Yes, your sister needs to report her income and expenses from this business. She may even have a deductible loss from her activity. 

Showing a loss in her first year of business doesn’t automatically mean that her direct selling activity was a hobby.

The IRS discusses the factors that are considered when deciding if an activity is engaged in for profit,...

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

If she chose not to pursue the business this year because last year wasn't profitable, it could show that she did have a profit motive.

To report the income and expenses as a business, she would use TurboTax Self-Employed online, and her income/loss would be reported on Schedule C under Self-Employment Income.

If this was a hobby, she would report the income and expenses under Less Common Income, then scroll down to Miscellaneous Income, and select  Hobby income and expenses. She would not claim a loss in that case, but only be able to claim her expenses to the extent of her income.

She should be sure to not to claim any purchases or other expenses that were for her personal use.