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NBTY- a global wellness and nutritional supplement company based out of Bohemia, NY - saw its stock take a sharp fall last Friday after announcing that shares of NBTY Inc missed Wall Street’s expectations.

NBTY operates both with the network marketing platform and through retail sales. The company operates under NBTY and is also marketed other third party brands, including Vitamin World and Natures Bounty. The global company offers offer 22,000 products and nutritional supplements.

Late last week, NBTY reported that their earning for the period ending March 31st fell 23 percent to $44.2 million, compared with $57.4 million from a year earlier.

While many industry experts feel that the decline in earning and shares is most likely a timing issue, the company blamed increasing costs of advertising, as well as selling, general and administrative costs as the cause of the decline in earnings.

In the next few weeks, many of the larger Network Marketing Companies will be reporting their earnings. So far, the news has not been as stellar as either the industry or Wall Street has predicted with the exception of Avon. Generally speaking Network Marketing companies do well in tough economic times as people need extra income. Many companies see a large rise in the number of distributors. We will see in the next few weeks whether the increase in distributors translates into dollars for the companies.

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There are several companies in the MLM/Network Marketing space which are publicly traded and sometimes may represent better bets than selling products themselves but in a market of uncertain conditions, weary investors may want to sit back.

We conducted a review of the top seven publicly traded stocks to see how they have done over the past year and also compared that to the S&P and the results are pretty interesting.

As you can see from the chart, only 3 of the companies faired better than the S&P - which isn’t saying much since the S&P was down 4% over that timeframe.  The three companies that out-performed the S&P are Pre-Paid Legal (PPD), Herbalife (HLF) and Avon (AVP).

The worst performing stock was Mannatech (MTEX) which was down almost 50% over the past year and NBTY (NTY) didnt do much better at a loss of almost 40%.  USANA (USNA) was down 45%. 

What is troubling about the findings is that while all of these companies trade at a multiple about 1.24X revenue - which is not terrible (to give you a correlation, Wal-Mart trades at roughly 1.5x revenue, Merk trades at 5x revenue and Google trades at 9x revenue) - they dont seem to offer much opportunity to an investor unless you are going to play these stocks off of the peaks and valleys - in which you can make a lot of money (you can lose it too if you are not careful).

Take Pre-Paid Legal as an example.  In the past 52 weeks, the stock hit a high of $71.49 and a low of $39.45.   That differential is significant for many reasons, one of which is if you were able to short the stock* on the way down from its high and start betting it up after it hit its low, you would’ve done extremely well.  

On the other hand, if you were shorting MTEX from July of 2007 through September, you could’ve done equally as well but probably would’ve gotten caught up in its bump up in late September and only lasted a few weeks.  With spreads over the 52 weeks of $4.75 as a low to $16.19 as a high, again, a shrewd investor could’ve made a lot of money.

Don’t get me wrong, the market doesnt play favorites or discriminate towards a specific sector.  While Gold, Oil, Platinum and other commodities have had more stability (and growth), even stocks like Apple (swing range of $83 - $202.06) and Google (swing range of $747.24 - $437) have seen their share of volatility. 

So if you are considering in investing in any of the stocks in the sector, you may want to think pretty hard on the idea and realize that you will probably do much better buying and selling the company products than you would doing the same with their stocks.

*Definition of Short Selling:
Selling of a stock that a person doesn’t own. They hope to profit by buying the stock back at a lower price and returning it. Also called “shorting.” Shorting a stock is basically the same as making a bet that the stock will go down. The investor borrows the shares of stock, sells them immediately, and promises to return the same number of shares later (plus interest). If the stock goes down, they buy the stock back at a lower price and return them.For example, if you short 30 shares of XYZ stock at $30/share and the stock falls to $20/share, you would have made $300 in profit.

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NBTY (Bohemia, NY) (NYSE: NTY), a leading global manufacturer and marketer of nutritional supplements, announced results for the fiscal first quarter ended December 31, 2007.

For the fiscal first quarter ended December 31, 2007, net sales were $511 million compared to $506 million for the fiscal first quarter ended December 31, 2006, an increase of $5 million or 1%.

Net income for the fiscal first quarter ended December 31, 2007 was $46 million, or $0.67 per diluted share, compared to $51 million, or $0.73 per diluted share, for the fiscal first quarter ended December 31, 2006. This reflects the decrease in earnings in the Direct Response/E-Commerce division.

At December 31, 2007, NBTY had total assets of $1.6 billion and working capital of $603 million, of which $236 million consisted of cash and short-term investments. The Company is committed to using its cash and leverage to increase shareholder value through opportunistic acquisitions and stock repurchases.

OPERATIONS FOR THE FISCAL FIRST QUARTER ENDED DECEMBER 31, 2007

Net sales for the Wholesale/US Nutrition division, which markets Nature’s Bounty, Solgar, Osteo Bi-Flex, Rexall, Ester-C and other brands, increased $12 million or 5% to $259 million from $247 million for the prior like quarter. Gross profit for the Wholesale operation increased to 44%, compared with 40% for the prior like quarter, reflecting greater efficiencies in supply chain management. The Company is currently experiencing higher purchase prices of certain raw materials. It is anticipated that a portion of these cost increases will be reflected in the prices of the Company’s products.

The Wholesale/US Nutrition division utilizes valuable consumer preference sales data generated by the Company’s Vitamin World retail stores and Puritan’s Pride Direct Response/E-Commerce operations to empower its wholesale customers with this latest data. The Vitamin World stores are used as a laboratory for new ideas and are an effective tool in determining and monitoring consumer preferences. This information, as well as scanned sales data from the Vitamin World stores, is shared on a real time basis with our wholesale customers to give them a competitive advantage.

Net sales for the North American Retail division increased $1 million, or 2% to $56 million for the fiscal first quarter ended December 31, 2007 compared with $55 million for the prior like quarter. While Adjusted EBITDA was positive, this division operated at an approximate $1 million loss.

Same store sales for North American Retail increased 6% for the fiscal first quarter of 2008. The North American Retail division continues to focus on rationalizing SKU’s, enhancing visual merchandising and increasing customer traffic. During the fiscal first quarter of 2008, the North American Retail division closed 5 under-performing stores and added 2 new stores. At the end of the fiscal first quarter, the North American Retail division operated a total of 534 stores consisting of 454 Vitamin World stores in the United States and 80 LeNaturiste stores in Canada. During the remainder of fiscal 2008, Vitamin World anticipates closing approximately 18 under-performing stores and opening approximately 10 stores.

European Retail net sales for the fiscal first quarter of 2008 increased $6 million, or 4% to $159 million from $153 million for the prior like period. European Retail division same store sales in local currency decreased 4%. The European Retail division continues to leverage its premier status, high street locations and brand awareness in a difficult retail environment. The European Retail division consists of 514 Holland &; Barrett and 31 GNC stores in the UK, 19 Nature’s Way stores in Ireland, and 70 DeTuinen stores in the Netherlands for a total of 634 stores. During the fiscal first quarter of 2008 the European Retail division opened 8 stores.

Net sales from Direct Response/E-Commerce operations for the fiscal first quarter of 2008 decreased $14 million, or 28% to $37 million from $52 million for the fiscal first quarter of 2007. This division varies its promotional strategy throughout the fiscal year. In the fiscal first quarter 2007, Direct Response utilized a highly promotional priced catalog which was not offered in the currently reported quarter. Therefore, in this less promotional quarter, Direct Response realized lower results. Direct Response’s historical results reflect this pattern and should therefore be viewed on an annual and not quarterly basis.

The Direct Response operations include catalog and online internet sales. This Division’s strategic plan is to increase internet sales by continuing to incorporate new technologies. For this fiscal first quarter online sales increased to 40% of total Direct Response/E-Commerce sales compared to 36% for the fiscal first quarter of 2007. NBTY remains the leader in the direct response and e-commerce sectors and continues to increase the number of products available via its catalog and web sites.

NBTY Chairman and CEO, Scott Rudolph, said: “NBTY maintained its leadership position. We are confident that the initiatives we instituted in our direct response business will be the cornerstone for generating positive results. We continue to enhance our position as the global leader in the nutritional supplement industry and take steps to best respond to cyclical changes in industry segments and garner greater market share.”

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