All inset is a direct quote from Herbalife 2014 Q3.
Our “gross profit” consists of net sales less “cost of sales,” which represents our manufacturing costs, the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties, tariffs, and similar expenses.
While all Members can potentially profit from their activities by reselling our products for amounts greater than the prices they pay us, Members that develop, retain, and manage other Members can earn additional compensation for those activities, which we refer to as“Royalty overrides.” Royalty overrides are our most significant operating expense and consist of:
• royalty overrides and production bonuses;
• the Mark Hughes bonus payable to some of our most senior Members; and
• other discretionary incentive cash bonuses to qualifying Members.
“Selling, general and administrative expenses” represent our operating expenses, which include labor and benefits, service fees to China service providers, sales events, professional fees, travel and entertainment, Member promotions, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange gains and losses and other miscellaneous operating expenses.
When you look at Herbalife's SG&A, its much clunkier over time than Gross Profit. Herbalife's gross profit is consistently stable, but what they report as Gross Profit fails to account for major currency swings, which simply show up in SG&A.
Its also important to remember that Herbalife's sells in many different currencies and consequently they break out net sales in local currency for the respective operating segment. For example, local currency sales in Mexico increased 3.5% in Mexico, while it decreased in South/Central America by 1.1%(including bolivar remeasurement). In Russia you can see that net sales increased 20.1%, even with a 15.3% move in USD-RUB exchange rates.
In short you can take issue with where Herbalife books the local currency effects(although I don't I just back out the effects), but that being said, I'd be more concerned if they had wild fluctuations in their gross profit than I would that this number is extremely stable.
Setting aside the distributor allowance and royalty overrides(which is their largest operating expense) for now, you have to appreciate that if they source in the US and manufacture in the US and ship out of the US, their gross profit should remain pretty stable. The big swings show up in the consolidated numbers elsewhere.
But, like QTR, I too will defer to the reader to do your own research.