Pre-Paid Pratfalls: No Matter How You Spin It, Growth Is Slowing
By Herb Greenberg
Senior Columnist
7/13/01 11:32 AM ET
URL: thestreet.com
Pre-Paid Legal(PPD:NYSE), whose accounting has come under fire from the Securities and Exchange Commission, issued a press release at 9:46 p.m. EDT Wednesday night -- 9:46 p.m.?!? -- to tout its "record" 188,120 new memberships sold during the second quarter.
What the company doesn't say is that the growth trend, as this column has been reporting, continues to slide. And the slide is in direct contrast to what CEO Harland Stonecipher told investors to expect after announcing first-quarter results in April, when the legal-service plan insurer reported a 61% rise in new salespeople. "We believe the 61% increase in recruiting combined with our continued expansion in the U.S. and Canada will supplement our continuing growth," Stonecipher said.
A look at the latest numbers, however, shows just the opposite for Pre-Paid, a multilevel marketing company that (in theory, at least) needs to constantly recruit new salespeople to make sales grow. Despite the 61% gain in its sales force, for example, new memberships last quarter grew just 11.1% from a year ago -- a sharp slowdown from the 37.8% increase a year earlier. What's more (and you'll need to remember this number for the punch line later), the size of the sales force rose just 6% last quarter from a year earlier. And while sales of new memberships in the second quarter lurched ahead at 2.4% from the first quarter, the rate of growth is down sharply from the first quarter's 10.9% gain.
Changing Times
Year-over-year change in new-membership sales, new sales associates recruited and active members
Equally unimpressive is the base of active new members. While up 22% from a year ago, the rate of growth has been steadily declining from 37.8% in last year's second quarter. Put another way: No matter which way you look at it, the rate of Pre-Paid's growth is slowing.
Asked about the slowdown in new-membership sales growth, a Pre-Paid spokeswoman said the difference from the prior quarter is a mere 1 percentage point. But what about the steep slowdown in membership growth from the prior year? "That's my comment," she said. Why did the company issue the press release so late? "Because that's when it was ready." Fair enough, even though the timing of the release was odd. But this much seems certain: If a 61% gain in new salespeople produced a 1 percentage point fall in new-membership sales from the prior quarter, what kind of results will a 6% gain in new salespeople produce next quarter? |
