EXEC: Hydro Flask Growth Slows Due To Cautious Buying By Retailers

<span style="color: #707070;">On Helen of Troy’s second-quarter conference call, Julien Mininberg, CEO, said Hydro Flask’s market share was “down slightly” in the year-to-date period as retailers are more cautious about replenishment and orders stemming from concerns over a slowdown in consumer spending.

Sell-through for Hydro Flask grew “modestly” in the fiscal second quarter ending August 31, with strength in the collegiate category during the back-to-school period and strength in grocery. 

Online sales for Hydro Flask were “strong,” as the drinkware brand “picked up quite a bit of share” from its largest online retailer, presumably Amazon.

Internationally, sales for Hydro Flask products increased in Asia and Canada, stemming from improved consumer demand; however, the brand lost market share in the U.S., and conservative buying by retailers impacted Hydro Flask’s overall sales. 

Mininberg said Hydro Flask’s weakness in sell-through reflected retailers adjusting how quickly they replenish and how many weeks of inventory they have on hold.

Mininberg elaborated, “In terms of replenishment in a normal environment, the retailer will simply replenish to expected demand and actual consumption. In this environment, they’re replenishing to two bets. One bet is how much more demand will be in the future, and the other is how many weeks on end they would like to have by the end of whatever period they’re buying into. So take now that to specific retailers, each one is a slightly different story based on their strategy against those variables, and then separately their expectations for the holiday season, which determine how much inventory they would like to have on hand during that time in categories like this.”

Mininberg assured analysts that demand for Hydro Flask product “remains quite good,” with major growth plans for the quarters ahead, including launching a new DTC platform late 2022. He said, “If you look at the fundamentals on Hydro Flask, they look phenomenal. Hydro Flask has its spring collection coming. That will be more of a Q4 and early Q1 story. There are some new products there as well that we’re also excited about the DTC prospects in Hydro Flask.”

Mininberg said a portion of Hydro Flask’s competition is “ahead of us” in their DTC efforts, and he expects the DTC push early 2023 to give Hydro Flask “a long, long-awaited bump” in sales.

In the near term, however, Hydro Flask’s sales outlook was lowered by an unspecified amount due to cautious ordering from retailers. 

Said Mininberg, “On the retailers themselves, they’re just not as aggressive on carrying the inventory, which makes the difference in our sales. And we’ve put that now into our forecast even further than we did before.”

Companywide, Helen of Troy reduced guidance across its segments due to the negative impact of inflation and higher interest rates on consumer spending, as well as cautious ordering from retailers across most categories. 

Helen of Troy’s other brands include Osprey, OXO, Vicks, Braun, Honeywell, PUR, Hot Tools, and Drybar.

Mininberg said results in the second quarter were in line with expectations; however, deteriorating consumer buying patterns that began in March and April 2022 continued through the second quarter and continued and accelerated in some categories, resulting in a larger overall slowdown in demand than expected in Helen Of Troy’s organic business.

“Consumers further tightened their purchasing patterns in some categories in response to higher than expected inflation on basics such as rent, gas and food, and the impact of higher than expected interest rates rippling through the global economy,” said Mininberg. “As a result of these changes in consumer purchase habits, most retailers slowed their repurchase orders and further adjusted their inventories and weeks on hand to match reduced sell-through. Within our diversified portfolio, we see consumers generally trading down or delaying purchases in discretionary categories such as beauty, appliances and home-related categories.”

He noted that trading down hurt Helen of Troy since the company’s portfolio focuses on the better and best segments.

“In some cases, our brands are a beneficiary of trade down, such as in thermometers where sales of Vicks Thermometers were strong in the second quarter, and we grew market share significantly as consumers sought quality products from trusted brands whose line ups include lower-priced alternatives,” said Mininberg. “Other discretionary categories such as outdoors and prestige beauty liquids are more on trend and performing much better. For example, demand for Osprey’s everyday travel packs was strong, as was the demand for Drybar and Curlsmith liquids.”

<span style="color: #707070;">Companywide, consolidated net sales revenue in the quarter was $521.4 million, an increase of 9.7 percent from fiscal 2022, a decrease of 1.8 percent from fiscal 2021, and an increase of 25.9 percent from fiscal 2020. 

Core business net sales showed an increase of 11.1 percent from fiscal 2022, an increase of 2.3 percent from fiscal 2021, and an increase of 34.0 percent from fiscal 2020.

GAAP EPS was $1.28, compared to $2.11 for the same period last year, $3.43 for fiscal 2021, and $1.83 for fiscal 2020.

Non-GAAP Core adjusted EPS was $2.27, a decrease of 14.3 percent from fiscal 2022, a decrease of 36.2 percent from fiscal 2021, and an increase of 10.7 percent from fiscal 2020.

Non-GAAP adjusted EPS was $2.27, a decrease of 14.3 percent from fiscal 2022, a decrease of 39.8 percent from fiscal 2021, and an increase of 1.3 percent from fiscal 2020. Wall Street’s consensus estimate was $2.21.

In the Home & Outdoor segment, which includes OXO, Hydro Flask and Osprey, sales increased 11.8 percent in its second quarter year-over-year to $240.6 million. 

Gains from the December 2021 acquisition of Osprey were partially offset by a decrease in its organic business of 9.0 percent, driven by a decline in sales in home-related categories. The acquisition of Osprey added $47.4 million, or 22.0 percent, to segment net sales revenue growth. The overall growth came on top of a 6.6 percent increase in the prior year period.

The organic sales decline in the Home & Outdoor segment was primarily due to lower consumer demand driven by shifts in consumer spending patterns and reduced orders from retail customers due to higher trade inventory levels and lower sales in the club channel. These factors were partially offset by growth in international sales, higher sales in the closeout channel, and the impact of customer price increases related to rising freight and product costs.

Operating income in the Home & Outdoor segment was about flat at $42.1 million, or 17.5 percent of segment revenue, compared to $41.9 million, or 19.5 percent of segment net sales revenue. The 2.0 percentage point decrease in segment operating margin was primarily due to the impact of the acquisition of Osprey, which has a lower operating margin than its Home & Outdoor segment, increased salary and wage costs, higher marketing expenses, the net dilutive impact of inflationary costs and related customer price increases, and increased outbound freight costs. 

These factors were partially offset by favorable operating leverage, a decrease in distribution expense, a more favorable channel mix, reduced annual incentive compensation expense, and lower share-based compensation expense. Adjusted operating income increased 2.2 percent to $47.0 million, or 19.5 percent of sales revenue, compared to $46.0 million, or 21.4 percent.

Among its other brands in the Home & Outdoor segment, Osprey had a strong quarter, contributing $47.4 million in sales, and remains on track to achieve its outlook range of $180 million to $185 million for the full fiscal year. Helen of Troy still reduced its expectation for EPS contribution from Osprey from 40 cents to 45 cents a share to 35 cents to 40 cents primarily to reflect the impact of higher interest expense. Helen of Troy now expects 450 basis points of interest rate increases in calendar year 2022.

OXO, its largest brand in the Home & Outdoor segment, continued sell-through declines similarly to its first quarter as consumers shifted spending from home-related products versus COVID-19-level peaks and adjusted their budgets to address inflation.

In its other segments, Health & Wellness revenue increased 27.6 percent, to $180.5 million, compared to $141.5 million. 

Beauty revenue decreased 15.4 percent to $100.3 million.

The company’s updated forecast for the year ending February 2023 includes:

• Revenue in the range of $2.00 billion to $2.05 billion ($2.15 billion to $2.20 billion previously), which implies a decline of 10.0 percent to 7.8 percent (3.3 percent to 1.0 percent decline previously), and a Core business decline of 8.6 percent to 6.4 percent (decline of 1.8 percent to growth of 0.5 percent previously);
• Home & Outdoor sales growth of 3.5 percent to 5.5 percent (growth of 9.0 percent to 11.0 percent previously); including net sales from Osprey of $180 million to $185 million;
• Health & Wellness sales decline of 13 percent to 11 percent (a decline of 10.0 percent to 8.0 percent previously);
• Beauty Core business sales decline of 21 percent to 19 percent (a decline of 7.0 percent to 5.0 percent previously), including sales from Curlsmith of $30 million to $35 million.
• GAAP EPS of $4.26 to $4.93 ($6.51 to $7.11 previously) and non-GAAP adjusted EPS in the range of $9.00 to $9.40 ($9.85 to $10.35 previously), which implies a decrease in adjusted EPS in the range of 27.2 percent to 23.9 percent (20.3 percent to 16.3 percent previously) and a decrease in Core adjusted EPS in the range of 26.1 percent to 22.8 percent (19.2 percent to 15.1 percent previously); this includes adjusted EPS contribution of approximately 35 cents to 40 cents from Osprey and 15 cents to 20 cents from Curlsmith.

Photo courtesy Hydro Flask