Helen of Troy Ltd., parent of Hydro Flask, on Tuesday, reported revenue for the fiscal second quarter ended August 31 of $414 million, up 5.2 percent from the year-ago period, driven by 22.1 percent growth in Housewares. That beat Wall Street’s expectations by $23.5 million.

Following the divestiture of Healthy Directions on December 20, 2017, the company no longer consolidates the Nutritional Supplements segment’s operating results. That former segment’s operating results are included in the Company’s financial statements and classified as discontinued operations for all periods presented.

Executive Summary – Second Quarter of Fiscal 2020

  • Consolidated net sales revenue increase of 5.2 percent, including:
    • An increase in Leadership Brand net sales of 3.8 percent
    • An increase in online channel net sales of approximately 25 percent
    • Core business growth of 5.7 percent
  • GAAP operating income of $54.5 million, or 13.2 percent of net sales, which includes pre-tax restructuring charges of $0.4 million, compared to GAAP operating income of $50.7 million, or 12.9 percent of net sales, for the same period last year, which included pre-tax restructuring charges of $0.9 million
  • Non-GAAP adjusted operating income increase of 10.4 percent to $65.8 million, or 15.9 percent of net sales, compared to $59.6 million, or 15.1 percent of net sales, for the same period last year
  • GAAP diluted EPS from continuing operations of $1.83, which includes an after-tax restructuring charge of $0.01 per share, compared to GAAP diluted EPS of $1.66 for the same period last year, which included an after-tax restructuring charge of $0.03 per share
  • Non-GAAP adjusted diluted EPS from continuing operations increase of 13.1 percent to $2.24, compared to $1.98 for the same period last year

Julien R. Mininberg, CEO, said: “We are pleased with our second quarter financial performance, which delivered consolidated core business sales growth of 5.7 percent and adjusted diluted EPS growth of 13.1 percent, both ahead of our expectations. During the quarter, we improved our consolidated operating margin, while simultaneously increasing our growth investments compared to our original outlook at the beginning of the year. These growth investments are generating healthy results and our digital initiatives continue to pay dividends, illustrated by online sales growth of 25 percent, which now represents 24 percent of total sales in the quarter. Consolidated sales growth was led by our Housewares segment as we expanded distribution and introduced new products that resonated well with both customers and consumers. Our Beauty segment continued to grow, driven by strong demand in the appliance category. Our Health & Home segment faced a particularly difficult comparison to the high base that included strong sales of seasonal products, distribution gains and significant international growth in the same period last year. Overall, a strong quarter and first half of our fiscal year.”

Mininberg continued: “Based on this performance and our expectations for the remainder of the fiscal year, we are pleased to raise our net sales and adjusted diluted EPS outlook for the full fiscal year 2020. We believe we are well-positioned to continue driving meaningful long-term shareholder value as we execute our Phase II Transformation plan.”

Consolidated Operating Results—Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019

  • Consolidated net sales revenue increased 5.2 percent to $414.0 million compared to $393.5 million, driven by a core business increase of $22.4 million, or 5.7 percent, primarily reflecting an increase in brick and mortar sales in the Housewares segment, growth in consolidated online sales, and an increase in sales in the appliance category in the Beauty segment. These factors were partially offset by lower sales in the Health & Home segment, the unfavorable impact from foreign currency fluctuations of approximately $1.9 million, or 0.5 percent, and a decline in the personal care category within the Beauty segment.
  • Consolidated gross profit margin increased by 3.6 percentage points to 43.0 percent, compared to 39.4 percent. The increase is primarily due to a higher mix of Housewares revenue at a higher overall gross profit margin, tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of 2020, and a lower mix of shipments made on a direct import basis. These factors were partially offset by the net margin dilutive impact from tariffs and related pricing actions, unfavorable foreign currency fluctuations, a lower mix of personal care sales, and higher inbound freight expense.
  • Consolidated SG&A as a percentage of sales increased by 3.5 percentage points to 29.8 percent of net sales compared to 26.3 percent. The increase is primarily due to higher annual incentive and share-based compensation expenses related to short- and long-term performance, the unfavorable impact of a lower mix of shipments made on a direct import basis, higher outbound freight expense, higher advertising and new product development expense, and higher amortization expense. These factors were partially offset by the impact from tariff-related pricing actions taken with retail customers, the impact that higher overall sales had on net operating leverage, and the favorable impact from foreign currency exchange and forward contract settlements.
  • Consolidated operating income was $54.5 million, or 13.2 percent of net sales, compared to $50.7 million, or 12.9 percent of net sales. The increase in consolidated operating margin primarily reflects tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of 2020, a higher mix of Housewares sales at a higher overall operating margin, the impact of favorable foreign currency exchange contracts and remeasurement on SG&A, the favorable impact that higher overall net sales had on operating expense leverage, and the net favorable comparative impact of pre-tax restructuring charges of $0.4 million. These factors were partially offset by higher annual incentive and share-based compensation expenses related to short- and long-term performance, higher advertising and new product development expense, higher amortization expense, higher freight and distribution expense, and the impact of unfavorable foreign currency fluctuations on net sales and operating margin.
  • The effective tax rate was 10.3 percent, compared to 8.3 percent for the same period last year. The year-over-year increase in the effective tax rate is primarily due to shifts in the mix of taxable income in the Company’s various tax jurisdictions and increases in certain statutory tax rates.
  • Income from continuing operations was $46.1 million, or $1.83 per diluted share on 25.2 million weighted average shares outstanding, compared to $44.0 million, or $1.66 per diluted share on 26.6 million weighted average diluted shares outstanding. Income from continuing operations for the second quarter of fiscal 2020 includes after-tax restructuring charges of $0.4 million or $0.01 per share, compared to $0.8 million or $0.03 per share in the same period last year.
  • Adjusted EBITDA increased 9.7 percent to $69.8 million compared to $63.6 million.

On an adjusted basis for the second quarter of fiscal 2020 and 2019, excluding restructuring charges, non‐cash share-based compensation, and non-cash amortization of intangible assets, as applicable:

  • Adjusted operating income increased $6.2 million, or 10.4 percent, to $65.8 million, or 15.9 percent of net sales, compared to $59.6 million, or 15.1 percent of net sales. The 0.8 percentage point increase in adjusted operating margin primarily reflects tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of 2020, a higher mix of Housewares sales at a higher overall operating margin, the impact of favorable foreign currency exchange contracts and remeasurement on SG&A, and the favorable impact that higher overall net sales had on operating expense leverage. These factors were partially offset by higher annual incentive compensation expense, higher advertising and new product development expense, higher freight and distribution expense, and the impact of unfavorable foreign currency fluctuations on net sales and operating margin.
  • Adjusted income from continuing operations increased $4.0 million, or 7.6 percent, to $56.5 million, or $2.24 per diluted share, compared to $52.5 million, or $1.98 per diluted share. The 13.1 percent increase in adjusted diluted EPS from continuing operations was primarily due to higher adjusted operating income from the Housewares segment and the impact of lower weighted average diluted shares outstanding compared to the same period last year. This was partially offset by lower adjusted operating income from the Health & Home and Beauty segments, higher interest expense, and higher income tax expense.

Segment Operating Results—Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019

Housewares net sales increased by 22.1 percent, or $30.4 million, primarily due to point of sale growth and incremental distribution with existing domestic brick and mortar customers, an increase in online sales, an increase in international sales, and new product introductions. These factors were partially offset by the unfavorable impact of net foreign currency fluctuations of approximately $0.5 million, or 0.3 percent. Operating margin was 21.3 percent compared to 20.6 percent. The 0.7 percentage point increase was primarily due to the margin impact of a more favorable product and channel mix and the impact that higher sales had on operating leverage. These factors were partially offset by higher annual incentive and share-based compensation expenses related to short- and long-term performance, higher new product development expense, and higher freight and distribution center expenses to support increased volume and integration activity. Housewares adjusted operating income increased 22.1 percent to $37.6 million, compared to $30.8 million. Housewares adjusted operating margin was 22.4 percent for both periods.

Health & Home net sales decreased 9.7 percent or $17.0 million, reflecting the unfavorable comparison to core business growth of 20.3 percent in the same period last year. The decline this quarter included the timing of seasonal shipments, less wildfire activity in the current year, and net distribution changes year-over-year. Segment operating margin was flat to the prior-year period due to the unfavorable impacts from higher media advertising expense, unfavorable operating leverage from the decline in sales, higher share-based compensation expense, the margin impact of a less favorable channel mix, and the impact of unfavorable foreign currency exchange fluctuations on net sales and operating margin. These factors were offset by tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of fiscal 2020, and the impact of favorable foreign currency exchange contracts and remeasurement on SG&A. Health & Home adjusted operating income decreased 4.1 percent to $17.7 million, or 11.2 percent of segment net sales, compared to $18.5 million, or 10.5 percent of segment net sales, in the same period last year.

Beauty net sales increased 8.8 percent, or $7.1 million, primarily due to strong demand and new product introductions in the appliance category, growth in the online channel, and an increase in international sales. These factors were partially offset by a decrease in brick and mortar sales, a decline in the personal care category, and the unfavorable impact of net foreign currency fluctuations of approximately $0.4 million, or 0.5 percent. Operating margin was 7.3 percent compared to 10.8 percent. The decrease is primarily due to the impact of higher freight expense to meet strong demand in the appliance category, higher annual incentive and share-based compensation expense related to short- and long-term performance, higher amortization expense, the margin impact of a less favorable product and channel mix, and the impact of unfavorable foreign currency fluctuations on net sales and operating margin. These factors were partially offset by lower advertising expense and the net favorable comparative impact of pre-tax restructuring charges of $0.4 million. Beauty adjusted operating income increased 1.3 percent to $10.4 million, or 11.9 percent of segment net sales, compared to $10.3 million, or 12.8 percent of segment net sales, in the same period last year.

Balance Sheet and Cash Flow Highlights—Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019

  • Cash and cash equivalents totaled $17.0 million, compared to $19.9 million
  • Total short- and long-term debt was $301.2 million, compared to $301.1 million, a net increase of $0.1 million
  • Accounts receivable turnover was 68.4 days, compared to 65.4 days
  • Inventory was $370.9 million, compared to $284.8 million. Trailing twelve-month inventory turnover was 2.9 times compared to 3.3 times.
  • Net cash provided by operating activities from continuing operations for the first six months of the fiscal year increased $0.9 million to $38.2 million.

Fiscal 2020 Annual Outlook

For fiscal 2020, the Company has updated its outlook and now expects consolidated net sales revenue to be in the range of $1.610 to $1.640 billion, which implies consolidated sales growth of 2.9 percent to 4.8 percent compared to the prior expectation of 1.7 percent to 3.6 percent. By segment, the outlook reflects:

  • Housewares net sales growth of 13 percent to 15 percent, compared to the prior expectation of 6 percent to 8 percent;
  • Health & Home net sales decline in the low-single digits, compared to the prior expectation of net sales growth of 2 percent to 3 percent; and
  • Beauty net sales growth in the low-single digits, compared to the prior expectation of a net sales decline in the low-single digits.

The Company now expects consolidated GAAP diluted EPS from continuing operations of $6.84 to $7.04, and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.50 to $8.75, which excludes any asset impairment charges, restructuring charges, share-based compensation expense and intangible asset amortization expense.

The Company’s net sales and EPS outlook assumes the severity of the upcoming cough/cold/flu season will be in line with historical averages. The Company’s net sales and EPS outlook also assumes that September 2019 foreign currency exchange rates will remain constant for the remainder of the fiscal year. The Company now expects the year-over-year comparison of adjusted diluted EPS from continuing operations to be impacted by an expected increase in growth investments of 13 percent to 18 percent in fiscal 2020. The diluted EPS outlook is based on an estimated weighted average diluted shares outstanding of 25.3 million.

The increase in the adjusted diluted EPS outlook for fiscal 2020 reflects the Company’s strong performance in the second quarter, partially offset by an expected increase in growth investments, higher expected annual incentive compensation expense, and higher expected freight and distribution costs. These costs support strong demand in our Housewares segment and Beauty appliances business, as well as integration activity and increases in capacity and throughput for future growth.

The Company now expects a reported GAAP effective tax rate range of 9.6 percent to 10.7 percent, and an adjusted effective tax rate range of 9.0 percent to 10.0 percent for the full fiscal year 2020. Please refer to the schedule entitled “Effective Tax Rate (GAAP) and Adjusted Effective Tax Rate (Non-GAAP)” in the accompanying tables to this press release.

The likelihood and potential impact of any fiscal 2020 acquisitions and divestitures, future asset impairment charges, future foreign currency fluctuations, further tariff increases, or future share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the Company’s sales and earnings outlook.