Helen of Troy Limited said sales in its Housewares segment, which includes OXO and Hydro Flask, increased 7.8 percent in the fourth quarter ended February 28, to $126.1 million. The gains were primarily due to growth in the online channel, higher club channel sales, new product introductions and growth in international sales. These factors were partially offset by lower closeout channel sales.
Operating margin was 16.2 percent compared to 15.6 percent. The increase was primarily due to the margin impact of more favorable product mix and lower product costs. These factors were partially offset by higher rent expense related to new office space, an increase in advertising expense and higher freight expense. Housewares adjusted operating income increased 11.8 percent to $22.8 million, or 18.1 percent of segment net sales, compared to $20.4 million, or 17.4 percent of segment net sales.
Companywide, consolidated net sales revenue in the quarter decreased 0.7 percent to $384.8 million compared to $387.6 million. Sales topped Wall Street’s consensus target of $364.7 million.
[he gains were driven by the unfavorable impact from foreign currency fluctuations of approximately $2.6 million, or 0.7 percent. Core business net sales were flat, reflecting an increase in consolidated online sales, point of sale strength in brick and mortar and growth in the Beauty appliance category. These factors were offset by declines in the Personal Care business and the Health & Home segment. The Health & Home decline was primarily due to the unfavorable comparison to the fourth quarter of fiscal 2018, which benefited from strong cough/cold/flu incidence along with unseasonably cold fall and winter weather. The company reclassified $3.3 million of expense from selling, general and administrative expense (“SG&A”) to a reduction of net sales revenue for the fourth quarter of fiscal 2018 to conform with ASU 2014-09 “Revenue from Contracts with Customers”.
Consolidated gross profit margin increased 0.1 percentage point to 40.9 percent, compared to 40.8 percent. The increase is primarily due to a more favorable product mix and negotiated product cost decreases, partially offset by the unfavorable margin impact from a decline in overall Leadership Brand sales, higher freight costs, and the net impact of tariff increases.
Consolidated SG&A as a percentage of sales decreased by 0.3 percentage points to 29.2 percent of net sales compared to 29.5 percent. The decrease is primarily due to the favorable comparative impact of foreign currency exchange and forward contract settlements and lower amortization expense, partially offset by higher freight costs, increased share-based compensation expense, and higher advertising expense.
Consolidated operating income was $44.1 million, or 11.5 percent of net sales, compared to $31.4 million, or 8.1 percent of net sales. The increase in consolidated operating margin reflects the favorable year-over-year comparative net impact of pre-tax non-cash asset impairment charges and pre-tax restructuring charges of 2.9 percentage points, an improvement in gross profit margin, and lower SG&A as a percentage of sales.
The effective tax rate was 7.9 percent, compared to 70.6 percent for the same period last year. The year-over-year decline in the effective tax rate is primarily due to the favorable comparative impact of a one-time charge of $17.9 million last year related to 2018 U.S. tax reform.
Income from continuing operations was $37.7 million, or $1.47 per diluted share on 25.6 million weighted average shares outstanding, compared to $8.4 million, or $0.31 per diluted share on 27.1 million weighted average diluted shares outstanding. Income from continuing operations for the fourth quarter of fiscal 2019 includes $0.04 per share in after-tax restructuring charges, compared to a total of $1.07 per share in tax reform, impairment, and restructuring charges in the same period last year.
Loss from discontinued operations was $0.4 million, or $0.02 of loss per diluted share, compared to net income of $51.7 million, or $1.91 of income per diluted share, for the same period last year.
Adjusted EBITDA increased 1.9 percent to $57.7 million compared to $56.6 million.
On an adjusted basis for the fourth quarters of fiscal 2019 and 2018, excluding restructuring charges, the TRU bankruptcy charge, non-cash asset impairment charges, non‐cash share-based compensation, and non-cash amortization of intangible assets, as applicable:
Adjusted operating income increased $0.8 million, or 1.6 percent, to $53.5 million, or 13.9 percent of net sales, compared to $52.7 million, or 13.6 percent of net sales. The increase in adjusted operating margin primarily reflects a favorable product mix, product cost decreases, the favorable comparative impact of foreign currency exchange and forward contract settlements and lower amortization expense. These factors were partially offset by higher advertising expense, the impact of tariff increases, higher freight expense and increased share-based compensation expense.
Adjusted income from continuing operations increased $0.9 million, or 1.9 percent, to $46.6 million, or $1.82 per diluted share, compared to $45.7 million, or $1.69 per diluted share. EPS of $1.82 easily topped Wall Street’s consensus target of $1.58.
The 7.7 percent increase in adjusted diluted EPS from continuing operations was primarily due to higher adjusted operating income and the impact of lower weighted average diluted shares outstanding. These factors were partially offset by higher interest expense.
In its other segments, Health & Home net sales decreased 11.7 percent, primarily due to a core business decline of 10.8 percent. The core business decline primarily reflects the unfavorable comparison to the fourth quarter of fiscal 2018, which benefited from particularly strong cough/cold/flu incidence along with unseasonably cold fall and winter weather. Segment net sales were also unfavorably impacted by net foreign currency fluctuations of $1.7 million, or 0.9 percent. These factors were partially offset by seasonal category growth including incremental distribution and shelf space gains with existing domestic customers, and new product introductions. Operating margin was 9.5 percent compared to 6.7 percent. The increase was primarily due to lower advertising expense, lower incentive compensation expense, and favorable foreign currency exchange and forward contract settlements. These factors were partially offset by a less favorable product mix, the net impact of tariff increases, and higher freight expense. Health & Home adjusted operating income increased 22.6 percent to $21.2 million, or 12.6 percent of segment net sales, compared to $17.3 million, or 9.1 percent of segment net sales.
Beauty net sales increased 13.1 percent, or $10.5 million, primarily due to growth in the online channel, new product introductions in the retail appliance category, and an increase in international sales, partially offset by the discontinuation of certain brands and products, and a consumption decline in the Personal Care business. Segment net sales were unfavorably impacted by net foreign currency fluctuations of approximately $0.5 million, or 0.6 percent. Operating margin was 8.6 percent compared to 0.4 percent. The increase is primarily due to the favorable comparative impact of pre-tax impairment charges of $11.4 million in the same period last year and lower amortization expense. These factors were partially offset by the unfavorable margin impact of the decline in the Personal Care business, higher advertising expense and higher freight expense. Beauty adjusted operating income decreased 36.8 percent to $9.4 million, or 10.4 percent of segment net sales, compared to $14.9 million, or 18.6 percent of segment net sales.
The company’s other brands include Vicks, Braun, Honeywell, PUR, and Hot Tools.
Julien R. Mininberg, chief executive officer, stated: “The fourth quarter finished well ahead of our expectations. Online sales led the way, up approximately 36 percent year-over-year. We are also pleased to report Beauty net sales were particularly strong, with hair appliances continuing to grow, and Housewares grew over its high year-ago base. These factors offset lower sales in our Health & Home segment, which faced a tough comparison to last year’s robust cough, cold and flu season. We improved our adjusted operating margin by 30 basis points and grew adjusted diluted EPS 7.7 percent, even as we continued to make incremental investment behind our Leadership Brands and felt the impact of tariff increases and higher transportation costs.”
“This quarter caps great fiscal 2019 results. Net sales for the full fiscal year grew 5.8 percent, Leadership Brand net sales grew 8.9%, online sales grew approximately 28 percent, and adjusted diluted EPS grew 11.3 percent. Inventory turns improved to 3.3 times and return on invested capital, net of restructuring, was a healthy 14.6%. During the fiscal year, we also returned $212 million to our shareholders through share repurchases.”
“Fiscal 2019 also marks the successful completion of Phase I of our multi-year transformation strategy, which delivered excellent performance across a wide range of measures. We improved core sales growth by focusing on our Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong global shared services, upgraded our organization and culture, improved inventory turns and return on invested capital, and returned capital to shareholders. Over the past five fiscal years, our net sales CAGR improved to 3.7 percent (accelerating to 4.2 percent in the past 3 years), adjusted operating margin expanded by 1.3 percentage points, and adjusted diluted EPS grew at a CAGR of 12.4 percent. Our global team of passionate associates deserves all the credit as they embraced a more collaborative culture, and are eager to continue winning in Phase II.”
“Our strategic focus in Phase II of our transformation is designed to drive the next five years of progress. The long-term objectives include improved organic sales growth, continued margin expansion, and strategic and effective capital deployment. We expect Phase II will include continued investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation, expanding them more aggressively outside the United States, and adding new brands through acquisition. We anticipate building further shared service capability and operating efficiency, as well as attracting, retaining, unifying and training the best people. We believe Phase II can deliver a bright future for Helen of Troy. We look forward to sharing our plans in more detail during our Investor Day event next month.”
Balance Sheet and Cash Flow Highlights
- Cash and cash equivalents totaled $11.9 million, compared to $20.7 million
- Total short- and long-term debt was $320.8 million, compared to $289.9 million, a net increase of $30.9 million
- Accounts receivable turnover for the fiscal year was 68.3 days, compared to 62.7 days
- Inventory was $302.3 million, compared to $251.5 million. Inventory turnover for the fiscal year was 3.3 times compared to 3.0 times.
- Net cash provided by operating activities from continuing operations for fiscal 2019 decreased $18.0 million to $200.6 million. The decrease was primarily driven by an increase in cash used for inventory and a dispute settlement payment of $15.0 million. These factors were partially offset by an increase in income from continuing operations and higher non-cash share-based compensation.
Fiscal 2020 Annual Outlook
For fiscal 2020, the company expects consolidated net sales revenue in the range of $1.580 to $1.611 billion, which implies consolidated sales growth of 1 percent to 3 percent.
The company’s net sales outlook reflects the following expectations by segment:
- Housewares net sales growth of 4 percent to 6 percent;
- Health & Home net sales growth of 2 percent to 3 percent; and
- Beauty net sales decline in the low-single digits.
The company expects consolidated GAAP diluted EPS from continuing operations of $6.83 to $7.00, and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.25 to $8.50, 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 cough/cold/flu season will be in line with historical averages. The company’s net sales and EPS outlook also assumes that March 2019 foreign currency exchange rates will remain constant for the remainder of the fiscal year. The year-over-year comparison of adjusted diluted EPS from continuing operations is impacted by an expected increase in growth investments of 10 percent to 15 percent in fiscal 2020. The diluted earnings per share outlook is based on an estimated weighted average diluted shares outstanding of 25.4 million.
The company expects adjusted EPS growth for fiscal 2020 to be concentrated in the second half of the year due to the strong performance comparison and specific events in the first half of fiscal 2019. The company expects a decline in adjusted EPS for the first half of fiscal 2020 of 4 percent to 8 percent year-over-year. The decline is expected to be heavily concentrated in the first quarter primarily due to:
- strong prior year cough/cold/flu incidence that had a favorable impact into the first quarter of fiscal 2019, which is not expected in fiscal 2020;
- strong international e-commerce sales in the first quarter of fiscal 2019 that the company expects to grow more evenly across fiscal 2020;
- club channel pipeline fill-in sales during the first quarter of fiscal 2019, which is not expected to repeat in the first quarter of fiscal 2020;
- the acceleration of Hydro Flask orders into the first quarter of fiscal 2019 in advance of the integration into the company’s ERP system; and
- the unfavorable comparative impact of year-over-year advertising and new product development expenditures.
The company expects a reported GAAP effective tax rate range of 9.5 percent to 11.5 percent, and an adjusted effective tax rate range of 8.8 percent to 10.5 percent for the full fiscal year 2020.
The likelihood and potential impact of any fiscal 2020 acquisitions and divestitures, future asset impairment charges, future foreign currency fluctuations, or further share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the company’s sales and earnings outlook.