Helen of Troy reported sales in its Housewares segment increased 6.6 percent in the second quarter due to strong sales at brick and mortar stores for OXO and Hydro Flask brands. The Housewares segment is now expected to deliver growth of 9 to 11 percent for the year, up from 7 to 9 percent previously.
The Housewares segment increased 6.6 percent in the second quarter, to $215.2 million, compared to $201.9 million.
Growth was driven by an increase from Organic business of $13.1 million, or 6.5 percent, primarily due to an increase in brick and mortar sales for both OXO and Hydro Flask brands due to strong demand and the favorable comparative impact of COVID-19 related store closures, reduced store traffic and a soft back-to-school season in the prior-year period, higher sales in the closeout channel, and growth in international sales. These factors were partially offset by a decrease in online sales primarily due to the unfavorable comparative impact of a shift towards online shopping in the prior-year period due to COVID-19 related store closures, as well as a decline in club channel sales. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $0.3 million, or 0.1 percent.
Operating income at the Housewares segment was $41.9 million, or 19.5 percent of segment net sales revenue, compared to $45.4 million, or 22.5 percent of segment net sales revenue. The 3.0 percentage point decrease in segment operating margin was primarily due to a less favorable channel mix, higher inbound freight expense due to rising freight rates and container supply shortages, increased distribution costs, an increase in marketing expense, and higher share-based compensation expense. These factors were partially offset by reduced annual incentive compensation expense and favorable operating leverage. Adjusted operating income decreased 3.9 percent to $46.0 million, or 21.4 percent of segment net sales revenue compared to $47.8 million, or 23.7 percent of segment net sales revenue.
Overall, Helen of Troy reported consolidated net sales revenue decreased $55.6 million, or 10.5 percent, to $475.2 million compared to $530.9 million. The decline was driven by a decrease from Organic business of $57.7 million, or 10.9 percent, primarily due to a decrease in sales in the Health & Home segment as a result of EPA packaging compliance concerns and related stop shipment actions, 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 and mortar sales in the Beauty and Housewares segments due primarily to strong consumer demand and the favorable comparative impact of COVID-19 related store closures and reduced store traffic in the prior period, higher sales in the closeout channel, and growth in consolidated international sales. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $2.1 million, or 0.4 percent.
In its other segments, Health & Home net sales revenue decreased $70.0 million, or 33.1 percent, to $141.5 million, compared to $211.5 million. The decline was driven by a decrease from Organic business of $70.9 million, or 33.5 percent, primarily due to a decrease in both brick and mortar and online sales of water filtration, air filtration and humidification products as a result of the EPA packaging compliance concerns and related stop shipment actions, and a decline in sales of thermometers due to stronger COVID-19 driven demand for healthcare products in the comparative prior period. The segment includes Vicks, Braun, Honeywell and PUR.
Beauty net sales growth from Core business increased $16.4 million, or 13.9 percent, primarily reflecting higher appliance sales due to an increase in brick and mortar sales, growth in the volumizer franchise due to continued high consumer demand, expanded distribution primarily in the club channel, and higher international sales. Total Beauty segment net sales revenue increased $1.0 million, or 0.8 percent, to $118.5 million, compared to $117.5 million primarily due to the sale of the Non-Core North America Personal Care business during the second quarter of fiscal 2022. The segment includes Hot Tools and Drybar.
Consolidated operating income was $67.3 million, or 14.2 percent of net sales revenue, compared to $99.3 million, or 18.7 percent of net sales revenue. The 4.5 percentage point decrease in consolidated operating margin was primarily due to the comparative impact of higher personnel and advertising expenses from cost reduction initiatives in the prior-year period related to the uncertainty of COVID-19, higher inbound freight expense due to rising freight rates and container supply shortages, increased distribution expenses, unfavorable operating leverage, EPA compliance costs of $3.0 million, higher share-based compensation expense, and the unfavorable impact of foreign currency exchange fluctuations. These factors were partially offset by a favorable product mix within the Beauty segment and a favorable mix of more Housewares and Beauty sales within consolidated net sales revenue, decreased amortization expense, lower royalty expense, and lower annual incentive compensation expense.
Net income was $51.3 million, compared to $87.3 million. Diluted EPS was $2.11 compared to $3.43. Diluted EPS decreased primarily due to lower operating income in the Health & Home and Housewares segments, an increase in the effective income tax rate and higher interest expense, partially offset by higher operating income in the Beauty segment and lower weighted average diluted shares outstanding.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) decreased 23.1 percent to $87.2 million compared to $113.4 million.
Julien R. Mininberg, CEO, stated: “The second quarter exceeded our expectations. We are pleased to see our diversified portfolio once again deliver, with Housewares and Beauty both topping last year’s especially strong sales growth, and Health & Home declining less than expected due to a favorable resolution of the EPA matter. International also grew over the high growth in its year-ago base. We generated adjusted diluted EPS of $2.65 despite the significant impact of widespread inflation affecting nearly all input costs, including materials, labor, and transportation, and despite the lower Health & Home sales in the quarter due to the EPA matter. Looking at the first half of our fiscal year, we are very pleased to grow our Core sales by 8.9 percent and maintain our Core adjusted diluted EPS in the face of these obstacles. On a two-year stack, the results are even more compelling across many of our key measures. Our flywheel investments across the company continue to pay off as we drive our Leadership Brands ahead, work hard to mitigate the current inflationary costs, continue to delight consumers with innovative new products, and make further improvements to our global shared services to power the back half of Phase II.”
Mininberg continued: “Looking ahead to the balance of the fiscal year, we are raising our full fiscal year outlook based on the better than expected second-quarter results, positive trends in Beauty and Housewares, as well as the more favorable than expected EPA resolution. Including the EPA matter, the high end of our Core revenue outlook range implies slight growth over the 25.1 percent growth last year, and our Core adjusted diluted EPS outlook range implies growth of 0.2 percent to 2.9 percent over last year’s 26.5 percent growth. We believe delivering growth over last year’s elevated base and the margin expansion implied in our outlook would be a powerful statement in the face of more than $2.45 per share of inflationary cost pressure and the impact of the EPA matter this year. Excluding the impact of the EPA matter, our implied Core revenue growth outlook ranges from 3.4 percent to 4.3 percent and our implied Core adjusted diluted EPS growth outlook is 7 percent. I am very proud of our associates as they work together tirelessly to overcome challenge after challenge. They are Helen of Troy at its finest.”
Updated Fiscal 2022 Annual Outlook
The company raised its outlook for sales and EPS.
The company expects 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. The company expects Core net sales revenue in the range of $1.99 to $2.03 billion, which implies a decline of 1.5 percent to growth of 0.5 percent and includes 4.9 percent to 3.7 percent of unfavorable impact related to the EPA matter. Excluding the EPA matter, the company expects Core net sales revenue growth of 3.4 percent to 4.3 percent.
Previously, the company expected consolidated net sales revenue in the range of $1.93 to $1.98 billion, which implied a decline of 8.0 percent to 5.5 percent. Core net sales revenue was expected in the range of $1.9 to $1.95 billion, which implied a decline of 6.0 percent to 3.5 percent, which includes 6.7 percent to 5.4 percent of unfavorable impact related to the EPA matter.
The company’s updated net sales outlook reflects the following expectations by segment:
- Housewares net sales growth of 9.0 percent to 11.0 percent, up from guidance for growth of 7.0 percent to 9.0 percent previously.
- 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. The forecast previously called for a decline of 27.0 percent to 24.0 percent, including 15.2 percent to 12.4 percent of decline related to the EPA matter.
- 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. Previously, guidance called for Beauty net sales growth of 4.2 percent to 6.3 percent; Beauty Core net sales growth of 17.0 percent to 19.0 percent.
Helen of Troy expects consolidated GAAP diluted EPS of $7.88 to $8.31 and Core diluted EPS of $7.68 to $8.11. The company expects consolidated 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, which excludes any EPA compliance costs, asset impairment charges, restructuring charges, tax reform, share-based compensation expense and intangible asset amortization expense.
Photo courtesy Helen of Troy