Helen of Troy reported sales at its Home & Outdoor segment, which includes OXO, Hydro Flask and Osprey, increased 11.8 percent in its second quarter ended August 31 to $240.6 million. Gains from the 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 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 $42.1 million, or 17.5 percent of segment net sales 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 the rest of the 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 segment net sales revenue, compared to $46.0 million, or 21.4 percent of segment net sales revenue.
Companywide, consolidated net sales revenue 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 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.
In its other segments, Health & Wellness net sales revenue increased $39.0 million, or 27.6 percent, to $180.5 million, compared to $141.5 million. Beauty net sales revenue decreased $18.2 million, or 15.4 percent, to $100.3 million, compared to $118.5 million. Helen of Troy’s other brands include Vicks, Braun, Honeywell, PUR, Hot Tools, and Drybar.
GAAP diluted EPS of $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 diluted EPS of $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 diluted EPS of $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.
Julien R. Mininberg, CEO, said: “Although we reported results in-line with our expectations for the quarter, we see consumers increasingly adjusting their spending patterns in response to rising inflation and the impact of higher interest rates, particularly in our premium segments in some categories. Additionally, retailers continue to adjust their inventories to better align with their updated sales forecasts. We expect the current external operating environment to remain highly challenging, causing us to lower our fiscal year 2023 outlook. Our entire organization is hard at work on optimizing results in this environment while executing the most important strategic projects.
“During the quarter, we also focused on developing the set of global efficiency initiatives we first announced in July, which will now be collectively referred to as Project Pegasus. Noel Geoffroy, our COO, is leading this strategic initiative with the support of a premium global consulting firm, as well as a dedicated internal core team. Under Pegasus, we expect to further leverage the foundation we have built through the first two phases of our transformation by implementing a set of initiatives intended to improve operating margins, cash flow, and operating and organizational efficiency, as well as provide a platform for future growth investments. We believe these initiatives will improve profitability and provide significant fuel to reinvest in the flywheel.”
During the second quarter of fiscal 2023, the company focused on developing a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and reduce costs (collectively referred to as “Project Pegasus”). Project Pegasus includes initiatives to further optimize the company’s brand portfolio, streamline and simplify the organization, accelerate cost of goods savings projects, enhance the efficiency of its supply chain network, optimize its indirect spending, and improve its cash flow and working capital, as well as other activities. The company anticipates these initiatives will create operating efficiencies as well as provide a platform to fund future growth investments.
The company has the following expectations regarding Project Pegasus:
- Targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which the company expects to begin in fiscal 2024 and be substantially achieved by the end of fiscal 2026;
- Estimated cadence of the recognition of the savings will be approximately 25 percent in fiscal 2024, approximately 50 percent in fiscal 2025 and approximately 25 percent in fiscal 2026;
- Total profit improvements are to be realized by approximately 60 percent through reduced cost of goods sold and 40 percent through lower SG&A;
- Total one-time pre-tax restructuring charges of approximately $85 million to $95 million over the duration of the plan and will primarily be comprised of severance and employee-related costs, professional fees, contract termination costs, and other exit and disposal costs; and
- All of the company’s operating segments and shared services will be impacted by the plan.
In addition, the company has implemented plans to reduce inventory levels, increase inventory turns, and improve cash flow and working capital. The company expects improvements related to these initiatives to begin in the second half of fiscal 2023 and to continue into fiscal 2024.
Updated Fiscal 2023 Annual Outlook
The company now expects consolidated net sales 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 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).
The company’s updated fiscal year net sales outlook reflects the following expectations by segment:
- Home & Outdoor net 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 net sales decline of 13 percent to 11 percent (a decline of 10.0 percent to 8.0 percent previously); and
- Beauty Core business net sales decline of 21 percent to 19 percent (a decline of 7.0 percent to 5.0 percent previously), including net sales from Curlsmith of $30 million to $35 million.
The company now expects consolidated GAAP diluted EPS of $4.26 to $4.93 ($6.51 to $7.11 previously) and consolidated non-GAAP adjusted diluted EPS in the range of $9.00 to $9.40 ($9.85 to $10.35 previously), which implies a decrease in consolidated adjusted diluted 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 diluted EPS in the range of 26.1 percent to 22.8 percent (19.2 percent to 15.1 percent previously). This includes adjusted diluted EPS contribution from Osprey of approximately $0.35 to $0.40 and $0.15 to $0.20 from Curlsmith.
Photo courtesy Osprey