Helen of Troy Ltd. reported revenue in its Home & Outdoor segment, including OXO, Hydro Flask, Osprey, increased 0.8 percent, to $241.9 million in the second quarter ended August 31. Higher sales in the insulated beverageware category helped offset continued softness in technical packs and related accessories.

Helen of Troy said the increase in the segment was also driven by higher international sales primarily driven by new and expanded retailer distribution, and expanded retailer distribution in the home category. These factors were partially offset by softer consumer demand, lower replenishment orders from retail customers, as well as the weakness in technical packs and related accessories.

Home & Outdoor’s operating income declined 13.6 percent to $31.2 million, or 12.9 percent of segment net sales revenue, compared to $36.1 million, or 15.0 percent of segment net sales revenue a year ago. The decrease in segment operating margin was primarily due to unfavorable distribution center expense, a less favorable product and customer mix, and higher marketing expense as the segment reinvested back into its brands. These factors were partially offset by lower overall personnel expense, which includes the impact of lower annual incentive compensation expense, and favorable inventory obsolescence expense year-over-year. Adjusted operating income decreased 14.5 percent to $36.3 million, or 15.0 percent of segment net sales revenue, compared to $42.4 million, or 17.7 percent of segment net sales revenue.

Looking ahead, Helen of Troy now expects Home & Outdoor net sales to range from a decline of 2.3 percent to growth of 1.4 percent, which includes the impact of shipping disruption in the company’s Tennessee distribution facility during the first quarter of fiscal 2025, compared to the prior expectation of a decline of 3.0 percent to 1.0 percent.

Companywide, Helen of Troy reported adjusted income decreased 34.1 percent, to $27.5 million, compared to $41.8 million. Adjusted diluted EPS decreased 30.5 percent to $1.21 compared to $1.74 but topped analysts’ consensus estimate of $1.05. Sales decreased 3.5 percent, to $474.2 million due to declines in its Beauty & Wellness segment, but surpassed analysts’ consensus estimate of $458.24 million.

Helen of Troy had forecast a decline in adjusted diluted EPS of approximately 45 percent to 35 percent and a drop in net sales in the range of 7 percent to 4 percent.

Noel M. Geoffroy, chief executive officer, stated: “We are pleased to report second quarter results that were above expectations and we are reaffirming our annual outlook for net sales, adjusted EPS, and adjusted EBITDA. During the quarter, we took decisive actions toward our long-term strategic initiatives, including strengthening the core and further shaping our growth portfolio. In addition, despite persistent macro headwinds, we achieved early results on our efforts to ‘Reset and Revitalize’ our business, driven by improved brand fundamentals, optimized marketing and innovation, and expanded distribution. I am proud of our team for their dedication and focus and remain confident we are on the right path to long-term profitable growth and increased value for all Helen of Troy stakeholders.”

Consolidated Results | Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024

  • Consolidated net sales revenue decreased $17.3 million, or 3.5 percent, to $474.2 million, compared to $491.6 million, primarily driven by a decline in Beauty & Wellness due to lower sales of hair appliances, air purifiers, and humidifiers. These factors were partially offset by Home & Outdoor growth in the home and insulated beverageware categories, international growth, and higher sales of fans and thermometers within Beauty & Wellness.
  • Consolidated gross profit margin decreased 110 basis points to 45.6 percent, compared to 46.7 percent. The decrease in consolidated gross profit margin was primarily due to a less favorable product and customer mix within Home & Outdoor and unfavorable inventory obsolescence expense year-over-year. These factors were partially offset by lower commodity and product costs, partly driven by Project Pegasus initiatives.
  • Consolidated selling, general and administrative expense (“SG&A”) ratio increased 140 basis points to 37.9 percent, compared to 36.5 percent. The increase in the consolidated SG&A ratio was primarily due to higher marketing expense as the company reinvested back into its brands, unfavorable distribution center expense due to additional costs and lost efficiency associated with automation startup issues at the Tennessee distribution facility, and the impact of unfavorable operating leverage. These factors were partially offset by lower overall personnel expense, which includes the impact of lower annual incentive compensation expense.
  • Consolidated operating income was $34.9 million, or 7.3 percent of net sales revenue, compared to $46.8 million, or 9.5 percent of net sales revenue. The 220 basis point decrease in consolidated operating margin was primarily due to an increase in the consolidated SG&A ratio and a decrease in consolidated gross profit margin, partially offset by a decrease in restructuring charges of $2.1 million.
  • Interest expense was $13.2 million, compared to $13.7 million. The decrease in interest expense was primarily due to lower average borrowings outstanding, partially offset by a higher average effective interest rate compared to the same period last year.
  • Income tax expense as a percentage of income before income tax was 22.0 percent compared to 17.9 percent, primarily due to the impact of Barbados tax legislation enacted during the first quarter of fiscal 2025, shifts in the mix of income in various tax jurisdictions, and an increase in tax expense for discrete items.
  • Net income was $17.0 million, compared to $27.4 million. Diluted EPS was $0.74, compared to $1.14. Diluted EPS decreased primarily due to lower operating income and an increase in the effective income tax rate, partially offset by lower weighted average diluted shares outstanding and a decrease in interest expense.
  • Non-GAAP adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $55.8 million, compared to $71.7 million. Non-GAAP adjusted EBITDA margin was 11.8 percent compared to 14.6 percent.

On an adjusted basis (non-GAAP) for the second quarters of fiscal 2025 and 2024, excluding the discrete impact of restructuring charges, amortization of intangible assets, and non-cash share-based compensation, as applicable:

  • Adjusted operating income decreased $15.9 million, or 25.5 percent, to $46.4 million, or 9.8 percent of net sales revenue, compared to $62.3 million, or 12.7 percent of net sales revenue. The decrease in adjusted operating margin was primarily driven by higher marketing expense, a less favorable product and customer mix within Home & Outdoor, unfavorable inventory obsolescence expense year-over-year, and the impact of unfavorable operating leverage. These factors were partially offset by lower overall personnel expense, which includes the impact of lower annual incentive compensation expense, and lower commodity and product costs, partly driven by Project Pegasus initiatives.
  • Adjusted income decreased $14.2 million, or 34.1 percent, to $27.5 million, compared to $41.8 million. Adjusted diluted EPS decreased 30.5 percent to $1.21 compared to $1.74. The decrease in adjusted diluted EPS was primarily due to lower adjusted operating income and an increase in the adjusted effective income tax rate, partially offset by lower weighted average diluted shares outstanding and a decrease in interest expense.

Beauty & Wellness Segment Results | Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024
Beauty & Wellness net sales revenue decreased $19.3 million, or 7.7 percent, to $232.3 million, compared to $251.6 million. The decrease was driven by a decline in sales of hair appliances due to softer consumer demand, shifts in consumer spending and increased competition, lower sales of air purifiers and humidifiers driven by reduced replenishment orders from retail customers, and a decrease in water filtration product revenue due to the expiration of an out-license relationship. These factors were partially offset by fan and thermometer growth.

Beauty & Wellness operating income was $3.7 million, or 1.6 percent of segment net sales revenue, compared to $10.7 million, or 4.3 percent of segment net sales revenue. The decrease in segment operating margin was primarily due to higher marketing expense as the segment reinvested back into its brands, unfavorable inventory obsolescence expense year-over-year, and the impact of unfavorable operating leverage. These factors were partially offset by lower commodity and product costs and lower overall personnel expense, which includes the impact of lower annual incentive compensation expense. Adjusted operating income decreased 48.9 percent to $10.2 million, or 4.4 percent of segment net sales revenue, compared to $19.9 million, or 7.9 percent of segment net sales revenue.

The segment includes Vicks, Braun, Honeywell, PUR, Hot Tools, Drybar, Curlsmith, and Revlon.

Balance Sheet and Cash Flow | Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024

  • Cash and cash equivalents totaled $20.1 million, compared to $24.2 million.
  • Accounts receivable turnover(5) was 69.0 days, compared to 67.9 days.
  • Inventory was $469.6 million, compared to $435.7 million.
  • Total short- and long-term debt was $713.2 million, compared to $844.9 million.
  • Net cash provided by operating activities for the first six months of the fiscal year was $69.9 million, compared to $157.7 million for the same period last year.
  • Free cash flow(1)(2) for the first six months of the fiscal year was $55.9 million, compared to $137.2 million for the same period last year.

Pegasus Restructuring Plan
The company previously announced a global restructuring plan intended to expand operating margins through initiatives designed to improve efficiency and effectiveness and reduce costs (collectively referred to as “Project Pegasus”). Project Pegasus includes multiple workstreams to further optimize the company’s brand portfolio, streamline and simplify the organization, accelerate and amplify 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.

As previously disclosed, the company continues to have the following expectations regarding Project Pegasus charges:

  • Total one-time pre-tax restructuring charges of approximately $50 million to $55 million over the duration of the plan, expected to be completed during fiscal 2025.
  • Pre-tax restructuring charges to be comprised of approximately $15 million to $19 million of severance and employee related costs, $28 million of professional fees, $3 million to $4 million of contract termination costs, and $4 million of other exit and disposal costs.
  • All of the company’s operating segments and shared services will be impacted by the plan and pre-tax restructuring charges include approximately $16 million to $17 million in Home & Outdoor and $34 million to $38 million in Beauty & Wellness.
  • Pre-tax restructuring charges represent primarily cash expenditures, which are expected to be substantially paid by the end of fiscal 2025.

The company also continues to have the following expectations regarding Project Pegasus savings:

  • Targeted annualized pre-tax operating profit improvements of approximately $75 million to $85 million, which began in fiscal 2024 and are expected to be substantially achieved by the end of fiscal 2027.
  • Estimated cadence of the recognition of the savings will be approximately 25 percent in fiscal 2024, which was achieved, approximately 35 percent in fiscal 2025, approximately 25 percent in fiscal 2026, and approximately 15 percent in fiscal 2027.
  • Total profit improvements to be realized approximately 60 percent through reduced cost of goods sold and 40 percent through lower SG&A.

Fiscal 2025 Annual Outlook
The company continues to expect consolidated net sales revenue in the range of $1.885 billion to $1.935 billion, which implies a decline of 6.0 percent to 3.5 percent. The sales outlook continues to reflect the company’s view of lingering inflation and continued consumer spending softness, especially in certain discretionary categories, as well as its view of increased macro uncertainty, an increasingly stretched consumer, a more promotional environment, and retailers even more closely managing their inventory levels. The sales outlook reflects the impact of executional challenges in the company’s Tennessee distribution facility on sales that occurred during the first quarter of fiscal 2025. During the second quarter of fiscal 2025, the remediation efforts for the automation system were substantially completed, and the company believes the impact on sales was minimal during the quarter. The company now believes it is in a position to achieve targeted efficiency levels by the end of fiscal 2025.

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

  • Home & Outdoor net sales decline of 2.3 percent to growth of 1.4 percent, which includes the impact of shipping disruption in the company’s Tennessee distribution facility during the first quarter of fiscal 2025, compared to the prior expectation of a decline of 3.0 percent to 1.0 percent; and
  • Beauty & Wellness net sales decline of 9.0 percent to 7.5 percent, compared to the prior expectation of a decline of 8.0 percent to 5.0 percent, both of which include a year-over-year headwind of approximately 1.0 percent related to the expiration of an out-license relationship in Wellness.

The company continues to expect GAAP diluted EPS of $4.69 to $5.45 and non-GAAP adjusted diluted EPS in the range of $7.00 to $7.50, which implies an adjusted diluted EPS decline of 21.4 percent to 15.8 percent.

The company continues to expect adjusted EBITDA of $287 million to $297 million, which implies a decline of 14.6 percent to 11.8 percent, as benefits from Project Pegasus are reinvested for growth. The company’s outlook continues to reflect:

  • a year-over-year increase in growth investment spending of approximately 100 basis points;
  • a year-over-year headwind of approximately 50 basis points from the expiration of an out-license relationship in Wellness;
  • margin compression of approximately 50 basis points from incremental operating expense and lost efficiency related to automation startup issues at its Tennessee distribution facility, compared to the prior expectation of 60 basis points; and
  • margin compression from its view of a more promotional environment, a less favorable mix, and lower operating leverage due to the decline in revenue.

The company continues to expect these factors to be partially offset by profit improvement actions implemented in the second quarter.

The company now expects free cash flow in the range of $180 million to $200 million, compared to the previous range of $200 million to $240 million, and now expects its net leverage ratio, as defined in its credit agreement, to end fiscal 2025 at 1.90x to 1.80x, compared to the previous range of 1.60x to 1.50x.

In terms of the quarterly cadence of sales, the company now expects a decline in net sales of approximately 4.5 percent to 1 percent in the third quarter of fiscal 2025. The company now expects a decline in adjusted diluted EPS of approximately 10 percent to 3 percent in the third quarter of fiscal 2025.

Image courtesy Hydro Flask