF) tumbled in Thursday's trading after the nutrition supplements company said it overstated the growth of its active new customers in 2015 due to database errors.

In a regulatory filing, the Los Angeles, California-based company disclosed that on March 1, 2016, it identified errant information regarding its new "Active New Member" metric that it had given investors on some of its 2015 earnings calls.

Herbalife said it did not discover these errors earlier as it had "limited visibility into the likely rate of change in this metric upon its first use." The company added that it has taken corrective action regarding these issues.

Herbalife, a multi-level marketing company that sells nutritional supplements and energy drinks, has been at the center of attention for investors ever since William Ackman, the activist manager of hedge fund Pershing Square Capital Management, called it a pyramid scheme that would fail. Ackman's allegations have led to federal probes against Herbalife.

Herbalife said it began tracking the non-financial metric of active new members in 2015 in connection with certain marketing plan changes and discussed it for the first time on its second-quarter 2015 earnings call.

According to the company, database scripting errors led to the errant inclusion of additional categories of data in calculating the metric for parts of 2015, that were not included in the 2014 and prior period calculations.

In addition, the database errors led to quarterly aggregation issues that created variances from period-to-period depending on when the greatest level of activity occurred during the relevant period.

During the earnings call for the fourth quarter and fiscal 2015 held on February 25, 2016, Herbalife had reported that its worldwide active new members, excluding China, rose 16.7 percent in the quarter from the year-ago period, while it had actually increased only 3.2 percent.

Likewise, the company's U.S. active new members increased only 30.7 percent in the quarter, while Herbalife had reported a 71.8 percent increase.

Herbalife said that no information regarding this non-financial metric was included in any of the company's periodic reports filed with the Securities and Exchange Commission. The company added that the errors do not impact its historical consolidated financial statements.