Helen of Troy Ltd. reported sales in its Housewares segment, which includes Hydro Flask and OXO, were down 3 percent in the first quarter ended May 31, to $140.6 million primarily due to the temporary closure of key domestic brick & mortar customers due to COVID-19 and a decrease in international sales.
In a statement, Helen of Troy said the OXO brand, which sells in the mass channel, grew as consumers spent more time at home cooking, cleaning, organizing, and pantry loading. Growth in online sales and in stores that were open was strong, as were Hydro Flask international sales. This growth was more than offset by the impact of brick & mortar store closures on the Hydro Flask and OXO brands. These factors were partially offset by an increase in online sales for both OXO and Hydro Flask, higher club sales, and new product introductions. The segment was also unfavorably impacted by net foreign currency fluctuations of $0.4 million or 0.3 percent.
Operating income in the Housewares segment decreased 25.5 percent to $23.2 million, or 16.5 percent of segment net sales, compared to $31.2 million, or 21.5 percent of segment net sales, in the same period last year. The 5.0 percentage point decrease in operating margin was primarily due to a less favorable product mix, the net unfavorable impact of tariff and related pricing actions, higher bad debt expense, higher customer chargeback activity, higher freight and distribution expense to support strong direct-to-consumer demand, and the unfavorable impact that lower sales had on operating leverage. These factors were partially offset by the impact of cost reduction initiatives including temporary personnel, advertising and travel expense reductions due to the uncertainty of COVID-19. Adjusted operating income decreased 20.3 percent to $27.4 million, or 19.5 percent of segment net sales compared to $34.4 million, or 23.7 percent of segment net sales, in the same period last year.
In its other segments, Health and Home net sales revenue increased 29.1 percent, or $45.0 million, primarily driven by an organic business net sales increase of $46.8 million, or 30.2 percent, as COVID-19 related demand surged for healthcare and healthy living products in domestic and international markets, in both brick & mortar and online channels. Operating income increased 109.4 percent to $31.5 million. Adjusted operating income increased 75.7 percent to $37.3 million. Brands include Vicks, Braun, Honeywell, and PUR.
Beauty net sales revenue increased 5.0 percent, or $3.8 million, driven primarily by the net sales revenue contribution of $7.6 million from the Drybar Products acquisition, growth in online sales and new product introductions. These factors were partially offset by a decline in Organic business net sales of $1.2 million, or 1.5 percent, primarily due to the closure of key domestic brick & mortar customers, a decline in Personal Care, a supply constraint related to a key product and lower overall discretionary demand. Operating income increased 132.7 percent to $2.2 million. Adjusted operating income increased 72.7 percent to $6.4 million. The segment’s brands include Hot Tools and Drybar as well as Pert, Revlon, Brut, Bed Head, and Sure under license.
First Quarter Fiscal 2021 Compared To First Quarter Fiscal 2020
- Companywide, consolidated net sales revenue increased 11.8 percent to $420.8 million compared to $376.3 million, driven by an Organic business net sales increase of $41.7 million, or 11.1 percent, primarily reflecting growth in domestic brick & mortar and international sales in its Health and Home segment, and consolidated online sales. Drybar Products net sales of $7.6 million, or 2.0 percent of consolidated net sales revenue, also contributed to sales growth. These factors were partially offset by Organic net sales declines in the Housewares and Beauty segments primarily due to COVID-19 store closures by key brick & mortar customers, lower discretionary demand due to high unemployment and consumer uncertainty, and approximately $4.8 million, or 1.3 percent, from the unfavorable impact of foreign currency fluctuations.
- Consolidated gross profit margin increased 1.8 percentage points to 42.6 percent, compared to 40.8 percent. The increase is primarily due to a favorable product mix within the Health and Home segment and Organic Beauty business, the favorable impact of the Drybar Products acquisition, a favorable channel mix within the Housewares segment, and lower air freight. These factors were partially offset by an unfavorable mix of Housewares sales within total consolidated net sales, an unfavorable product mix within the Housewares segment, higher direct import sales, and the unfavorable impact of foreign currency on net sales.
- Consolidated SG&A as a percentage of net sales, increased by 0.9 percentage points to 29.0 percent of net sales compared to 28.1 percent. The increase is primarily due to the unfavorable impact of foreign currency exchange and forward contract settlements, higher freight and distribution expense, higher bad debt expense, higher product liability expense, and higher long-term performance-based incentive compensation expense. These factors were partially offset by the impact of cost reduction initiatives including temporary personnel, advertising and travel expense reductions due to the uncertainty of COVID-19.
- Consolidated operating income was $57.0 million, or 13.5 percent of net sales, compared to $47.2 million, or 12.5 percent of net sales. The increase in consolidated operating margin primarily reflects a favorable product mix within the Health and Home and Beauty segments, a favorable channel mix within the Housewares segment, the favorable impact that higher overall net sales had on operating leverage, and the impact of cost reduction initiatives including temporary personnel, advertising and travel expense reductions due to the uncertainty of COVID-19. These factors were partially offset by an unfavorable mix of Housewares sales within total consolidated net sales, an unfavorable product mix in the Housewares segment, higher bad debt expense, higher product liability expense, increased long-term performance-based incentive compensation expense, the net unfavorable impact of foreign currency fluctuations, and higher freight and distribution expense.
- Net income was $60.3 million, or $2.37 per diluted share on 25.4 million weighted average shares outstanding, compared to $40.7 million, or $1.61 per diluted share on 25.2 million weighted average diluted shares outstanding.
- Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 20.0 percent to $76.0 million compared to $63.3 million. On an adjusted basis for the first quarter of fiscal 2021 and 2020, excluding acquisition-related expenses, restructuring charges, tax reform, non-cash share-based compensation, and non-cash amortization of intangible assets, as applicable:
- Adjusted operating income increased $11.8 million, or 19.8 percent, to $71.1 million, or 16.9 percent of net sales, compared to $59.3 million, or 15.8 percent of net sales. The 1.1 percentage point increase in adjusted operating margin primarily reflects a favorable product mix within the Health and Home and Beauty segments, a favorable channel mix within the Housewares segment, the favorable impact that higher overall net sales had on operating leverage, and the impact of cost reduction initiatives, including temporary personnel, advertising and travel expense reductions due to the uncertainty of COVID-19.
- Adjusted income increased $12.1 million, or 23.2 percent, to $64.2 million, or $2.53 per diluted share, compared to $52.1 million, or $2.06 per diluted share. The 22.8 percent increase in adjusted diluted EPS was primarily due to higher operating income in the Health and Home segment. This was partially offset by lower operating income in the Housewares segment, higher interest expense, and higher weighted average diluted shares outstanding.
Julien R. Mininberg, Helen of Troy’s CEO, stated: “We are pleased to announce excellent first-quarter results. Our diversified portfolio performed well and again demonstrated its resiliency. I could not be prouder of how our organization adapted quickly to navigate successfully in what is arguably the most challenging business environment most of us have ever seen. During the quarter we delivered consolidated net sales growth of 11.8 percent and adjusted diluted EPS growth of 22.8 percent. Our Health & Home segment led the way with sales growth of 29 percent. Beauty and Housewares both held up very well in the face of many store closures and the unprecedented level of unemployment and personal disruption due to COVID-19. Beauty sales grew 5 percent including Drybar. Housewares declined only 3 percent off of a year ago base that grew 23 percent year over year. International performance was a standout in the quarter, growing faster than consolidated sales. Sales for our Leadership Brands grew 15.7 percent. Online sales grew significantly to now represent approximately 28 percent of consolidated sales as so many of the world’s consumers shifted more of their purchases from bricks to clicks.”
Mininberg concluded: “While we are pleased with our first-quarter results, the net impact of the pandemic on our consumers and supply is still very fluid and uncertain and, as a result, we will not be providing fiscal 2021 guidance at this time. Despite the uncertainty, we are generally encouraged by the current trends and prospects for our business and are therefore using the strength from the first quarter to lean back in on many of the key initiatives chosen to further help us deliver on our Phase II Transformation goals. We believe we have struck the right balance between the uncertainties of the external environment and our strong commitment to doing what is bold and right for executing the strategic choices underlying our multi-year trajectory of transformation.”
Balance Sheet And Cash Flow Highlights – First Quarter Fiscal 2021 Compared To First Quarter Fiscal 2020
- Cash and cash equivalents totaled $88.5 million, compared to $18.4 million;
- Total short- and long-term debt was $324.9 million, compared to $321.1 million, a net increase of $3.8 million;
- Accounts receivable turnover was 67.5 days, compared to 66.8 days;
- Inventory was $276.3 million compared to $335.3 million. Trailing twelve-month inventory turnover was 3.2 times for both periods; and
- Net cash provided by operating activities was $92.8 million, compared to $15.7 million.
Fiscal 2021 Business Update
Due to the evolving COVID-19 pandemic and related consumer and business uncertainty, the company is not providing an Outlook for fiscal 2021 at this time. During the first quarter of fiscal 2021, as part of a comprehensive approach to preserve its cash flow and adjust its cost structure to lower expected revenue, the company implemented a number of temporary precautionary measures in response to the uncertainty from COVID-19. Based on the strong performance in the first quarter, the company is lifting some of these measures and making selective investments in key Phase II Transformation initiatives and key hires they believe will help drive its value creation flywheel. The company’s view of the Phase II transformation plan and the longer-term opportunities management sees to further grow its business remains unchanged.
Photo courtesy Helen Of Troy/Hydroflask