Helen of Troy Limited reported sales in its Housewares segment, which includes Hydroflask and OXO, increased 10.7 percent in the third quarter ended November 30 to $246.1 million compared to $222.4 million a year ago.

Housewares growth was driven by an increase from Organic business of $23.6 million, or 10.6 percent, primarily due to an increase in brick & mortar and online channel sales driven by consumer demand, earlier than typical customer orders as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season, the impact of customer price increases related to rising freight and product costs, higher sales in the club and closeout channels, growth in international sales, and the favorable comparative impact of COVID-19-related reduced store traffic and a soft back-to-school season in the prior-year period.

Operating income was $43.2 million, or 17.6 percent of segment net sales revenue, compared to $37.7 million, or 16.9 percent of segment net sales revenue. The 0.7 percentage point increase in segment operating margin was primarily due to favorable operating leverage, favorable product mix, and reduced annual incentive compensation expense. These factors were partially offset by the net unfavorable impact of higher inbound freight expense and related customer price increases, a less favorable channel mix, an increase in marketing expense, and higher acquisition-related expense in connection with the Osprey transaction. Adjusted operating income increased 16.7 percent to $47.7 million, or 19.4 percent of segment net sales revenue compared to $40.9 million, or 18.4 percent of segment net sales revenue.

In its two other segments, Health & Home net sales revenue decreased $46.3 million, or 18.5 percent, to $203.9 million, compared to $250.2 million. Total Beauty segment net sales revenue increased $9.7 million, or 5.9 percent, to $174.8 million, compared to $165.2 million. The company’s brands also include Vicks, Braun, Honeywell, PUR, Hot Tools, and Drybar.

Consolidated Results | Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021

  • Consolidated net sales revenue decreased $12.9 million, or 2.0 percent, to $624.9 million compared to $637.7 million. The decline was driven by a decrease from Organic business of $14.1 million, or 2.2 percent, primarily due to a decrease in sales in the Health & Home segment as a result of the EPA packaging compliance matter and related stop shipment actions, stronger COVID-19-related driven demand for healthcare and healthy living products, primarily in thermometry and air filtration, in the comparative prior-year period, and a net sales revenue decline in Non-Core business primarily due to the sale of the North America Personal Care business during the second quarter of fiscal 2022. These factors were partially offset by higher brick & mortar and online channel sales in the Beauty and Housewares segments due primarily to strong consumer demand, earlier than typical customer orders as retailers accelerated orders into the third quarter to try to avoid supply chain disruptions during the holiday season, the impact of customer price increases related to rising freight and product costs, higher sales in the club and closeout channels, and the favorable comparative impact of COVID-19-related reduced store traffic and a soft back to school season in the prior-year period.
  • Consolidated gross profit margin decreased 1.3 percentage points to 43.8 percent, compared to 45.1 percent. The decrease in consolidated gross profit margin was primarily due to the net unfavorable impact of higher inbound freight expense and related customer price increases, EPA compliance costs recognized in cost of goods sold in the Health & Home segment of $0.3 million, and a less favorable channel mix within the Housewares segment. These factors were partially offset by a more favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue.
  • Consolidated SG&A ratio increased 0.1 percentage points to 29.4 percent, compared to 29.3 percent. The increase in the consolidated SG&A ratio was primarily due to higher personnel expense, unfavorable operating leverage, higher distribution expense, EPA compliance costs of $4.6 million in the Health & Home segment, and higher acquisition-related expense in connection with the acquisition of Osprey Packs, Inc. (“Osprey”). These factors were partially offset by lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, lower amortization expense, a decrease in bad debt expense, and the favorable leverage impact of customer price increases related to rising freight and product costs.
  • Consolidated operating income was $90.0 million, or 14.4 percent of net sales revenue, compared to $100.7 million, or 15.8 percent of net sales revenue. The 1.4 percentage point decrease in consolidated operating margin was primarily due to the net unfavorable impact of higher inbound freight expense and related customer price increases, increased personnel expense, higher distribution expense, unfavorable operating leverage, EPA compliance costs of $4.9 million in the Health & Home segment, a less favorable channel mix within the Housewares segment, and higher acquisition-related expense in connection with the Osprey transaction. These factors were partially offset by a favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, lower amortization expense, and a decrease in bad debt expense.
  • Income tax expense as a percentage of income before tax was 12.9 percent compared to 14.0 percent for the same period last year, primarily due to increases in liabilities related to uncertain tax positions in the prior-year period, partially offset by shifts in the mix of income in the company’s various tax jurisdictions.
  • Net income was $75.7 million, compared to $84.2 million. Diluted EPS was $3.10 compared to $3.34. Diluted EPS decreased primarily due to lower operating income in the Health & Home segment and higher interest expense, partially offset by higher operating income in the Housewares and Beauty segments, a decrease in the effective income tax rate, and lower weighted average diluted shares outstanding.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) decreased 4.5 percent to $111.8 million compared to $117.0 million.
  • On an adjusted basis for the third quarters of fiscal 2022 and 2021, excluding acquisition-related expenses, EPA compliance costs, restructuring charges, amortization of intangible assets, and non-cash share-based compensation, as applicable.
  • Adjusted operating income decreased $5.8 million, or 5.2 percent, to $106.1 million, or 17.0 percent of net sales revenue, compared to $111.9 million, or 17.6 percent of net sales revenue. The 0.6 percentage point decrease in adjusted operating margin is primarily driven by the net unfavorable impact of higher inbound freight expense and related customer price increases, increased personnel expense, higher distribution expense, unfavorable operating leverage, and a less favorable channel mix within the Housewares segment. These factors were partially offset by a favorable product mix within the Housewares and Beauty segments and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, lower royalty expense, reduced annual incentive compensation expense, lower marketing expense, and a decrease in bad debt expense.
  • Adjusted income decreased $4.1 million, or 4.4 percent, to $90.6 million, compared to $94.8 million for the same period last year. Adjusted diluted EPS decreased 1.1 percent to $3.72 compared to $3.76. The decrease in adjusted diluted EPS was primarily due to lower adjusted operating income in the Health & Home segment and higher interest expense, partially offset by higher adjusted operating income in the Housewares and Beauty segments, a decrease in the effective income tax rate, and lower weighted average diluted shares outstanding.

Adjusted EPS of $3.72 topped Wall Street’s consensus estimate of $3.16. Sales of $624.9 million topped Wall Street’s consensus estimate of $554.23 million.

Balance Sheet and Cash Flow Highlights | Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021

  • Cash and cash equivalents totaled $44.3 million, compared to $156.7 million;
  • Accounts receivable turnover was 76.4 days, compared to 70.0 days;
  • Inventory was $585.8 million, compared to $383.4 million. Trailing twelve-month inventory turnover was 2.3 times compared to 3.6 times;
  • Total short- and long-term debt was $447.5 million, compared to $440.4 million; and
  • Net cash provided by operating activities for the third quarter fiscal of 2022 was $53.3 million. Net cash used by operating activities for the first nine months of the fiscal year was $5.1 million, compared to net cash provided of $249.7 million for the same period last year.

Subsequent Event
On December 29, 2021, the company completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs. The total purchase consideration was $414.7 million in cash, including the impact of a $5.3 million favorable customary closing net working capital adjustment. The acquisition was funded with cash on hand and borrowings from the company’s existing revolving credit facility. The company incurred acquisition-related expenses of $1.6 million during the third quarter of fiscal 2022, which were recognized in SG&A within its condensed consolidated statements of income.

Updated Fiscal 2022 Annual Outlook
Due to the sale of the majority of the Personal Care business during the second quarter of fiscal 2022 and the expected continued classification of remaining Latin America and the Caribbean Personal Care business as Non-Core for fiscal 2022, the company is providing its updated outlook on both a consolidated and Core business basis in order to provide comparability between historical and future periods.

The expected impact of the Osprey acquisition for the period from the date of closing to the end of fiscal year 2022 is estimated to provide approximately $20 million of net sales revenue and approximately $0.05 and $0.07 of diluted EPS and adjusted diluted EPS, respectively. The expected impact of the Osprey acquisition is included in both the updated consolidated and Core business outlook provided.

The company’s updated outlook includes the current estimated impact of the duration of time required to repackage the remaining inventory affected by the EPA compliance concerns and considers anticipated customer demand. The company’s updated outlook includes an improvement in the estimated unfavorable sales revenue impact to approximately $60 million and an improvement in the unfavorable adjusted diluted EPS impact to approximately $0.30 related to lost sales volume and earnings due to the EPA matter. The adjusted diluted EPS impact is net of the favorable impact of cost reduction actions being taken in the Health & Home segment, which include reductions in personnel, marketing and select new product development costs.

The company incurred $13.1 million, $3.0 million and $4.9 million of EPA compliance costs during the first, second and third quarters of fiscal 2022, respectively. These costs were included in the company’s GAAP operating results but were excluded from non-GAAP adjusted operating results. The company expects to incur additional EPA compliance costs in the fourth quarter of fiscal 2022, which may include incremental freight, warehouse storage costs, charges from vendors, and legal fees, among other things. The company expects to continue to exclude these costs from non-GAAP adjusted operating results in fiscal 2022, and the costs have been excluded from the updated annual outlook for non-GAAP adjusted diluted EPS.

The company expects consolidated net sales revenue in the range of $2.10 to $2.12 billion, which implies growth of flat to 1.0 percent. The company expects Core net sales revenue in the range of $2.06 to $2.08 billion, which implies growth of 2.0 percent to 3.0 percent and includes a 3.0 percent unfavorable impact related to the EPA matter. Excluding the EPA matter, the company expects Core net sales revenue growth of 5.0 percent to 6.0 percent.

The company’s updated fiscal year net sales outlook reflects the following expectations by segment:

  • Housewares net sales growth of 15.0 percent to 16.0 percent;
  • Health & Home net sales decline of 20.0 percent to 19.0 percent, including 6.7 percent of decline related to the EPA matter; and
  • Beauty net sales growth of 13.0 percent to 14.0 percent; Beauty Core business net sales growth of 26.0 percent to 27.0 percent.

The company expects consolidated GAAP diluted EPS of $8.25 to $8.59 and Core diluted EPS of $8.08 to $8.42. The company expects consolidated non-GAAP adjusted diluted EPS in the range of $11.73 to $11.93 and Core adjusted diluted EPS in the range of $11.55 to $11.75, which excludes any acquisition-related expenses, EPA compliance costs, asset impairment charges, restructuring charges, tax reform, share-based compensation expense and intangible asset amortization expense. The company’s Core adjusted diluted EPS expectation implies growth of 4.7 percent to 6.5 percent, which includes 2.7 percent of unfavorable impact due to the EPA matter, implying expected year-over-year growth of 7.4 percent to 9.2 percent, not including the impact of the EPA matter.

The company’s updated outlook also includes estimated year-over-year inflationary cost pressures of approximately $55 to $60 million, or approximately $2.25 to $2.45 of adjusted diluted EPS, much of which have been mitigated through improved product mix, price increases, forward buying of inventory to delay cost impacts, utilizing previously negotiated shipping contracts at rates below current market prices, and implementing other cost reduction initiatives.

Previously, Helen of Troy expected consolidated net sales revenue in the range of $2.02 to $2.07 billion, which implies a decline of 3.5 percent to 1.5 percent. By segment, guidance called for Housewares net sales growth of 9.0 percent to 11.0 percent; Health & Home net sales decline of 20.0 percent to 18.0 percent, including 11.2 percent to 8.4 percent of decline related to the EPA matter; and Beauty net sales growth of 7.5 percent to 9.5 percent; Beauty Core business net sales growth of 20.0 percent to 22.0 percent.

Under its previous guidance, the company expected non-GAAP adjusted diluted EPS in the range of $11.26 to $11.56 and Core adjusted diluted EPS in the range of $11.05 to $11.35.

Julien R. Mininberg, Chief Executive Officer, stated: “We are pleased with our results for the third quarter, delivering Core net sales growth and Core adjusted diluted EPS growth on top of 37.1 percent and 21.1 percent, respectively, in the prior year period. All three business segments exceeded our expectations. These results are the primary driver allowing us to raise our top and bottom-line outlook for the full fiscal year. Strong consumer and retailer demand drove sales for Housewares and Beauty, with both segments growing double digits on a Core basis over major double-digit sales increases in the third quarter of last fiscal year. Health & Home declined in the quarter, but performed above our expectations due to stronger than expected demand and faster-than-expected progress reworking certain products impacted by the EPA matter. Despite the impact of inflation and the EPA matter, our Core adjusted diluted EPS grew 3.0 percent.”

Mr. Mininberg continued: “We are also very pleased to be able to raise our outlook for the fiscal year, reflecting the strength of our third quarter and the positive trends we see in our business during the fourth quarter. For the full fiscal year, we now expect to grow Core net sales 2 percent to 3 percent over last year’s 25.1 percent increase, grow Core adjusted diluted EPS 4.7 percent to 6.5 percent over last year’s 26.5 percent increase, and expand margins. I am proud of the hard work across our organization that puts us in a position to deliver fiscal year 2022 in line with our Phase II average annual targets on top of an elevated base despite significant headwinds from widespread inflation and the EPA matter.

As we have demonstrated this fiscal year and in the past, Helen of Troy has a track record of delivering results in the face of obstacles. Looking ahead, we plan to use the proven combination of our inflation playbook, investing in our Leadership Brands, creating efficiencies through our global shared services platform, and harnessing the excellence of our organization and culture to address obstacles such as continued inflationary cost pressures expected next fiscal year. We also expect value creation from the recently-closed Osprey acquisition, which is expected to be immediately accretive to nearly all our consolidated financial measures. We believe our balance sheet and cash flow can be put to work on further capital allocation opportunities that could help create additional value in both the short and long-term.”

Photo courtesy Helen of Troy/Hydro Flask