Housewares Segment Powers Helen Of Troy In Fiscal Q3

Helen of Troy Ltd. on Wednesday reported consolidated net sales growth of 10.1 percent to $474.7 million for the fiscal third quarter ended November 30, 2019, behind a strong performance in its housewares segment, which includes Hydro Flask.

Summary | Third Quarter, Fiscal 2020

• Consolidated net sales revenue increase of 10.1 percent, including
  • an increase in Leadership Brand net sales of 10.6 percent;
  • an increase in online channel net sales of approximately 30 percent; and
  • core business growth of 10.7 percent.

• GAAP operating income of $79.3 million, or 16.7 percent of net sales, compared to GAAP operating income of $61.3 million, or 14.2 percent of net sales, for the same period last year;
• Non-GAAP adjusted operating income increase of 27.8 percent to $90.3 million, or 19.0 percent of net sales, compared to $70.6 million, or 16.4 percent of net sales, for the same period last year;
• GAAP diluted EPS from continuing operations of $2.71, compared to GAAP diluted EPS of $2.06 for the same period last year; and
• Non-GAAP adjusted diluted EPS from continuing operations increase of 30.0 percent to $3.12, compared to $2.40 for the same period last year.

Julien R. Mininberg, CEO, said: “We are very pleased to report another strong quarter. Our Phase II Transformation initiatives continue to produce results with consolidated core business sales growth of 10.7 percent, increased adjusted operating margin in all three of our business segments and adjusted diluted EPS growth of 30 percent.

Our Leadership Brands sales grew 10.6 percent, online sales grew approximately 30 percent and we continue to invest in our brands and across our global shared services. The Housewares segment, again, led our sales growth with healthy consumption ahead of our expectations from both OXO and Hydro Flask. Beauty segment sales also grew ahead of our expectations driven by continued strong performance in appliances. Core business sales in our Health & Home segment declined slightly in the quarter as international sales growth and new product introductions were more than offset by net retail distribution changes and the unfavorable comparative impact of more wildfire activity in the same period last year.

I am also pleased to be raising our sales and adjusted EPS outlook for this fiscal year. Our revised sales outlook projects for a third consecutive year of organic sales growth above 5.0 percent. Our increased EPS outlook reflects higher margin expectations for this fiscal year, and significant incremental investments in our Leadership Brands and key Phase II initiatives in the fourth quarter of fiscal 2020 that are expected to drive short and mid-term growth.”

Mininberg continued: “Subsequent to the end of the third quarter we also advanced another key part of our transformation strategy which would add an eighth Leadership Brand to our portfolio. As announced on December 19, 2019, we entered into a definitive agreement to acquire Drybar Products LLC which we expect to add meaningful accretion to key financial measures, add critical mass to our flywheel and expand our Beauty division into the growing prestige hair care products segment. We are excited about the prospects for adding value to this already outstanding brand.”

Consolidated Operating Results | Third Quarter Fiscal 2020 Compared to Third Quarter Fiscal 2019

• Consolidated net sales revenue increased 10.1 percent to $474.7 million compared to $431.1 million, driven by a core business increase of $46.0 million, or 10.7 percent, primarily reflecting growth in consolidated online sales, an increase in brick & mortar sales in the Housewares segment, higher international sales and an increase in sales in the appliance category in the Beauty segment. These factors were partially offset by a slight core business decline in the Health & Home segment, the unfavorable impact from foreign currency fluctuations of approximately $2.3 million, or 0.5 percent, and a decline in the personal care category within the Beauty segment.
• Consolidated gross profit margin increased 2.0 percentage points to 44.2 percent, compared to 42.2 percent. The increase is primarily due to a higher mix of Housewares sales at a higher overall gross profit margin and a favorable product and channel mix within the Housewares segment. These factors were partially offset by a lower mix of personal care sales in the Beauty segment.
• Consolidated SG&A as a percentage of sales decreased by 0.5 percentage points to 27.5 percent of net sales compared to 28.0 percent. The decrease is primarily due to lower advertising expenses, the impact from tariff-related pricing actions taken with retail customers, the impact that higher overall sales had on net operating leverage and the favorable impact of foreign currency exchange and forward contract settlements. These factors were partially offset by higher annual incentive compensation expense, acquisition-related expenses, higher amortization expense, and higher freight and distribution expenses.
• Consolidated operating income was $79.3 million, or 16.7 percent of net sales, compared to $61.3 million, or 14.2 percent of net sales. The increase in consolidated operating margin primarily reflects a higher mix of Housewares sales at a higher overall operating margin, a favorable product and channel mix within the Housewares segment, lower advertising expense, and the favorable impact that higher overall net sales had on operating expense leverage. These factors were partially offset by higher annual incentive compensation expense, acquisition-related expenses, higher amortization expense, and higher freight and distribution expenses.
• The effective tax rate was 10.3 percent, compared to 6.9 percent. The year-over-year increase in the effective tax rate is primarily due to shifts in the mix of taxable income in the Company’s various tax jurisdictions and increases in certain statutory tax rates.
• Income from continuing operations was $68.7 million, or $2.71 per diluted share on 25.4 million weighted average shares outstanding, compared to $54.3 million, or $2.06 per diluted share on 26.4 million weighted average diluted shares outstanding.
• There was no income or loss from discontinued operations, compared to a loss of $4.9 million, or $0.18 per diluted share.
• Adjusted EBITDA increased 26.6 percent to $94.4 million compared to $74.5 million.

On an adjusted basis for the third quarter of fiscal 2020 and 2019, excluding acquisition-related expenses, restructuring charges, non‐cash share-based compensation, and non-cash amortization of intangible assets, as applicable:

• Adjusted operating income increased $19.7 million, or 27.8 percent, to $90.3 million, or 19.0 percent of net sales, compared to $70.6 million, or 16.4 percent of net sales. The 2.6 percentage point increase in adjusted operating margin primarily reflects a higher mix of Housewares sales at a better overall operating margin, a favorable product and channel mix within the Housewares segment, lower advertising expense, and the favorable impact that higher overall net sales had on operating expense leverage. These factors were partially offset by higher annual incentive compensation expenses and higher freight and distribution expenses.
• Adjusted income from continuing operations increased $15.9 million, or 25.2 percent, to $79.1 million, or $3.12 per diluted share, compared to $63.2 million, or $2.40 per diluted share. The 30.0 percent increase in adjusted diluted EPS from continuing operations was primarily due to higher operating income in the Housewares segment, lower advertising expense and the impact of lower weighted average diluted shares outstanding compared to the same period last year. This was partially offset by higher income tax expense.

Segment Operating Results | Third Quarter Fiscal 2020 Compared to Third Quarter Fiscal 2019
Housewares net sales increased by 28.2 percent, or $40.3 million, primarily due to point of sale growth with existing domestic brick and mortar customers, an increase in online sales, an increase in international sales, higher club sales and new product introductions. The segment was unfavorably impacted by net foreign currency fluctuations of $0.5 million or 0.3 percent. Operating income increased 41.7 percent to $42.3 million, or 23.1 percent of segment net sales, compared to $29.8 million, or 20.9 percent of segment net sales, in the same period last year. The 2.2 percentage point increase was primarily due to the margin impact of a more favorable product and channel mix, lower advertising expense and the impact that higher sales had on operating leverage. These factors were partially offset by higher freight and distribution expenses to support increased retail customer shipments and strong direct-to-consumer demand. Adjusted operating income increased 36.8 percent to $44.6 million, or 24.3 percent of segment net sales compared to $32.6 million, or 22.8 percent of segment net sales, in the same period last year.

Health & Home net sales decreased 1.1 percent or $2.1 million, primarily driven by a core business decline of $1.0 million, or 0.5 percent due to lower domestic sales are driven by the unfavorable comparative impact from more wildfire activity in the same period last year, and net distribution changes year-over-year. These factors were partially offset by revenue from new product introductions and growth in international sales. The segment was unfavorably impacted by net foreign currency fluctuations of approximately $1.1 million, or 0.6 percent. Operating income increased 26.9 percent to $24.4 million, or 13.1 percent of segment net sales, compared $19.2 million, or 10.2 percent of segment net sales, in the same period last year. The 2.9 percentage point increase was primarily due to lower advertising expenses and the margin impact of a more favorable product mix. These factors were offset by unfavorable operating leverage from the decline in sales. Adjusted operating income increased 17.7 percent to $28.8 million, or 15.5 percent of segment net sales, compared to $24.5 million, or 13.0 percent of segment net sales, in the same period last year.

Beauty net sales increased 5.4 percent, or $5.4 million, primarily due to increased demand and new product introductions in the appliance category, growth in the online channel, and an increase in international sales. These factors were partially offset by a decline in the personal care category and the unfavorable impact of net foreign currency fluctuations of approximately $0.8 million, or 0.8 percent. Operating income increased 3.1 percent to $12.6 million, or 11.9 percent of segment net sales, compared to $12.2 million, or 12.2 percent of segment net sales, in the same period last year. The operating margin decrease is primarily due to higher annual incentive compensation expense, acquisition-related expenses, higher amortization expense, and the margin impact of a less favorable product and channel mix. These factors were partially offset by lower advertising expense. Adjusted operating income increased 24.7 percent to $16.9 million, or 16.0 percent of segment net sales, compared to $13.6 million, or 13.5 percent of segment net sales, in the same period last year.

Balance Sheet and Cash Flow Highlights | Third Quarter Fiscal 2020 Compared to Third Quarter Fiscal 2019

• Cash and cash equivalents totaled $19.6 million, compared to $19.1 million.
• Total short- and long-term debt was $244.2 million, compared to $339.7 million, a net decrease of $95.5 million.
• Accounts receivable turnover was 68.9 days, compared to 69.4 days.
• Inventory was $333.7 million, compared to $300.6 million. Trailing twelve-month inventory turnover was 2.9 times compared to 3.4 times.
• Net cash provided by operating activities from continuing operations for the first nine months of the fiscal year was $101.4 million, compared to $109.5 million.

Subsequent Event
On December 19, 2019, the Company entered into a definitive agreement to acquire Drybar Products LLC, which includes the Drybar trademark and other intellectual property assets associated with Drybar’s products, as well as certain related production assets and working capital. As part of the transaction, Helen of Troy will grant a worldwide license to Drybar Holdings LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their continued operation of Drybar salons. The salons will exclusively use, promote, and sell Helen of Troy’s Drybar products globally. The total purchase consideration is $255.0 million in cash, subject to certain customary closing adjustments. The Company expects to finance the acquisition with cash on hand and borrowings from its existing revolving credit facility. The acquisition is expected to close by January 31, 2020, subject to customary closing conditions, including regulatory approvals.

Updated Fiscal 2020 Annual Outlook
For fiscal 2020, the Company has updated its outlook based on the Company’s year-to-date performance and now expects consolidated net sales revenue to be in the range of $1.650 to $1.675 billion, which implies consolidated sales growth of 5.5 percent to 7.1 percent compared to the prior expectation of 2.9 percent to 4.8 percent. The outlook does not include any results related to Drybar Products LLC, as the exact timing of closing is not known and there are conditions to closing that must be met, including regulatory approvals. By segment, the outlook reflects:

• Housewares net sales growth of 19 percent to 21 percent, compared to the prior expectation of 13 percent to 15 percent;
• Health & Home net sales decline of 2 percent to 4 percent, compared to the prior expectation of a decline in the low single digits; and
• Beauty net sales growth of 3 percent to 5 percent, compared to the prior expectation of growth in the low-single digits.

The Company now expects consolidated GAAP diluted EPS from continuing operations of $7.29 to $7.45, and non-GAAP adjusted diluted EPS from continuing operations in the range of $8.90 to $9.10, which excludes any asset impairment charges, acquisition-related expenses, restructuring charges, share-based compensation expense and intangible asset amortization expense.

The Company’s net sales and EPS outlook continue to assume the severity of the upcoming cough/cold/flu season will be in line with historical averages. The Company’s net sales and EPS outlook also assume that December 2019 foreign currency exchange rates will remain constant for the remainder of the fiscal year. The Company continues to expect the year-over-year comparison of adjusted diluted EPS from continuing operations to be impacted by an expected increase in growth investments of 13 percent to 18 percent in fiscal 2020. The diluted EPS outlook is based on an estimated weighted average diluted shares outstanding of 25.3 million.

The increase in the adjusted diluted EPS outlook for fiscal 2020 reflects the Company’s strong performance year to date, partially offset by an expected increase in growth investments, higher expected incentive compensation expense, and higher expected freight and distribution costs. These costs support strong demand in the Company’s Housewares and Beauty segments, as well as integration activity and increases in capacity and throughput for future growth.

The Company now expects a reported GAAP effective tax rate range of 9.7 percent to 9.9 percent, and an adjusted effective tax rate range of 9.1 percent to 9.2 percent for the full fiscal year 2020. Please refer to the schedule entitled “Effective Tax Rate (GAAP) and Adjusted Effective Tax Rate (Non-GAAP)” in the accompanying tables to this press release.

The likelihood and potential impact of any fiscal 2020 acquisitions and divestitures, future asset impairment charges, future foreign currency fluctuations, further tariff increases or decreases, or future share repurchases are unknown and cannot be reasonably estimated; therefore, they are not included in the Company’s sales and earnings outlook.

Photo courtesy HydroFlask